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  • Profile photo of LakshmiPropertyInvestorsLakshmiPropertyInvestors
    Member
    @lakshmipropertyinvestors
    Join Date: 2002
    Post Count: 30

    Hello fellow Property Investors,
    My partner and I are putting together a business to deal in lease options in SA. We are setting up on a shoestring budget, hence are writing our contracts ourselves.
    Below is a rough draft of a contract we intend to offer a seller.
    Would anyone like to comment on its legality and or applicability to our needs?
    Feel free to cut, copy and paste any or all of it if it suits your needs.
    Property Agreement

    Memorandum of Agreement made this day of 2003,
    between
    of

    hereinafter referred to as “the Vendor”,

    and ABC Investors,
    of , SA Australia
    hereinafter referred to as “ABC.”

    Recitals:
    a. The Vendor and the Purchaser wish to enter an agreement regarding the Vendor’s property situated at…………………………………….. in the council area of ………………… deposit plan;

    1. Option Payment & Purchase Price
    ABC shall pay to the Vendor the sum of $……………… , subject to Clause. If paid, this amount shall be deducted from the purchase price of $…………… , should ABC exercise its option to purchase the property.
    If ABC does not exercise its option to purchase the property, ABC shall forfeit all sums paid to the Vendor, who shall retain all monies received from ABC.

    2. Lease Payment
    ABC shall pay to the Vendor the sum of $……………… per week for the term specified in Clause , in consideration for the Vendor granting to ABC a lease over the property, subject to Clause .

    3. Term & Option
    ABC shall have the right but not the obligation to purchase the Property for the sum specified in Clause at any time before the expiry of 5 years after the date of this contract.

    4. Maintenance and Repairs
    ABC shall be responsible for all maintenance on and repairs to the Property where the cost in any one calendar month does not exceed $250. Responsibility for that portion of the cost of any repairs in excess of $250 in any one calendar month shall be borne by the Vendor.

    Inspection
    The vendor shall ensure that ABC has free and unfettered access to the property for two periods of one hour each per week, for the duration of the beginning contract term, for the purpose of inspection by ABC’s prospective clients.

    Vacant Possession
    In the event that ABC wishes to proceed with the contract at the end of the beginning contract term, the Vendor shall ensure that the property is vacant at the commencement of the lease term.

    5. Inclusions

    The following items are included in the sale:

    Exclusions

    The following items are excluded from the sale:

    Conditions

    All amounts due to the Vendor under this contract shall only become payable subject to ABC’s success in finding a suitable tenant within 28 days from the contract date.
    If ABC is unable to arrange tenancy for the Property suitable for ABC’s requirements within 28 days, the Vendor shall have the right to extend further time to ABC to make its arrangements. If the Vendor chooses not to grant this extension, the contract shall be null and void, and no obligation shall subsist either way between ABC and the Vendor.

    Definitions
    All references to a party in this contract shall include that party’s administrators, executors and permitted assigns, or if the party is a company, shall include the company’s successors and assigns.

    Contract/Agreement
    This Contract constitutes the complete understanding of the parties and no waiver or modification of any provisions shall be valid unless in writing and signed by the co-authors and the publisher.

    Signed ……………………………………… () Date………………

    Signed ……………………………………….(Witness) Date………………
    Name and address of Witness
    …………………………………………………
    …………………………………………………
    …………………………………………………

    Signed ……………………………………… () Date………………

    Signed ……………………………………….(Witness) Date………………
    Name and address of Witness
    …………………………………………………
    …………………………………………………
    …………………………………………………

    Profile photo of wilsonkaywilsonkay
    Member
    @wilsonkay
    Join Date: 2002
    Post Count: 52

    Hi Soma,

    Alarm bells are ringing here for me!! I don’t want to be negative but some friendly advice – I would be very careful if I were you writing your own contracts. It might be the cheap option (I entertained a similiar idea some time ago) but at the end of the day, I would strongly suggest that you need to at least have a lawyer have a good look at your finished product.
    I’ve learnt it really is not worth cutting corners here. I think every single dollar we have spent with our lawyer is well worth it (providing you find the right one)!!

    All the best.

    Tim Wilson

    Profile photo of AndrewSAndrewS
    Participant
    @andrews
    Join Date: 2002
    Post Count: 6

    Hi Soma

    I am also from SA and are still trying to work out how best to create the contracts for L/O’s witout spending a fortune.

