Is a “subject to Due Dilligence” clause enough on an offer/contract. Or in other words does this give you a global “out” if needed?
thoughts comments welcome
coops
Coops,
I am certainly no expert but I would say not.The 2 weeks or so that you have to perform building and pest inspections and you finance date should give you enough time to do your due dilligence and if needed you can then get out via these. Others don’t even sign a contract until they have done a due diligence.
[grin]
Matt
Thanks Matt
I understand that a lot of the due dilligence shoud be done before you make an offer and you’ll have to excuse me if My questions seem silly but i’m new to this.
It’s just that from all Ive seen and read that the fewer the clauses in an offer the better. My thinking being that if due dilligence is finding out all you can about a property this would include inspections ect. therefore a due dilligence clause should be a catch all clause and cover all bases. Or have I got the wrong end of the stick alltogether.
thanks
coops
Hi coops,
Bear in mind that the more “subject to” clauses attached to your offer, the less appealing it will be to the vendor (say over one which has less or no such conditions) and the more likely it will be rejected.
But that is not the major issue here. My concern is, that if you are going so far as considering “subject to due diligence” as a possible “out” then you should not be considering getting “in” to the purchase of that (or maybe any) property!!! Due diligence is not a condition for purchase it is a criteria for selection, and you need to have this clarification clear in your mind BEFORE you even think about putting pen to paper, irrespective of any legitimate escape routes!!!
Do your DD first, and make your “subject to” clauses applicable to more realistic conditions ie. finance, inspections, reports etc.
Cheers,
Jo
“subject to due diligence” is not a condition of contract due to being subjective and not easily defined.
Terms and conditions of contract cannot be ambiguous.
“the more “subject to” clauses attached to your offer, the less appealing it will be to the vendor”
This is not correct nor the mindset to have. The “number” of terms and conditions is irrelevant. The validity of the terms and conditions is what is important.
However, if a straight forward transaction is preferred then “subject to financing” ensures an adequate outclause whether such results from a building inspection, planning, or otherwise – which in most cases must all be apporoved in order to secure finance.
Whether the deal is straight forward or not, a qualified lawyer should be involved in the contractual process.
— Michael
coops,
I reckon no vendor in the world is gonna let you put “subject to due diligence.” Things like “subject to finance” or “subject to BPI” would be reasonable clauses for a “vanilla” contract. If you are buying in Tasmania or WA, you have no cooling off period, so you have to do your checks before you sign the contract. I do that anyway, even when there is a cooling-off period. My finances are organised as soon as I offer (I wouldn’t offer unless I had finance available), and I work on a verbal offer and acceptance. Then I just get my solicitor to look over the contract for me before I sign it. I don’t see the point of signing something that isn’t workable. By the time i have signed the contract, my solicitor hass done the valid checks, my bank has organised the finance distribution, and I am on my way. I then waive the cooling off period, so the vendor and I can both relax.
RE agents and vendors are pretty wary of people who sign multiple contracts, or who appear insincere. Think of yourself as a vendor, with people making offers, but not necessarily wanting the house… it would suck.
Hence, I don’t put conditions in a contract. Finances are organised, inspections are done, contract is checked, and then I sign, with no CO period.
kay henry
“I don’t put conditions in a contract. Finances are organised, inspections are done, contract is checked, and then I sign, with no CO period.”
The above may be fine in the perfect world, but in reality quite often a contract/option has to be secured before adequate due diligence can be conducted – which appears to be the foundation of this post.
This scenario quite often applies to deals I am associated with where there is high demand or other factors result in not enough time to first assess the deals viability before securing a contract.
The contract should include conditions which enable the potential buyer sufficient time to evaluate the property without inconveniencing the vendor to any great extent, i.e. a standard SFH transaction may include a 7 day provision before the vendor has the option to accept another parties offer.
— Michael
Kay,
How do you get the balns approval for a purchase if you haven’t got a contract for them. Banks have always wanted a contract before they can do anything.Even when we’ve spoken to a broker and he say “yep no worries, they’ll approve you”, we still need a contract to take to them for them to approve.
[saywhat]
Matt
MJT,
The Bank wants the name of my solicitor, the name of the RE agent, and the front page of the contract, but doesn’t require it to be signed. I am not just going to sign a contract with a RE agent before it is checked by my solicitor. Noone expects me to. I imagine my solicitor would be very surprised if I signed a contract without it thoroughly being checked. He checks, I sign. That seems normal to me.
kay henry
MJT, I follow the same steps as Kay Henry.
I wouldn’t dream of signing a contract without having my solicitor going over it first. I sit down with my solicitor, she discusses it with me, then I sign.Celivia
thanks guys.
I always assumed that the bank would want the whole contract, signatures & all.
Matt
I imagine my solicitor would be very surprised if I signed a contract without it thoroughly being checked. He checks, I sign. That seems normal to me.kay henry
Excellent, I think everyone should do this and not be hurried into a contract because the agent wants it that way. At the very least you would want a subject to approval of solicitor on or before x days etc etc
On the point of DD I wrote this to be used just a few days ago for this very reason, keep in mind I am in Qld and states differ.
This was written to help secure the propery for the buyer who was unsure of some talk of changes to the local roadways, the seller had no problem with this as it is a unconditional contract other than this.
Vacant land
Cash offer
New acreage estate under construction# . This contract is subject to and conditional upon the Buyer being satisfied within 14 days of the date hereof of any and all due diligence they see necessary on matters concerning the property. Should the Buyer not be so satisfied then this contract shall be at an end and all monies paid by way of deposit shall be refunded without deduction.
David J
Licenced Agent/Sales Managerthanks every one,
I must admit that I basically am doing all the thing you have mentioned, ie good due dilligence, finance arranged and specific clauses in contract ect. It’s good to know i’m on the right track.
My original question was a general one for my enlightenment and something that just occured to me. It seems to be sorted now as well as having generated some interesting comments. Thanks again for your thoughts
coops
Originally posted by Michael R:“subject to due diligence” is not a condition of contract due to being subjective and not easily defined.
My point exactly!!!
“the more “subject to” clauses attached to your offer, the less appealing it will be to the vendor”
This is not correct nor the mindset to have.
I didn’t say it nor the “mindset” (to which you have acknowledged) is CORRECT only that it EXISTS; hence, in a situation where offers are put forward and ALL THINGS CONSIDERED EQUAL buyers WILL and DO tend to opt for the contract WITH fewer or NO CONDITIONS. FACT!!!
The “number” of terms and conditions is irrelevant. The validity of the terms and conditions is what is important.
AGREED
Jo
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