Real estate agents, property vendors and even some conveyancers are unsure about whether a new Form 1 is needed when a purchaser assigns their contract to an assignee.
Although this is not an every day occurrence, it happens enough in South Australia for industry to seek clarity.
Here is our understanding at Eckermann Steinert Conveyancers, note this is not legal advice but just our opinion.
Firstly, let’s get clarity on the situation.
This question about whether a Form 1 is required for a Deed of Assignment of Contract is essentially based on this scenario:
- Vendor sells to Purchaser.
- Contract is executed between Vendor and Purchaser.
- Vendor serves Form 1 on Purchaser under Section 7 of the Land and Business (Sale and Conveyancing) Act.
- Purchaser (as Assignor) then assigns Contract to Assignee (new Purchaser).
The question is, is it sufficient to rely on the Form 1 between the original Vendor and the Purchaser, or does one of those parties need to serve a Form 1 upon the new Purchaser (the Assignee)?
Making decisions unforeseen in the Act
Under section 7 of the Act, the Vendor is required to serve a form 1 on the ‘purchaser’ at least 10 clear days before settlement.
The Act specifies a number of parties who fall under the definition of ‘purchaser’, from people named in the contract right through to people authorised to act on behalf of a purchaser.
However, there is no provision for a purchaser being someone who is the assignee of a purchaser already named in the contract.
Given that an assignment usually only assigns the rights of the purchaser to an assignee and not the obligations, it could be argued that at the time of the assignation, the purchaser had already been served with a Form 1 and therefore no longer had a ‘right’ for one to be served.
It follows that having a Form 1 served equally would not be a right of the ‘new’ purchaser (assignee).
Therefore we believe there is no need for a Vendor to serve a new Form 1 upon the assignee.
At the same time, the original Purchaser will remain liable to the Vendor to perform their obligations under the original contract.
Considering exceptions to the ‘rule’
At the heart of our position on this matter is that requiring Vendors to serve Form 1s on Assignees will cause hardship on the Vendor because such a situation may give rise to new cooling off rights and risk the agreement the Vendor had already reached with the original Purchaser.
This leaves us with two situations where we might encounter exceptions.
If a Vendor releases a Purchaser (Assignor) from all obligations as part of the assignment, then the Vendor will need to enforce performance against the Assignee.
If the Vendor allows the contract to be novated, effectively extinguishing the contract and replacing it with a new one, then it is more likely that a form 1 will be required to be served by the Vendor on the new Purchaser.
This is an extremely rare occurrence in residential property transactions but worth noting because it is the only situation in which we believe Vendors should be required to serve a new Form 1.
NOTE: This matter is one of the more complex we deal with and this article has been written to give you overall guidance. Please contact us directly if you are facing this situation so that we can give you tailored advice to guide you through the complexity.