    I agree with Tim that in court there is no substitute for a watertight contract and as such all money spent is worthwile. But out of court I think that spending the time with the purchasing tennant to make sure that everyone is clear on the terms, conditions and outcomes of the transaction and then maintaining close contact with them to see that all is going well may prevent the necessity of having any cut price contracts tested in court.

    Obvoiusly in the long run having good, legaly binding contracts will make the process easier and quicker to complete but by then possibly the cost of preparing the documentation may not be such an imposition.

    At the moment I feel that there may be a lot to be gained by getting my feet wet and getting a couple of deals under my belt using some basic contracts and then spending the money on some better ones later. Obviously your level of risk aversion may make you feel differently.

    To anyone else who has some lease option startup stories and gems of wisdom I would love to hear (read) them.

    Thanks
    Andrew

    Profile photo of SandiSandi
    Member
    @sandi
    Join Date: 2003
    Post Count: 8

    Hi,
    I am also in SA. The lease/options it seems is the only way to go in SA. However it is not a simple task. My Solicitor has spent the past 3 weeks searching for a clear way with the tenancy act.
    Also the option fee has to be made clear that it’s not a part payment as this offends section 5 of the Land and Business(sale and conveyancing) act.[|)]
    Hope this is helpful.
    Sandi[:D]
    If other SA have successfully done/are doing lease/options, I would love to hear/read about it.[:)]
    “If we stop being competitive and start being creative, life will more fulfilling” W.Wattles.

    Profile photo of LakshmiPropertyInvestorsLakshmiPropertyInvestors
    Member
    @lakshmipropertyinvestors
    Join Date: 2002
    Post Count: 30

    Thanks very much to the 3 people above who responded to my post.
    We will have a lawyer vet our draft before we show it to any prospecive clients.
    Also, we will check out the SA real estate Act to research this time payment thing.
    Regards,
    Andrew Scott

    Profile photo of SaskatoonSaskatoon
    Participant
    @saskatoon
    Join Date: 2002
    Post Count: 112


    Hi Soma.
    I also am from Adelaide. My conveyancer didn’t bat an eyelid when I mentioned lease/options to her. Options to buy are common in commercial property. There are already forms for this purpose. Perhaps try a good conveyancer first. We bought our PPOR on an option about 5 years ago(without a lease), and the R/E agent had a REISA form for the purpose, as I recall.
    You can also look at the Vendor Finance Association website for information.

    Terry

    Terry
    Finance

    Profile photo of LakshmiPropertyInvestorsLakshmiPropertyInvestors
    Member
    @lakshmipropertyinvestors
    Join Date: 2002
    Post Count: 30

    Saskatoon, you are a legend!
    it’s amazing how much time and money can be saved by getting a tip from someone who’s done it before.

    By the way, I had a Eureka thought regarding wraps in SA. As Sandi has rightly indicated, there is a specific law preventing deals which involve payment for land in more than 3 instalments.
    What however, if one bought a property as per a normal wrap deal, and simply passed it on to a tenant buyer via alease option contract?
    The tenant buyer pays a deposit (or option premium), all legal, then
    pays higher than average weekly payments as rent until s/he wishes to refinance. If the tenant buyer backs out s/he forfeits all monies paid up to that point.
    If s/he stays in, s/he gets a home sooner than waitng for traditional finance at a better price.

    Profile photo of LakshmiPropertyInvestorsLakshmiPropertyInvestors
    Member
    @lakshmipropertyinvestors
    Join Date: 2002
    Post Count: 30

    [:)][:)][:)][:)]
    Further to my ecent post, my partner and I have located the very form that Saskatoon refers to. It is indeed published by the Real Estate Institute of SA. It’s form no: 7001.
    The REISA may not wish people to have copies direct from them as they are not exactly encouraging towards investors doing deals without the help of real estate agents.
    Claire and I are adapting the contract so it doesn’t infringe copyright, and we’ll post it here after it’s finished. Watch this space.

    Profile photo of AndrewSAndrewS
    Participant
    @andrews
    Join Date: 2002
    Post Count: 6

    Soma

    I look forward to seeing your effort using the REISA form.

    Andrew

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