Instalment Contracts – A Guide to Identifying them and why they are Risky
An instalment contract looks identical to a usual contract.
However, it provides more protection to buyers and greatly restricts the rights of sellers. It is important for a buyer and seller to recognise the warning signs of an instalment contract, and the potential dangers of entering into one.
What is an Instalment Contract and Pitfalls of them in Queensland
An instalment contract is defined by the Property Law Act 1974 (Qld) as
a) a contract of sale of land , and
b) where the purchaser is bound to make a payment or payments other than a deposit
c) without obtaining a transfer of title to the land
d) until the final payment is made.
Simply put, an instalment contract is a contract that requires a Buyer to make a payment or payments and will not receive a transfer of title until the last payment is made.
2 key Signs of an Instalment Contract
A contract is likely to be an instalment contract if it contains the following:
- a deposit of more than 10% of the purchase price (or 20% if off the plan); and/or
- any other payments required by the contract other than payment of the Deposit.
An example would be if a special condition to the contract requires the Buyer to make a $5,000.00 payment before the settlement date.
It is important to note that the Queensland Supreme Court in the case of Watpac Developments Pty Ltd v Latrobe King Commercial Pty Ltd & Anor  QSC 392 has determined the releasing of a deposit to a seller does not amount to an instalment contract.
Queensland Instalment Contract – 3 Risks to Seller
Although an instalment contract provides greater protection than a usual contract to the buyer, there are risks to the seller which include the following:
A usual contract would allow a seller to terminate a contract when a buyer fails to meet an obligation under the contract.
For an instalment contract,
- a seller cannot terminate the contract because of a buyer’s failure to pay an instalment payment until the seller gives notice to the buyer, and
- the buyer has still failed to pay that instalment payment for a period of 30 days from the date of the notice.
2.Cannot Mortgage Land
A seller cannot mortgage the land without the consent of the buyer, or the buyer can void the contract at any time before completion of the contract. If the Seller does mortgage the property, the seller is guilty of committing an offence, and can be issued a fine.
A buyer can lodge a caveat over the property to prevent any other person, including the seller, from registering any instrument over the property.
Buyer can Enforce Settlement
If the buyer has paid one-third of the purchase price, the buyer can serve a notice to the seller requiring the transfer of the property to the buyer.
Instalment Contract – Risks to Buyer
While an instalment contract greatly favours a buyer, it can also present a risk. If the buyer has paid one-third of the purchase price, the seller can serve a written notice to the buyer requiring the transfer of the property to the buyer.
However, in this scenario, the seller is obliged to provide the buyer advance on payments to allow the buyer to complete the transfer of the property.
To summarise, it is important to be mindful of what type of payments a contract requires the buyer to make, as they can lead to an instalment contract, without the parties’ intention of creating one. If you believe you are a party to an instalment contract, you should be mindful of the obligations that may be enforced on you, particularly as a seller to the contract, to complete the settlement of the contract.
If you require assistance with any issue in regards to an instalment contract over a property in Queensland the please contact the property team at My Property Protect for more information.
Kayleigh Swift, Associate
Chloe Skubis , Graduate Law Clerk
About the authors
Kayleigh Swift is an associate in our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.
Chloe Skubis is a Graduate Law Clerk in our Property team who assists with various conveyancing transactions. Chloe is very experienced in residential conveyancing and is a problem solver. She always provides efficient service to all her clients.
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