Probate Clause in Contract?! Tips?

Hi,

We are looking at a property where the owner has recently deceased and the daughter or family has taken over. Inside the contract, it states that:

PORBATE

This contract is subject to an conditional upon the vendors obtaining a grant of probate in the estate of xxx.

In the even that the vendors have not obtained a grant of probate within 6 months form the date hereof or within such other time or times as the parties agree, then either party shall be entitled to rescind this agreement by writing to the other.

I'm a bit hesitant since this means that they can pretty much void the contract within 6 months while they take out 10% deposit and we would have to pay Land Tax after 3 months! Has anyone came across this and how did you handle it?

 

First of all this is a very common scenario. No-one has any control over when Probate is granted - not you, not the vendor. Most of these Probate sales seem to go through in about 3 months in my experience.

"They" don't get to take out your 10% deposit - this is held in the REA's Trust Account usually. You could negotiate this to 5%.

Land Tax - you are going to pay if you sre liable and were able to settle normally. You could have a special condition that the vendor would refund you the Land Tax if settlement did not take place and the contract was rescinded.

 

The clause reads :- "In the even that the vendors have not obtained a grant of probate within 6 months form the date hereof or within such other time or times as the parties agree, then either party shall be entitled to rescind this agreement by writing to the other."

Perhaps you could request your conveyancer to request an amendment to the clause whereby the words "either party" are replaced with "the purchaser". This then would only entitle you as purchaser to rescind the agreement, and not the Vendor.

If this is not agreed to, keep in mind that the right of rescission referred to in the clause would generally entitle you to have the deposit refunded. It would not be kept by the Vendor if Contracts were rescinded.

Further, the Vendor would be under an obligation to do everything reasonable to obtain the grant of probate within the time specified under the Contract before rescinding.

Lastly, you may be confusing land tax with stamp duty. If you don't pay the stamp duty within three months after the contract date, you would be liable to the Office of State Revenue for interest. In order to calculate the interest payable, please refer to NSW Office of State Revenue

 

Just make sure you clarify the clause so that all deposits are refunded in full if either party rescinds the contract. And Dan's tip is worth considering. Get legal advice before signing.

 

Hi Dan,

Yeah your right, I confused stamp duty with land tax.

I'm just worried that the contract is so one sided, that gives too much power to the vendor. What's to stop them from either dragging out the probate or simply rescinding the contract? The DEPOSIT RELEASE clause in the contract has also been deleted, so there's no chance of getting your money back (I'm worried about them rescinding, not me anyway).

So I guess the only one to go forward would be to negotiate with real estate agent and ask them to put in clause that would protect you in case settlement does not occur in 42 days?

Regards
David

 

Keep in mind this person is actually the vendor. And they have no legal right to sell the property until probate is granted. Someone else may be granted probate instead and you would have no contract with that person.

 

The only way deceased estate can be sold prior to probate is to have a probate condition with the contract.

All good points above.

If the finances of the deceased person were simple, ie house plus bank account - it should go through very quickly - around 6 weeks

 

Hi Xenia, could you explain the above? What would the condition or clause read in the contract?

We showed the solicitor this afternoon and he said to get as far as possible from this and that he wouldn't touch this with a ten foot pole. I asked him whether he could ask the other solicitor to change anything and he said nope, that's just how it is. The worst case scenario would be that you have to pay stamp duty, property stuck in limbo and sales not valid, while your deposit is gone. That seems like one hell of a risk.

I then called the agent and he even admitted that it was a complex situation involving multi-beneficiary???!! And that if I wanted any changes to the contract, to email the changes via the solicitor.

Thoughts?

Edit: Agent just emailed me back "The probate has nearly gone through already, but the vendor’s solicitor is not willing to remove that clause from the contract. "

 

Sure
Probate or administration has to go through first before the sale. You cannot settle a property before probate has gone through.

We sold one just recently and had it under contract before probate went through but I'm not in my office currently to tell you the exact wording of the clause.

It was along the lines of "the sale of this property is subject to the granting of probate.... "
That means that an exact settlement date cannot be stated in the contract.

We were acting as agents for the vendor who was the executor of the will and also one of the beneficiaries so I cannot advise you from the perspective of being the buyer.

I would however suggest that you ask for proof of the executor and that there is in fact a will that is clearly set out otherwise the subject to clause will drag on.

Is the person selling the property actually an executor - this is an important question to ask.

 

I would suggest you get another legal opinion. Not sure how you could lose your deposit if it is held in trust. And duty is only payable 90 days after exchange. You can even get a refund of any duty paid if the transfer doesn't happen.

But do expect it to take 3 times what you first thought, and prepare for that.

 

Just came back from a long chat with the agent. She said that she is close with the family and that the probate is expected to go through. She said the reason the vendor wanted to sell quickly was to get it out of the market by the end of the year. There were however two recent changes in the contract, the first being a 5% deposit instead of 10% and the other being allowing DA to be submitted prior to settlement (subject to Vendor's consent). Looks like a lot of builders were interested, so they added that clause. She said not one person complained or bought up the issue of the probate, which I personally find hard to believe. I asked her to speak to the vendor's solicitor and see what can be done.

 

Deposit release clause is YOU agreeing to release the deposit early for the vendor. This can be a useful tactic if you know the vendor needs the funds urgently.

In your case, if the contract crashes, and the deposit is still in the REA trust account you would get your deposit back.

EDIT: Clarified thanks to Terry_w.

 

Unless they have blown it!

 

I thought they put your 10% deposit in a trust that no one can touch?

 

Yeah, I didn't mean that you would do both! Release the deposit and still expect to get it back if the contract crashes. It would have to be a fairly meat-and-potatoes kind of sale to do a deposit release.

Two thought bubbles without an <Enter> can cause confusion!

 

Not if you agree to release it.

 

I have to admit I have not seen many contracts where funds are released to the vendor before settlement. I've heard it can be done to "sweeten the deal" at one of those investing seminars, but have not seen it done in practicality.

There is a subject to in the contract that relies on the vendor not the purchaser and they want funds released early at purchasers risk....

My advice - no!

 

Stamp duty would be payable within three months of exchange and can generally be refunded where the Contract is rescinded on application to the Office of State Revenue. Alternatively, defer payment of stamp duty until settlement and pay the applicable interest.

Seek the amendment as suggested. The Vendor can only say No, but if accepted, will remove their right to rescind the Contract in circumstances where probate is not granted within the time allowed but protect a purchasers right of rescission. It is also with noting that Conditional Contracts often contain a clause requiring the party whose benefit the clause is in favour of to do 'whatever is reasonably necessary to cause the event to happen'. (for example, see clause 29 of Law Society/ REINSW) Contract.) This may preclude the Vendor from dragging out the probate or simply rescinding the Contract. Beware though as this clause is often deleted in fine print in the form of another 'special condition'.

As for the deposit, the deletion of the release deposit clause is in your favour, thereby denying the Vendor the right to have access to your deposit prior to settlement. This means that the deposit will remain in the agents sales trust account (or perhaps in an interest bearing account - talk to your conveyancer/solicitor about this) until settlement (or rescission).