Contract the Law and Life

We discuss legal contracts, where you are likely to encounter these in your life and how to deal with them successfully. Simple practical advice.

Erasmus : Contracts are a part of life. Sooner or later, everyone will get to a point in their life where they need to sign a contract. Whether it is borrowing money, buying a car, buying a house, organising university or even leasing a house – contracts are involved.
Kinkajou : We want to give you some basic ideas of how to cope better in dealing with contracts. We’ll give you some of our golden rules.
Erasmus : Ist golden Rule. Read it. Always organise to have the contract available before time so you can look at it and have time to read and try to understand it. It can be worth your while.

 

Kinkajou : Any stories?
Erasmus : One elderly female acquaintance was selling her house. She engaged a real estate agent who of course gave her a contract to employ the real estate agent as her agent. On checking the contract, she found that the contract was worded so that even if the house was not sold by the estate agent, she would still owe a commission to the real estate agent – of $23,000.

Remember in hiring a real estate agent – that there are different levels of engagement. They can be hired as an “exclusive” agent" – in which case they are the only person allowed to sell the house and they will earn a commission from the sale of the house. (And that’s fair enough because it assumes that the real estate agent will commit to some expenses for the marketing of the house).

Property Contract

 

An "Exclusive Agency" agreement is not the same as an "Exclusive Listing" agreement. They do both grant the right to sell to one real estate agent; however, with an exclusive  listing, sellers are able to find their own buyer and avoid agency commissions.

Alternatively, the real estate agent can be hired on an "Open Listing". An open listing agreement allows the owner to retain the right to sell the property. They can have an open agreement with multiple real estate agents and will only pay commission to the agent that finds the buyer. If the seller finds the buyer themselves, they do not have to pay any commission.

 

Kinkajou : What Are The Pros To An "Exclusive Listing" Agreement?
Erasmus : An exclusive listing agreement guarantees the commission to the chosen agent,(except if the owner himself sells the property), and this may have some advantages:
Agents will prioritise the sale of your property, knowing that there is no competition for the commission.

The agent will try to obtain the best possible price, as they have more time to sell the property.(Remember though, Agents are also aware that there is not much difference in commission if you sell a house for 1.2 million versus 1.1 million. Better to just sell the place and get your money in the bank). So the benefits of this type of listing are not necessarily all that obvious.

The agent will look for quality buyers who are genuinely interested and able to meet price expectations. They can afford to not waste time with some buyers they think are unlikely to bring a full price to the sale. The buyer can go nowhere else if they get it wrong.

The agent will design a marketing and advertising strategy that optimally promotes the property.

To achieve the best price, agents will use all their available resources to ensure the property is presented well.
Agents will advise the optimal time for open inspections. They can afford to be tougher on clients. They have nowhere else to go after all.

Agents will do all the necessary work to sell the property.

Sellers are able to build an open and honest relationship with the agent, as there is no competition. Hopefully by giving an exclusive listing you do get some loyalty.

In an Exclusive Agency/ Exclusive Listing, a real estate agent sometimes will also take action when they see the negotiation process stalling. An acquaintance was arguing with a potential tenant about some clean-ups on the property. The lessee wanted the lessor to do them and the lessor thought it should be the lessees responsibility. The agent simply said – “We will pay for it ourselves ,just to get the deal done”. This bypassed intransigence by both lessor and lessee, and helped the parties bypass their own non-negotiable status, to get to a point where the deal was done - which both lessor and lessees wanted, but perhaps had lost sight of in negotiations.

Agents may  be more open about offers received and may provide honest advice about which offers to reject. They may also offer advice on beneficial renovations or other ways that sellers could increase the value of the property. Communication is also simpler because sellers have one point of contact during the sale process.

Kinkajou : What Are The Cons To An "Exclusive Listing" Agreement?

 

Erasmus : Despite the many advantages, an "exclusive listing" agreement does not guarantee a quick, easy sale. Also, The real estate agent’s services may not meet the seller’s expectations or they may struggle to find a buyer.

