As a purchaser, when do I have to pay the vendor’s legal costs?

Contracts drafted by vendors occasionally include special conditions that require the purchaser to pay the vendor’s legal costs.

However, subsection 42(3) of the Property Law Act 1958 (Vic), states “No contract of sale relating to land shall contain a clause or condition stipulating for the payment by the purchaser to the vendor or to the legal practitioner or conveyancer of the vendor of any costs and expenses”.  The subsection then proceeds to make three exceptions to this general prohibition.  In other words, unless a special condition that requires the purchaser to pay the vendor’s legal costs relates to one of these three exceptions, it is illegal and thus unenforceable.

The three exceptions to subsection 42(3) are:

1. Subsection 42(3)(a) – costs and expenses incurred by the vendor consequent to a purchaser’s default.
2. Subsection 42(3)(b) – if the land being sold is not subject to the operation of the Transfer of Land Act 1958, i.e. it is General Law land that doesn’t have a Certificate of Title.
3. Subsection 42(3)(c) – part of the land that is being sold requires a preliminary conveyance transfer or other assurance to enable the vendor to comply with the contract.

Examples of special conditions that are prohibited by subsection 42(3) include those that impose fees on the purchaser to:

• Alter the settlement date, in cases other than when the purchaser has failed to settle on the contracted date.
• Amend other terms of the contract.
• Nominate an additional or substitute purchaser.
• Prepare a Licence Agreement.

For more information about special conditions, please contact Glenferrie Conveyancing in Northcote on 03 9815 2351.