In this video we explore why you need to BEWARE of Instalment Contracts. We discuss what triggers an Instalment Contract, why they are not recommended, and what to do to ensure your Sellers are protected when it comes to QLD property contracts....

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Hi everybody - George Sourris, Empire Legal.

Today's topic: Instalment Contracts

Okay, today we're going to talk about a topic that is danced around and ignored a lot - Instalment Contracts. 

It is not a very well understood topic in the QLD property industry.

An instalment contract changes the nature of a normal contract in Queensland. The legal relationship between the buyer and the seller is different for instalment contracts and provides more protection to buyers than under a normal contract - including, for example, that a legal title may be transferred before the buyer has paid full purchase price!

You can find the exact definition and terms in Section 71 of the Property Law Act (click here).

For convenience, we are going to save you the hassle, and break down what you need to know in this blog. The definition is: "a contract of sale of land where the purchaser is bound to make a payment or payments other than a deposit, without obtaining a transfer of title to that land until the final payment is made".

There are two main triggers that will turn a normal contract into an instalment contract:

1. The deposit being over 10%. 

2. A non-refundable deposit.

If an instalment contract exists, then the buyer gains additional rights. These include:

1. The seller can't terminate the contract of sale if the buyer defaults without serving a 30 day notice to remedy the default. Now, normally, If not an instalment contract, the buyer defaults, the vendor can terminate, and a new contract can be entered into with a new buyer. 

2. The buyer can lodge a non lapsing caveat over the property. 

3. The vendor is restricted from further mortgaging over the property.

4. If over 1/3 of the purchase price is paid, the purchaser can force the vendor to transfer legal title and the vendor hold a mortgage over the property. 

5. The property and title to be held in escrow (which is a third party) until settlement. 

Naturally, if the property has mortgages with a bank, points 4 & 5 above may not be able to physically occur because the existing lender isn't going to allow for a legal title transfer or an escrow option. In these instances, there will be a conflict between the statute (law) vs the contract with the bank. Note, this isn't an exhaustive list.

We strongly suggest steering clear of instalment contracts without obtaining tailored specific legal advice. There's many risks that affect the vendor for instalment contracts - sellers and sellers agents beware! 

Also, keep in mind here that if you hold a 10% deposit and then there's a price reduction, this may trigger more than 10% deposit to be held, which will make the contract an instalment contract - and we don't want that. 

You want property experts in your corner, we can help. 

If anyone you think may benefit from learning more about instalment contracts, please share this with them. 

If you have any other blog topic suggestions for the future, please email me - george@empirelegal.com.au. 

Until the next one...

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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.