The new house & land editions from both providers have new clauses for building & pest inspection; default; and compliance with statutory notices. The building and pest clauses (clause 4 in ADL & REIQ) no longer provide for a buyer being deemed satisfied if it does not notify to the contrary.
Both standard form contract terms now operate in the same way as the finance clause: first-in-best-dressed. The buyer may give the seller a termination notice or waiver failing which the seller has reciprocal termination rights. Both suppliers have now introduced provisions to cover a seller’s default.
Previously, only a buyer’s default was specifically addressed. ADL accomplishes this by the insertion of a new standard condition 11 (“Seller’s Default”). REIQ’s former clause 9 (“Seller’s Default”) has been modified to cover both instances of default and is now renamed “Parties’ Default”.
The new version has introduced the concept of “Essential Terms” which are defined as“fundamental breach of an intermediate term”. The breach of either by either party entitles the other to terminate the contract or affirm and sue for damages or specific performance. This is a very neat articulation of current practice.
In the prior editions, neither standard form contract allowed the buyer to claim the cost of compliance with statutory notices that were the responsibility of the seller, if the work was done by the buyer after settlement. To remedy this unfairness, ADL has inserted new clause 32.4 and REIQ, clause 7.6 (2). Both suppliers have now inserted standard conditions relating to “severance” – so that any provision that is determined to be “unfair” and is required to be disregarded, can be. Although this is a fundamental element of TACL, severance applies equally in respect of any term that is found to be invalid or unenforceable for any reason.
There are other changes not discussed, that agents and conveyancers should familiarize themselves with. It should be noted that some remaining standard form provisions are potentially “unfair”. For example, REIQ standard condition 7.5 (2) (e) denies any compensation to the buyer for errors of description, encroachments etc if the compensation is not claimed prior to settlement.
The issue does not arise under the equivalent ADL provision (cl 21) – at least in respect of “immaterial” errors – because the issue of compensation is not raised either way. Judicial interpretation of TACL and its application in real estate contracts will take decades to resolve.
Because of the severance provisions, we will not see waves of contract terminations as currently arises with the now wounded PAMDA monster. Severance is likely to produce a different kind of beast. The new law will be ameliorative rather than punitive like PAMDA.
If a party’s contractual expectation is not met because of an unfair term being struck out, their only loss will be to that expectation: they can hardly complain because they will be no worse off than had the term not been included in the first place.
Agents should consider including in their contractual documents with clients, a provision that they give no warranty that terms might be deemed “unfair”. This will put the responsibility on to the client (and their lawyers). There will however be compensation claims in some cases against those responsible for preparing a contract where the loss from the severance of an unfair term is significant.
Real estate offices remain potentially liable, particularly when inserting special conditions into standard contracts. The TACL beast is not a monster – but like a donkey it will have to be given sufficient respect to avoid kicks and bites to those close at hand. All other precedent contracts for the sale of residential property will need to be carefully examined to minimise the consequences of offending clauses being struck out. Developer and agency staff will require coaching on the implementation of new documents and processes.