Nominating under a Contract of Sale: What does it mean and how does it work?

Introduction

Quite regularly, we encounter parties under a Contract of Sale who may wish to nominate a substitute Purchaser (or some in some unusual cases, a substitute vendor). However, despite the phrases “to nominate” or “and/or nominee” being used very frequently, often parties can find themselves with unforeseen issues if this nomination is not completed at the correct time in the settlement or failing to use the correct methodology.

What does it mean to nominate under a Contract of Sale?

There is a common law right for Purchasers to nominate a substitute Purchaser or Purchasers under a Contract of Sale. Further, there will usually be either a special or general condition under the Contract that provides further confirmation of the Purchaser’s right to nominate. In essence, by completing a nomination, the original Purchaser will be assigning their right to complete settlement under the Contract to the nominee. However, it is usually the case under standard nomination forms that both parties remain liable to the Vendor for completing settlement. If you are intending to complete a nomination, there are various factors that you should consider. These include, but are not limited to the following:

• If you are nominating a Company, the directors of that entity will usually be asked to provide a signed guarantee and indemnity, ensuring performance of the Company;
• Ifyou are planning to nominate a substitute entity and the property is currently being constructed, you must ensure that the timing of the nomination is correct or else potentially face unintended double duty consequences;
• If you are nominating other Purchasers in addition to yourself as the original purchasers, you must ensure that your ownership portions are correctly recorded on the nomination (ie: Joint Tenants or Tenants in Common); and
• If you are nominating a related entity, you should make the necessary enquiries with your lender concerning this nomination to determine if it will impact any financing arrangement.

Each scenario is unique and hence, should you wish to potentially complete a nomination as a Purchaser, please contact us prior to doing so. If you are a Vendor and your Purchaser nominates a Company,  you should also ensure that personal director’s guarantees are received and you should be discussing any further implications with your lawyer as soon as the nomination is received.

Is it possible for a Vendor to nominate under a Contract of Sale?

In almost all matters involving a nominee entity, it will be the Purchaser nominating a new entity to complete settlement. However, in some unusual cases, it may be possible for the Vendor to change under a Contract of Sale.

This most usually will occur in off the plan purchases, where there are separate two contracts. The Purchaser under Contract 1 on-sells part or all of their lot to another purchaser under Contract 2 (where the first Purchaser is the Vendor). However, prior to completing settlement under Contract 1, the original Purchaser nominates a new entity. In this case (and only if there are suitable special conditions in place under the second contract), it may be possible for the Vendor under the second contract to nominate the new entity under Contract 1 to ensure both settlements can be completed smoothly and in the preferred entities. This will most likely require additional documentation to be drafted by solicitors if this situation occurs. This does not occur regularly and is another issue to consider if you ever buy off the plan. However, if it does occur, you should immediately get in contact with us to advise further.

How can Sharrock Pitman Legal assist?

At Sharrock Pitman Legal, we will be able to provide timely, concise advice concerning your contract and any situation where a nomination is being proposed, including your rights and obligations as a party under said contract. This will enable you to complete your settlements in a smooth, knowledgeable manner.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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