Requisition Provisions
Requisition rights, what are they and why are they important?
You’d be forgiven if you haven’t heard the term “requisition” before reading this blog.
Requisition provisions are typically only relevant in the context where a purchaser has cause to ask the vendor to ‘make good’ or repair any defects on the Record of Title (Title). Typically this will occur prior to settlement.
To make a requisition, the restriction or defect must be one which makes the title different from that which was contracted for i.e. a defect that goes to the root of the title, where the vendor’s title is materially different from what was contracted for.
For example:
the description of the property within the Agreement doesn’t match the actual legal description of the property recorded on its Title; or
the actual location of the property’s physical boundaries are materially different from its legal boundaries; or
post subdivision and upon creation of a Title you realize the actual area of the land is materially less than that described.
In such circumstances your lawyer will typically look to clause 6 of the standard ADLS Agreement for Sale and Purchase of Real Estate (Agreement) for protection.
What can do you do?
The basic right described in clause 6.2 refers to requisitions which the purchaser is “entitled to make” but is not an exhaustive list. Common matters that are the subject of requisitions include requests for removal of:
easements;
restrictive covenants,
encroachments; and
statutory restrictions.
What can you not do?
The above are all examples that could make the title different to that which was contracted for. The right of requisition under the agreement is limited to matters related to the vendor’s title, any unrelated matters cannot be rectified using the requisition clause. Therefore, a purchaser cannot requisition to matters of:
conveyance (e.g. discharge of mortgage);
quality (physical aspects of land or buildings); or
contract (removal of caveat).
What is the process?
Clause 6.2 contains specific rules about the time frames within which each party must act, and the consequences of their actions. The clause does not specify the exact matters that can be the subject of requisition. Consequently, if the defect goes to the root of the title, the purchaser may also have a right to cancel the contract where the requirements of ss 36-40 of the Contract and Commercial Law Act are met.
If it transpires there is an inherent defect in the title, the process will often begin with the purchaser or purchaser’s solicitor serving notice of the requisition upon the vendor within the required timeframe. A vendor who is unable or unwilling to comply with the purchaser’s notice must notify the purchaser within 5 working days of having received the notice.
If the vendor does not reply, they are deemed to have accepted the requisition and must comply with it prior to settlement.
What to consider
The right to make a requisition is not a ‘get-out-of-jail’ card for the purchaser. The legal and practical tests involved are robust, meaning you cannot exit the agreement simply because there is something on the title you do not like.
At the same time, it is important to understand your rights and entitlements under the agreement so that in the event you are asked to waiver such rights then you understand the ramifications of agreeing to do so.
Deposit
Sections 123 Real Estate Act and clause 2.5 of the Agreement require the person to whom the deposit is paid to hold the deposit funds for 10 working days. If settlement is set to occur prior to expiry of this period, then the deposit cannot be released until the Purchaser or his/her lawyer waiver this right after the effect of the same has been explained to the purchaser by either the lawyer, the agent or conveyancing professional.
A failure to waiver this right will more than likely mean that the deposit is not released on settlement. An outcome which we are seeing becoming increasingly common.
Conclusion
When considering buying your next property, we suggest you seek legal advice prior to making an offer.
If you have questions in relation to the content of this blog, you can make a free enquiry or book a free consultation on our website @goodwill.law.
Goodwill Law is here to make your property buying experience as stress-free as possible.