strange contract terms (buying a house)

Z

zerguz

Guest
I am a first time buyer and in process to acquire a second hand house. At this stage I paid the refundable 5K deposit and about to do a structural survey.

My solicitor received the contract from vendor's solicitor and pointed out that there is a condition that will obliged me to pay penalty for each day at a rate of 19% apr in case I sign the contract and fail to pay on the agreed day.

Besides the fact that the rate is ridiculously high, is it a usual practice for
a vendor to impose a penalty interest rate? I assumed that there should be a non-refundable deposit of about 10% from the agreed price - so if I sign and fail/refuse to pay I lose this deposit - and this is how I can be penalized. Now I discover that there's also an interest - that effectively means that for signing and not paying I am penalized with the whole price plus interest? Is it normal practice?

Of course, I will discuss/clarify this with the solicitor after I will read myself these terms. But since I have no experience, I am seeking advice here to be prepared.

Maybe it is something usual but I don't understand it correctly...

Thank you.
 
Re: strange contract terms (bying a house)

They are probably trying to ensure that there are no delays that impact them, financially and/or otherwise.

But its a buyers market, feel free to tell them that the condition is not a runner.

I doubt its a deal breaker in this market.
 
Re: strange contract terms (bying a house)

Romulan is completely right - its a buyers market so i'd have your solicitor return the contracts and request the clauses removal and re-issue. If your happy with losing a deposit it can be offered but I wouldn't be offering anything. As for the %...... No comment!
 
Re: strange contract terms (bying a house)

Don't agree to that .... many things can delay payment on the agreed day .... I should know .... I went over the agreed day by three months ... not by design ... just delays outside my control.

DON'T agree to those terms! DON'T sign the contracts! Get that clause removed.

What if vendor isn't ready to close on the day you're supposed to pay? Are you to be penalised?

Also ... get inserted into the contract a clause that you can pull out without penalty if your mortgage application is refused or goes belly up for any reason.

DON'T sign with clauses that will financially penalise you if things go wrong.

If you signed contracts and pulled out you would lose your deposit, could be liable for the penalty AND you could be sued for the full house price for reneging on the contract you signed.

The vendor sounds vicious .... triple check everything before you sign .... and triple check again .... because once you sign your soul (and your pocket) is fully committed!

Caveat emptor ..... buyer beware!

It's a buyer's market at present ..... you take charge ... you call the shots! As a first time buyer you have a clean sheet with regard to mortgages etc. The vendor may be under pressure to sell so he/she can move for a job, trade up etc. when they are setting a closing date penalty clause.

When you have more info .... come back to this thread ... great people here who will advise you before you sign on the dotted line.

You are in a strong position .... so you need to call the shots .... it's an important purchase so be happy when the keys are yours.

If in doubt about the deal ..... move on ... plenty of great houses (and desperate vendors) out there.

Best of luck with it zerguz!
 
Re: strange contract terms (bying a house)

Romulan, mrblues - thank you for quick reply. And, PaddyBloggit, thank you for your very supporting message.

Still it is not clear to me if it is normal to include a penalty interest. I would request to remove any interest, but if it is a normal practice then I quess it won't work. Let say if I won't pay a deposit - they will certainly not go further - deposit is a normal practice.
 
Re: strange contract terms (bying a house)

zerguz said:
Still it is not clear to me if it is normal to include a penalty interest.
Click to expand...

I've bought and sold quite a number of properties over the past decade and have only ever seen interest included once - it was when there was a significant chain involved and was also right at the peak of the boom so very different conditions to the market now.
It really is a buyers market so get your solicitor to 'deal' with it, your paying him enough i'm sure.
PaddyBloggit makes very good points re not signing contracts etc until you are completely happy with them.
 
Re: strange contract terms (bying a house)

Only pay deposit ... but remember that your deposit is fully refundable if you change your mind before you sign contracts.

Once you sign contracts you will be required to pay 10% of the purchase price (this includes the deposit) upon signing.

