Understanding Conditions of Sale: An In-Depth Guide

What Are Conditions of Sale?

Conditions of Sale are documents that set out the terms and conditions upon which the buyer offers to buy land and improvements. They generally include a description of the property, the price, settlement date, deposit and any conditions (such as finance, building or pest inspections, sale of another property etc) that must be satisfied before an unconditional contract is exchanged. In addition to these, there can also be special conditions that are relevant to the transaction, such as providing for the buyer to take possession prior to settlement or what should happen if the property is damaged between contract and settlement.
Conditions of Sale are important, as the contract is only made when the purchase price is paid and the Conditions signed by the parties. That generally happens at or after the auction or exchange of the Conditions, but not before . It means that parties must not rely on verbal representations about the property, as it is only when the Conditions signed by both parties are exchanged that a contract is made.
Conditions of Sale can vary between sales at auction and private treaty sales (as well as between different sales agents). For a simple private treaty sale, the Conditions are usually only three or four pages long, while those for an auction are often 20 to 25 pages. The additional pages are to provide for more disclosure to the buyer of risks, such as an existing liability for a fire safety order, or a proposed road widening. These disclosures will also generally be recorded publicly on the Land and Property Information website called the Land and Property Information ("LPI") register.
It is also possible for a buyer to change the Conditions prior to bidding at an auction. However, to be sure to bid on the property, trade buyers and their professional advisors must ensure the bidding starts from the Conditions that best suit their needs.

Key Components of Conditions of Sale

Conditions of sale can vary significantly from one industry to another, and even from one business to another, but most will include some common elements. Payment terms are one of the most important parts of a condition of sale. They detail how and when payment is made to the seller, as well as detailing any consequences for late payments or defaults. Sequencing, Delivery Terms and Title & Risk. Sequencing addresses the timing of payments. Some conditions of sale will contain delivery terms defining when ownership of purchased goods passes, typically upon receipt by the purchaser or upon payment in full to the seller. Warranties, Limitation of Liability and Product Returns. Condition of sale often include warranties for the products being sold, indemnities in the event those warranties are not met, a limitation on the damages available for breach of these warranties and return policies for defective products. Intellectual Property and Confidentiality. Many conditions of sale, especially those relating to software development, encompass ownership of the resulting work as well as how it can be used after the sale. Determining who owns the intellectual property, and what collateral consequences there are, can be essential to preserving that IP. Protecting confidential information is also generally considered an important part of a condition of sale, and any contract entered into should address how confidential information is safeguarded and the recourse if it is disseminated. Dispute Resolution. Courts do not have inherent jurisdiction to deal with every dispute, and jurisdictional issues, governing law and forum selection can be dealt with in conditions of sale. These clauses govern where and how a dispute may be resolved.

Legal Significance of Conditions of Sale

The legal implications of conditions of sale are significant and wide-ranging. Most commonly, company’s conditions of sale are enforceable under contract law at common law and in most jurisdictions under the Australian Consumer Law. The conditions of sale must be certain in meaning so that a party can understand with reasonable certainty the rule in question. In most cases it is clear if a seller has included the conditions of sale on its standard order or invoice, that the conditions of sale apply.
The leading case on this point is Toll v Alphapharm [2004] HCA 52, where the Court held that conditions of sale which have been posted on a wall of a barn adjacent to the entrance of an industrial complex were binding upon an injured party in relation to an accident that occurred in the industrial complex. On this basis, your company may also need to ensure that its conditions of sale are expressly incorporated by reference in the agreement (that is, state "the conditions of sale are found at [link or other specific description of the conditions of sale]."). By doing so, the conditions of sale will be binding upon a buyer.
Conditions of sale, as with terms of any contract, must also be reasonable. Similarly, the terms of the consumer guarantees in the Australian Consumer Law are non-excludable, meaning they apply regardless of whether there are contrary conditions of sale.
Conditions of sale will also act to prevent disputes, by ensuring that your company has unequivocally identified what rights are and are not available to it and the counter-parties in any transaction. For instance, a company’s standard order when it is purchasing goods or services will ensure that, unless agreed otherwise with the counter-party in writing, the supplier could only seek to sue for the price or damages.

Common Pitfalls and Issues

Conditions of Sale creates a wide variety of issues and challenges for parties to a transaction. These issues often manifest in the form of misunderstandings between parties, or in the form of violations, late delivery, and like issues. These issues typically arise out of incorrect assumptions , and not deliberate violations.
Parties are often confused on the following issues:
Having consulted on a multitude of transactions over the past many years, I can assure you that virtually all of these misunderstandings can be avoided or resolved with careful communication and negotiation by the parties in a transaction.