Disadvantages include:
A real estate agent may find it difficult to find a buyer if it’s not a seller’s market.  Sometimes having multiple agents and multiple websites advertising your property can be a considerable help to the marketing of your property.

Exclusive listing agreements may be more expensive.

Sellers cannot sell the property themselves-unless they have included this right in their negotiation/contract.

Sellers must stay with the same agent until the agreement expires. This can be frustrating when the seller isn’t happy with the agent’s performance.

Some real estate agents are exceptionally lazy and unmotivated. An acquaintance had an offer expire because the real estate agent was too slow (several days slow) in attending the buyer to have the contract offer signed.

Scrutinise every Contract

 

Kinkajou : Further issues regarding contracts?
Erasmus : It is always important to write a list of the problems you think you’re going to have in relation to the contract. For example if you have a residential tenancy, you may realise that tenants are going to object to having the air-conditioning serviced, having the gardens maintained, (as opposed to just mowing the lawn), or just cleaning up after themselves. Trust yourself – in general. If you think you can see a potential problem – just add it in to the contract.

You are allowed to change the terms of the contract. So if you see potential problems arising from the contract, add contract conditions or change contract conditions. You certainly cannot – after you have signed the contract.

Solicitors’ contracts are generally complex and arise from years of experience with problems people have had with agreements – or contracts. A good solicitor whenever he/she experiences a problem, adjusts their basic contract to cover the new problem. Over time the contract should hopefully cover most common issues, new legal requirements (being discovered through solicitors’ experience and continuing legal education), and a range of individual issues – appropriate in specific circumstances. Experience matters.

It is unlikely you can generate a contract yourself without a similar level of experience to a solicitor. And when problems arrive, very precise wording matters. When problems develop, parties to a contract usually read the contract very very carefully seeking options on how to proceed.

 

Kinkajou : Solicitors are not always a source of wisdom. Some are quite stupid. There is such a thing as being to open and too considerate of the other party. One acquaintance experienced a solicitor deliberately telling potential tenants about problems with the property they were seeking to rent. The solicitor said this was important to avoid problems in the future.

Unfortunately, it created a problem right now – not in the future.

The tenant refused to sign a contract and the deal went belly up. Our acquaintance talked to another solicitor who said yes there is a duty for disclosure where the information is not publicly available. If the information is publicly available, it is not the solicitor’s responsibility to draw attention about adverse facts to the opposition party . Let the buyer beware.

The acquittance was quite upset because the issue could quite easily have been resolved in favour the tenant with just a little work. The solicitor’s decision cost our acquaintance over $100,000. And the slowness of the solicitor’s involvement in the development of the contract did not help the situation either and contributed to the loss of the tenancy.

Goo : In short, not all solicitors are the same. There are some incredible fools out there. Remember too, that you are in charge. You are entitled to tell a solicitor what they can and cannot say. If you think that solicitor has lost the plot and is progressing in a direction you do not like - in negotiating a contract – you are entitled to tell him exactly what he can and cannot do – up to a point. There is no point exaggerating problems that could happen in the future, when his actions create problems happening right now in the present.

Solicitor or Barrister can be Instructed

Kinkajou : Instructing solicitors – advice?
Erasmus : One acquaintance who had hired a solicitor, undertook some negotiation with the other party by himself – as a way of reducing costs, he thought. What happened next was the solicitor sent him a letter chastising him for undertaking negotiations – when the solicitor was charged with undertaking negotiations.

The unpleasant aspect of this was in the solicitor charging one half thousand dollars for writing him the letter chastising him for undertaking negotiations – and trying to reduce his own costs.

The reality is that you are entitled to tell the solicitor what they can or cannot do, on your behalf. In this situation the advice would be – to write the solicitor a letter instructing them that they will “temporarily cease to act for you” while "you" are undertaking some negotiations. When you have concluded these negotiations, you will return to the solicitor with your instructions.

