What do I do if I am buying, and I want to change the person(s) or entities listed as buyer in the Contract?
If you enter into a Contract of Sale only to find out later that you need to add your partner, add another company name, remove yourself or add another person all together – there is a way to do it! We handle these situations very frequently.
However, it is not as simple as just hand amending the contract or shooting off a quick email to the seller.
If Person A enters into a Contract to purchase a property, but Person B has been left out of the Contract of Sale, do not simply add Person B’s name on the Contract. This may trigger major additional liability for transfer duty – no-one wants to have to pay more transfer duty than they have to!
If you are in this situation, we strongly recommend you get legal advice right away.
Transfer duty implications
Transfer duty, formerly known as stamp duty, is a state government tax payable on most transactions related to property. Normally it is paid at settlement. Please click here to find out more about transfer duty.
If there is an existing Contract between Person A and a Seller, adding Person B also as a buyer is deemed to be a new transaction. This will then trigger double transfer duty for the Buyer. This means that you have to pay transfer duty on the following transfers-
- Transfer from Seller to Person A of the whole value of the property;
- Transfer from Person A to Person B of ½ (or the relevant percentage) of the value of the property.
What triggers double duty?
So when does this situation arise? Some common examples of this situation are:
- Buyer A enters into a Contract without Buyer B. The mortgage documents prepared by the bank, have been prepared with both Buyer A and B. That means the Contract must be amended to have both Buyer A and Buyer B listed as the purchasers.
- Buyer A enters into the Contract. Buyer A gets accounting and taxation advice and finds out that it is better for them for Buyer B to enter into the Contract. Buyer B could be Buyer A’s related company, trust, partner, superannuation fund.
- Buyer A and B enter into a Contract together. Buyer A needs to be removed. The Contract has to be changed to only have Buyer B as the purchaser.
- A director of Company A enters into a Contract but his bank requires him to enter into the Contract of Sale as director of Company X. Company X has to now replace Company A in the Contract of Sale.
- A trustee enters into a Contract of Sale, but the trustee does not enter into the Contract as trustee for the XYZ Trust, only as a company or as an individual. The Contract must be changed to show that the trustee is entering into the Contract in his/her capacity as trustee for the XYZ Trust.
What can I do to change my Contract?
Firstly, it is important to realise that the Seller does not have to agree to change the buyer entity in the Contract. If the seller does not agree, then you are stuck with the Contract as is. A Seller in a rising market may have found another buyer and may not mind if Buyer A can’t go ahead with the Contract.
To avoid these problems, it is best to do your homework and be sure of the correct buyer entity before you sign the Contract.
Often, the Seller will be agreeable to changing the buyer, because the Seller just wants the sale to go through. But the Seller will usually make the buyer pay all legal costs of fixing things up.
The Buyer or the Seller’s Solicitor would prepare what is known as a Deed of Rescission to rescind (or cancel) the Contract between the Original Buyer and the Seller.
Once the Deed of Rescission is prepared, the Real Estate Agent will prepare a Replacement Contract to be signed by the correct Buyers and the Seller at the same time as the Deed of Rescission.
The effect of this will be that the buyer will only have one, not two, transactions for which transfer duty is payable.
What is a Deed of Rescission?
A Deed of Rescission is a document which forms an agreement between the Seller and Buyer A to terminate the original Contract.
Rescission will not take effect until the new contract has been signed. The Seller will require the cooling-off period to be waived for the new Contract, and often will require the new Contract to be unconditional. This means that at no time is there no Contract in place at all between the parties. This reduces the risk of the Seller changing their mind and refusing to sign the New Contract, thinking that the Original Contract has been rescinded.
This area of property law is very complex and you should always seek professional legal advice before you make any changes to an already signed Contract or before you sign a Deed of Rescission.
Ferguson Cannon Lawyers prefer to review your Contract before you sign it so that we can confirm with you that all the details in the Contract have been correctly provided or prepared.
If you have gotten yourself into a bit of a sticky situation, contact us today and we can help you save thousands on transfer duty fees!