The Five Ps of a Property Contract | Victorian Real Estate Agents
/ David Dawn
The Five Ps
of a Property Contract
People. Property. Price. Performance. Preconditions. Five simple questions that can identify a very large number of contract problems before the purchaser signs.
After more than 35 years dealing with property transactions, we have found that many of the most difficult contract disputes begin with surprisingly simple problems.
The wrong person was named.
A car park everybody assumed belonged to the apartment actually had a separate title.
The vendor promised to remove something.
The purchaser thought something was included.
The deposit arrangement was never properly explained.
Or somebody wrote "subject to finance" without deciding what that actually meant.
Most of these problems can be identified before the Contract of Sale is signed.
We use a simple checklist.
Property
Price
Performance
Preconditions
If those five things are clear, you have dealt with a very large part of the commercial foundation of the sale.
1. People
It sounds obvious, but this causes more problems than it should.
The name used by the vendor socially may not be the name appearing on title.
A middle name may have disappeared.
A married name may be used when the title remains in a former name.
The property may be registered to a company.
The registered proprietor may have died.
Someone may be acting under a power of attorney.
Or the person instructing the agent may not yet be registered as proprietor at all.
Before the listing progresses too far, the registered proprietor should be identified.
This becomes increasingly important as identity, fraud prevention and anti-money laundering requirements become a normal part of property transactions.
The purchaser also needs to be identified correctly.
Is the purchaser:
- an individual;
- two individuals;
- a company;
- a trustee;
- intending to nominate another party; or
- purchasing through a more complicated structure?
Do not assume the name written on a text message is necessarily the name that should appear on the contract.
2. Property
The street address is not the legal description of the land.
That becomes particularly important with apartments, townhouses, commercial properties and properties involving multiple titles.
There may be:
- a separate car park;
- a storage lot;
- more than one title;
- common property rights;
- an Owners Corporation;
- easements;
- licences;
- leased equipment; or
- fixtures that somebody believes are removable.
Then there are the things physically sitting at the property.
Wall-mounted television?
Pool equipment?
Security cameras?
EV charger?
Garden shed?
Solar system?
Battery?
Outdoor spa?
The easiest time to decide these things is before the purchaser signs.
Trying to determine whether a $3,000 item is a fixture three days before settlement is considerably less enjoyable.
3. Price
Usually that is simple.
Purchase price.
Deposit.
Balance at settlement.
But not always.
Sometimes the parties have discussed:
- a reduced deposit;
- a deposit payable in instalments;
- a rebate;
- an allowance;
- furniture included in the price;
- an incentive;
- money changing hands separately; or
- some other commercial adjustment.
Side agreements may also create issues involving finance, duty and disclosure.
4. Performance
This is the P that causes a remarkable number of final-inspection disputes.
“The rubbish will be removed.”
“The garden will be cleaned up.”
“The tenant will be out before settlement.”
“The air conditioner will be repaired.”
“The purchaser can have access a week early.”
“The shed will be removed.”
“The vendor will finish painting.”
“The deposit will be released.”
These are not simply conversational details once the purchaser relies upon them.
If the purchaser is making the offer because something will be done, that obligation should be properly recorded.
If there is an agreed obligation, send it to the conveyancer and have it put into appropriate contractual wording.
5. Preconditions
This is where conditions come into the contract.
Common examples include:
- finance;
- building inspection;
- pest inspection;
- sale of another property;
- due diligence;
- planning approval;
- Foreign Investment Review Board approval;
- review of a lease;
- review of Owners Corporation material; or
- some other approval or investigation.
The difficulty is that a precondition needs more than a heading.
Any defect?
A major structural defect?
A defect costing more than a particular amount?
Can the purchaser terminate because a tap leaks?
Who performs the inspection?
When must it occur?
How is notice given?
The same problem arises with:
For how much?
By what date?
What happens if the bank offers a slightly lower loan?
What evidence must the purchaser produce?
A badly drafted condition often creates uncertainty precisely when the transaction is already under pressure.
Agents are much better off identifying the commercial requirement and sending it to the conveyancer rather than trying to draft the condition themselves.
The five-minute check
Before the Contract of Sale is sent to a purchaser, ask five questions.
Not after the purchaser signs.
Not at final inspection.
Not at 3.20 pm on settlement day.
Before the contract is entered into.
Why this matters for agents
Agents do not need to become conveyancers.
In fact, we would rather agents did not try to draft complicated special conditions.
But the agent is often the person who knows the commercial deal better than anybody else at the beginning of the transaction.
You have negotiated with the purchaser.
You know what they have argued about.
You know what finally got the offer across the line.
That information needs to reach whoever is preparing the contract.
The Five Ps are simply a way of making sure it does.
Property.
Price.
Performance.
Preconditions.
Five minutes.
Potentially a very large problem avoided.
Something in the deal does not quite make sense?
If one of the Five Ps is unclear before the purchaser signs, that is the time to ask the question.
Victorian Property Settlements has been dealing with Victorian property transactions for more than 20 years. We regularly work with agents to sort out contract, disclosure and settlement issues before they become much larger problems.
If you are unsure about the people, the property, the price, an agreed obligation or a proposed condition, give us a call before the contract is signed.
Contact Victorian Property SettlementsLicensed Conveyancer
Victorian Property Settlements
PO Box 11220
Frankston VIC 3199
David@quick32.com
