If you are intending on purchasing a property under COVID-19 Pandemic conditions, you need to carefully consider the following:-
- The current COVID-19 Pandemic situation may mean that the time periods and obligations under the standard REIQ Contract (“the Contract”) could be impacted by further closures or unavailability of parties which may be outside the control of the parties and not be currently foreseeable.
- Given the current circumstances, your finance approval could be at risk of being withdrawn prior to settlement. Most financial institutions will reserve the right to withdraw finance approval at any time prior to settlement for any number of reasons. Reasons they may withdraw the approval include if your personal financial circumstances change or the value of the Property is adversely affected. That may cause your financier to decline to provide finance to complete the purchase.
- In cases where finance is withdrawn, and the Contract is unconditional as to finance, you would still be obliged to complete the Contract. If you do not have sufficient funds to pay the balance purchase price (including any adjustments) at settlement the Seller may terminate the Contract or seek to have you specifically perform the Contract and, in both instances, can keep your deposit and claim compensation from you (such as loss on resale which may be significant in the current volatile property market).
- If these issues were to occur then it is highly unlikely you will have a contractual remedy to help you and you may be unable to avoid breaching your Contract, be financially impacted or suffer other loss or hardship.
- If you are buying the property for investment purposes to lease to a tenant be aware that there may be government schemes which impact the operation of some tenancies. For example, in 2020 the Queensland government tabled regulations to change the operation of residential tenancy arrangements in response to the COVID-19 Pandemic. These changes included:
- a moratorium on evictions due to rent arrears for tenants experiencing excessive hardship due to the impacts of COVID-19 Pandemic;
- an obligation on landlords to offer extensions of tenancies in some circumstances;
- immediate termination rights for tenants who are escaping domestic violence;
- caps on tenant break lease costs in some circumstances; and
- limits on a landlords’ rights to inspect the property during the sale process.
- These regulations may affect:
- your ability to obtain access to the property for inspections ordinarily allowed under the Contract prior to settlement;
- some duty concessions;
- if you are expecting vacant possession, the ability of the Seller to require the tenant to leave prior to Settlement;
- the ongoing payment of rent under the lease; and
- your ability to manage and enforce the terms of the tenancy agreement.
Whether the above matters will apply to your purchase at the relevant time or impact your rights may not be immediately apparent. You should seek legal advice from us immediately if any of these matters are of concern to you.
The standard residential Contract contains a standard Suspension of Time provision for a Delay Event. However, we advise this provision is likely to be construed quite narrowly (as it was not drafted with the COVID-19 Pandemic in mind) and:
- only relates to the inability of a party or their representatives to perform settlement obligations (as defined), and not to other obligations or to dates for satisfaction of conditions;
- does not specifically refer to a pandemic event;
- requires the inability to perform to be ‘solely as a consequence of’ a Delay Event and will not apply if the Property is destroyed or finance is withdrawn;
Depending on the circumstances in any particular matter, the standard clause is highly unlikely to protect you during the COVID-19 Pandemic. We therefore recommend you seek for the delay event under the terms of Contract to include a “pandemic”.
If, despite the current uncertainty and potential for delay or unforeseeable risks you wish to proceed with a purchase, we strongly recommend that you consult us as to some very important amendments we can make to the proposed Contract prior to you signing.
For example, a special condition (or other contractual solution) may be included in the Contract to deal with some of the foreseeable issues as highlighted above. You should allow sufficient time for special conditions to be drafted and contemplated before the Contract is signed. However, again we warn you that even if we are able to negotiate a special condition (or other contractual solution) this does not mean that we will be able to incorporate provisions for all unforeseeable risks.
A purchase of property at this time under pandemic conditions is a very risky enterprise!