Creating Effective Conditions of Sale

When vendors and purchasers of real estate enter into a contract for the purchase and sale, those parties are usually guided by a real estate agent or a real estate lawyer in the course of forming the contract. It is important that the conditions, terms and structure of the contract are correct the first time to avoid the significant cost of rectifying the agreement later on, which may not be possible or practical, especially if time is of the essence. In addition to the contract itself, other documents such as Plans of Survey, title packages, and conditions precedent will accompany the contract and should be carefully examined, particularly regarding their due diligence requirements or the conditions that need to be satisfied prior to the closing. It is critical that these documents have been prepared correctly and accurately incorporate the corresponding provisions found within the contract.
It is important that the real estate lawyer reviews the entire package of documents, and provides comments, corrections and/or suggestions to the real estate agent so that the purchase and sale transaction can be successfully completed. Since the real estate agent may not be a lawyer, they may not be aware of certain legal obligations and standards, so they should rely upon the assistance and advice of their legal counsel at all stages of the transaction. Additionally, if the transaction, or parts of it, are too complex, the lawyer should urge that a qualified professional be retained, such as a planner, an engineer or an architect.
An important first step in the drafting of the contract of purchase and sale, is to identify whether the purchaser will be paying the purchase price in full (i.e., without any financing) or whether a mortgage is required. If a mortgage is needed, it will be necessary to find out what amount will be required; this will be the cash payment out of pocket.
The standard form for the contract of purchase and sale includes only the conventional conditions found in most transactions, including the contract being governed by the Land Titles Act and looking for title insurance, obtaining a survey of the property, confirmation that the vendor has good title and is permitted to sell the property, that the purchaser is satisfied with the state of repair of the property, and that the purchaser will be permitted to obtain financing from a third party on the day of closing.
If any of these conventional conditions are not acceptable to the vendor or the purchaser, they will need to determine whether to provide alternative conditions or omit them entirely. If alternative conditions are provided, they must be carefully drafted and reflect the opportunity imparted by the original conditions. Also, the vendor and purchaser must ensure that the conditions provided do not contradict each other in any respects, as this would create confusion with respect to the interpretation thereof.
As the conditions are formed, it is suggested that a checklist be utilized to confirm that the desired conditions have been included and that there is no duplication or contradiction between the various conditions.
Once the contract has been provided and signed, a notice of conditional acceptance must be prepared and sent to the party to the contract who has not signed. In turn, the recipient will need to either sign the contract or provide a counter-offer to the party who sent the notice of conditional acceptance. The counter-offer will focus on the provisions of the previous version of the contract that the second party is not satisfied with and propose alternative provisions upon which the purchaser wishes to agree.
At this stage, if the purchaser is satisfied with the proposed counter-offer, they will then sign the same and send it to the vendor. If the vendor is also satisfied with the counter-offer, they will sign the same and send the signed document back to the purchaser. At this point, the parties are free to proceed with further negotiations; however, there may be a need to sign a conditional waiver of a lender’s rights to register a caveat on title to secure any advancement of funds, if the financing at hand is a second mortgage in priority to an existing first mortgage.
The vendor is then free to provide a basic form of undertaking to say that they will rectify title issues and further describe the exact issues to be rectified.
After the foregoing steps have been taken, the only steps remaining involve the transfer of funds and the tendering of title documents. Arrangements are usually made for the release of the vendor’s lawyer’s trust account cheque or certified cheque from the purchaser’s lawyer. Generally, the money is deposited into the vendor’s lawyer’s trust account and then pays all parties accordingly. As policy is not available prior to the registration of the property in the buyer’s name, the closing statement is strictly between the vendor and the purchaser.
The conditions of sale must be crafted carefully and reviewed in detail to ensure that they are precise, practical and conform to the wishes of the vendor and purchaser.

Interesting Case Examples

Over the past decade, we’ve seen the rise of international online marketplaces which are now the solution of choice for consumers looking to buy products or services from overseas businesses. The day when purchasing products and services from a different country required us to find a listing in a foreign language and hope our payment was processed correctly is long gone. We are now able to find near instantaneous listings of products and services within our country’s own language.
However, are all conditions of sale the same? Some may be (and are) different to others. Below is a selection of conditions of sale which have been put to trial where certain parties have been left financially disadvantaged having purchased products and services online from offshore suppliers.
Doe v Capita Global Distribution Ltd [2004] EWHC 2689 (Comm). A reputable UK distributor entered into a distribution agreement with a US manufacturer for the exclusive distribution of the company’s products. The agreement specified that the courts of England had jurisdiction in the event of a dispute. However, the manufacturer sought to have the proceedings heard in the Chicago court – 4 hours from his home (rather than the London Court – 12 minutes from the UK distributor’s home). In having regard to the disparity between the parties, and the technical difficulties of the Chicago trial, the English Courts ruled the proceedings be transferred to London.
Spidertrax Inc v Atlas Copco Minwe Ltd [2006] EWHC 3358 (Comm) . The UK distributor, who sold drilling rigs and blasting systems used in the mining industry, neglected to read the entire conditions of sale contract including the dispute resolution clause. After months of communications between both parties, the US manufacturer failed to issue a catalogue of products after his solicitation to do so. The UK distributor exercised their right under the contract to terminate the agreement and sue for loss of marking costs after the US manufacturer was not in breach of the contract. Although a benefit of the doubt was given to the UK distributor, the termination and subsequent claim were denied. The UK Courts established that in the absence of fraud, mistakes in the interpretation of commercial contracts between commercial parties is not sufficient to grant relief.
Golden Shipping Corp v Republic Maritime Co Inc (The Girolando) [1978] 2 LLR 171. When an appraisal was required after a dispute arose over the vessel’s seaworthiness, the Courts established that the surveyor’s report and decision was binding on the parties under the conditions of sale. In affirming the decision of the previous trial judge, the English Courts confirmed that an arbitrator, in resolving disputes of a specific subject matter, does not act as the agent or proxy for the parties involved including their agents.
These cases illustrate the importance of carefully reviewing and understanding the conditions of sale, particularly the remedies and dispute resolution clauses, before engaging the resources necessary to finalise a transaction.