Penalty clauses aren't normal but aren't unusual. You often hear of them with commercial contractors who are penalised when they run over their completion dates etc.

Get that clause (in totality) removed. It will do you no favours to have it there if you sign a contract with it stuck in the middle of it.

Make sure your solicitor is competent/efficient ..... it will be the best fee you'll ever pay.

Also .... even if the bank doesn't ask for it, get a structural survey done on the property before you sign anything .... it's a necessity.
 
Re: strange contract terms (bying a house)

i had it in my contract for house but knew i had the funds to pay so did not mind, my builder turned out to be a cowboy and if i had a clasue would have got a good chunk of house value back, however i can bet you that the contractor if this is a new build wont have the house complete, the other posters are right, you should not agree to this or ask for a similar clause in your favour if the completion date is not made
 
Re: strange contract terms (bying a house)

The posts above are correct, but you should bear in mind that once you sign the contract you are in a legally binding agreement, and if you fail to complete your side, the seller can look for an order for specific performance, compelling you to complete the sale at the agreed price. The 10% deposit is not all you face losing if you fail/refuse to pay.
 
Re: strange contract terms (bying a house)

It is perfectly normal to have interest chargeable on late completion of a purchase. Mind you, 9% or 12% would be a more normal contractual interest rate. Also, it is perfectly commonplace for interest of a few days or even a week or two to be waived - it is usually the case that interest will only be insisted upon where a buyer has been completely taking the p***, but it is normal for the interest clause to always be in the contract: it is in fact part of the standard General Conditions of Sale.

It is, of course, also normal for the buyers solicitor to seek to insert various conditions which will reduce the buyer's exposure to this liability. For example, if the contract is subject to loan finance, then the buyer will not be liable if the loan approval is not granted (or, if the loan approval, having been granted, is withdrawn or if conditions are imposed by the lender which the buyer cannot reasonably comply with etc. etc. - these are all matters for contractual negotiations)

Is anybody seriously suggesting that a buyer should, for no reason at all, and with impunity, be able to delay things for 3 months beyond the contractually-agreed closing date? That is no basis at all for a contract. Certainly it is a buyer's market - but I cannot imagine many sellers' solicitors agreeing to completely waive a sellers right to contractual interest in the event of default by a buyer. Such a contract gives a buyer a positive incentive to delay closing.
 
Re: strange contract terms (bying a house)

Agree with MOB, perfectly normal to have this clause in ( it's part of the pre-printed law society approved contract, in fact, to have an interest penalty clause in the event of a late closing). The amount of the interest rate here is high, and it would be normal for the purchasers solicitor to negotiate a lower rate- usually anywhere from 8/9% upwards.

As a conveyancing solicitor I would not advise a vendor to sign a contract without this clause.
 
Re: strange contract terms (bying a house)

Thank you ALL for the advice!

Another unclear to me clause:

---- begin
MORTGAGE
The property being sold is subject to a Mortgage and the Purchaser/s shall, on the completion of the sale, accept the Vendor/s Solicitor's undertaking to discharge the amount due on foot of the said mortgage and to hand over the Vacate, Discharge or Release of the said Mortgage at the earliest possible time.
---- end

My understanding - vendors has a mortgage on this house. What are my obligations according to this "purchaser shall" clause? Do I become liable for his mortgage?
 
Re: strange contract terms (bying a house)


Basically the sellers solicitor is undertaking to pay off the mortgage from the proceeds of the sale and give you the documentary proof asap. You have no obligations here - you're just accepting that.
 
Re: strange contract terms (bying a house)

No you are not liable for the vendor's mortgage but he needs your money to pay off his mortgage. His solicitor with this clause is legally obliged to not hand the money to the vendor but instead to use it to pay off the mortgage. This is perfectly normal. After the mortgage is paid off (normally immediately) then the mortgage can be taken off the title and then your name can be put on without the vendor's mortgage and will instead have your mortgage noted.
 
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