House buying is tough the first time and it only gets more challenging in subsequent transactions.  When buyers purchase their first home, they either live with relatives or in rented accommodation.  But when they buy the next time around, they have to co-ordinate that purchase with a sale as well.

There are many issues arising from this two-staged transaction worth discussing.  But for now, I will focus on conditional sales transactions.

When homeowners think about buying a different home, they typically envisage that home before they have sold their current home.  This leads to the temptation of purchasing the second home before selling the first, which is a risk with frightening consequences at the best of times.  My advice to clients, which I had to administer to myself when I was in the same situation, is to sell first and buy when you have budget properly.

There is, however, an option which I see more frequently in a slower market: a conditional sales contract.  What I am referring to is a home purchase that is conditional on the sale of the buyers’ current home.  The intention is simple: the intending buyers have an escape option if they cannot sell their current home.

Unfortunately, the devil is in the detail and the terms of the conditional sale may lead to unintended consequences.  It is usual for the contract to permit the vendor to continue to offer their property for sale.  Special attention should be paid to what follows.  If the vendor receives a second offer which is better than the first, there is usually a time-period for the first buyer to decide on waiving the condition to make the offer a firm deal failing which the vendor can sell to the second buyer.  Two points here: if you are the first buyer, you will want to ensure that there is an opportunity to remove the buyer’s condition or else you can lose the deal.  And if the buyer is to be given the opportunity to remove the condition, there is an issue for negotiation to determine how long the buyer has to waive the condition.  If you are the seller, if the window of opportunity is too large, it will discourage potential buyers from making an offer.

Another concern is to strive for precision as to what happens in the event that the buyers cannot sell their first property and therefore need to rely on the option to terminate the contract to purchase the second home.  The buyer will want to have a return of the deposit money, without penalty or deduction.  A seller would probably prefer to get something for the cost and inconvenience of an uncompleted contract to sell the property.  In my experience, the first situation, resulting in a full return of the deposit without deduction or interest is most common.  However, I recently reviewed a contract which was silent as to what would happen in the event of the purchaser terminating the contract.  The buyers had an unarticulated assumption what would happen if the deal were not to proceed.  Very possibly, the seller had a different assumption about what would be fair, which would be the start of a poisonous debate and possibly litigation.  Fortunately, I reviewed the terms of the contract in time to suggest revisions to clarify the treatment of the deposit in the event that the buyer would have to terminate the contract.

In a nutshell, a conditional sales contract has to be exact.  It is risky to expect that any ambiguity will work to your favour.  So do not hesitate to seek competent advice about these useful contract clauses.

-- Valentine Lovekin, Barrister & Solicitor