Exchanging the "missive"
Opinion column that Scotland would benefit from a standard form contract for sale of residential property, such as is used in Queensland, Australia
There have recently been renewed moves to implement standard form missives for the sale/purchase of residential property. In the interests of a modern, efficient and consumer-friendly system, is a standard form contract, albeit one which can be varied to accommodate needs, not long overdue? Most western European jurisdictions and several common law jurisdictions already favour standard terms over customised conditions.
I recently worked in Queensland, Australia where a standard form contract is widely accepted practice. The contract has been approved by both the Real Estate Institute of Queensland and the Queensland Law Society.
Signing is frequently administered by real estate agents, licensed and regulated under statute. Only then does a solicitor see the contract, although he/she may become involved in the drafting of special conditions and other variations in higher value or more complicated transactions. (If lawyers had taken the time and initiative to shape and formulate the standard form contract instead of drafting it in conjunction with the Real Estate Institute, some of the terms and conditions might have been different.)
As in all systems, there are benefits and disadvantages. For a consumer, and the overall efficiency of the land transfer system, the benefits outweigh the disadvantages:
- More certainty about the contract terms means that clients can understand the terms in advance. Clients with experience in purchasing and selling benefit particularly. The obligations, rights and liabilities involved are, by their nature, understandable to the majority of the property-buying population. Any variations can be noted in the advertising particulars. Most people who move house find uncertainty one of the greatest stresses. Why not remove as much of it as possible?
- The system is cheaper. The time constraint imposed by the need to keep costs down is a challenge to practitioners in Scotland and Queensland. The task in Queensland is less time consuming.
- Professional advisers are familiar with the contract terms, their implications and interpretation. This applies to local authorities, insurance companies and lenders.
- The system can allow rapid transfer, especially where lenders are not involved. It is normal for a transaction to settle in 30 days.
- One contract document requires to be kept on file, not a series of missive letters. The document provides a statement of contract terms more easily understandable to clients.
- There is less of an intellectual challenge for lawyers. (Should this point be in the “Disadvantages” section?)
- The Queensland contract is, usually, initially suspensive on two conditions – finance, and “buyer’s inspection”, which must be satisfied by specified dates. Withdrawing from the contract prior to satisfaction of these conditions is relatively easy, but the dates set are usually not so near to settlement as to trigger the chains complained of in the English system. Theoretically a special condition could be added that the transaction is conditional on the sale of the buyer’s property. It is not the norm in practice.
The identification of the subjects, the price, date of settlement, whether or not there are title encumbrances or tenancies, the present use, and excluded fixtures and included chattels are specified in each contract.
All systems are subject to the willingness of participants to adhere to the spirit as well as the letter. Arguably it is the Australian determination to keep matters simple that makes the Queensland system work.
The disadvantages are relatively few. Because real estate agents frequently administer the contract signing, lawyers often do not have the opportunity to advise their clients until after the contract is signed. If special conditions are involved, or should have been involved, this is dangerous! The drafting skills of agents are not highly regarded by the legal profession in Queensland.
Secondly, the basic terms are not always negotiated to suit specific purchasers and sellers or their properties. Are most buyers prepared to pay for such a customised service and is it required for the majority of transactions? Special conditions varying the contract can alleviate this problem, if used properly.
The specific terms of the Queensland contract might be unthinkable to some Scottish practitioners. Time being of the essence of the contract and risk passing to the purchaser at 5pm on the day following the date of contract are surprises even to purchasers from other Australian states (where similar standard form contracts are used).
Whilst it is true that the title system and underlying property law differ significantly between Queensland and Scotland, the same general objectives and practical issues apply to the transfer of property. A contract, based on Scottish property law, could be adopted to modernise the Scottish system for the common good.
It is practitioners, who invariably make even poor systems work, who should design appropriate contract terms. The Scottish practice of law firms taking instructions prior to signing, and having the opportunity to customise the contract appropriately, would then no doubt continue.