The solicitor is required to act on your instructions – and to do what you have instructed them. (Assuming everything is legal, of course).  You have taken the right of negotiation away from the solicitor temporarily to avoid the high cost of argy-bargy: letters going backwards and forth arguing about specifics – in a contract. Much of this argy-bargy is perhaps best done by yourself – not by the solicitor – obviously for cost reasons.

 

Kinkajou : The only requirement is that you need to instruct the solicitor as to what your plans and actions will be.
Erasmus : There was another acquaintance who was having a difficult divorce with her husband. Her husband was acting on his own behalf and sending instructions and requests to her solicitor all the time. The result of this was a large bill to her – due to all the activity the husband generated through his correspondence direct to the solicitor. The bill was of the order of $26,000. Cost to the ex-husband – approximately nil.

The response – if you have enough tolerance for the ex to deal with them – is to instruct the solicitor to send all correspondence and letters from the husband direct to you. The solicitor is not to act on any correspondence and letters from the husband- apart from sending this to you.
The solicitor is of course allowed to act if the correspondence from the husband comes from the husband’s solicitor.
Once you have received the ex-husband’s correspondence – you’ll decide what to do with it and how to act on it. You will then give instructions to solicitor on how to proceed.

Kinkajou : Expenses controlled. Problems controlled.
Sneaky ex-husband controlled.

Erasmus : Beware of bracket creep. An acquaintance negotiated a fee of $1500 with the solicitor. The work was done and the acquaintance received a bill for $1550. Negotiating a fee – if possible – is not a bad idea. But get it in writing. Remember that you are also entitled to receive a fully itemised bill (without extra cost) detailing every minute of time spent on your work and every cost or resource associated with your work. If you have problems with the bill – look at the full itemised bill and start considering the bill from there.

 In dealing with conflicts and solicitors, always keep in mind the expenses you are generating. You are allowed to undertake some actions on your own behalf – So long as you give the solicitor instructions in this regard. Some solicitors work hard on your behalf and do earn their money and deserve their payment from you. Other solicitors predominantly seek to look after their own interests and to enrich themselves on your behalf. Control your expenses. Think about your expenses. Develop an opinion on the solicitor – based on their actions, not on their words.

Always consider that you do need to pay people to work for you. You cannot expect people to work for you for nothing. So, if you are having a solicitor working for you, yes it may be expensive but yes it may be necessary. Once you have got your head around the concept that you cannot expect people to work for you for nothing – consider how much money should you pay them. Remember most solicitors are small businesses. That means your payment covers infrastructure costs/staff costs/solicitor’s wages. Only about 1/3 to ½ of money going into a small business ends up as wages for the principal – whether it be a solicitor or doctor or other.

Kinkajou : It is always worthwhile if undertaking a contract, to consider the contract from the other person’s point of view.
Erasmus : Remember that you do not always need to agree to a contract or to sign a contract. One acquaintance was attempting to rent a commercial premises. He was having a considerable number of problems with one of the potential tenants. They wrote a legal letter in the early negotiations phase, asking him to remove a strand of a climbing plant away from one window. Our acquaintance was quite upset with this. The acquaintance's point of view was that it would take about 20 seconds to remove the plant from the window by grabbing it with your hand and pulling it out.

The legal costs involved in turning this into a negotiation point for the contract far outweighed the actual real cost of doing this one particular job. Our acquaintance talked the issue over with his wife. She advised him not to undertake the contract with these people. Succinctly, “If they are this much bloody trouble now, how much trouble are they going to be as tenants?”

BATNA Best Alternative to a Negotiated Agreement

Kinkajou : If you are considering a contract, you should also consider the alternative – a BATNA (Best Alternative to a Negotiated Agreement). Just because the contract exists as a path forward doesn’t mean that it is the only option. In the example above, the wife summarised the BATNA very well. Sometimes things just aren’t worth it.

Erasmus : Always remember that people “lie”. The contract gives you possibilities for negotiations and for instructing someone to undertake actions in keeping with the contract. But some people have no intention of doing anything that you tell them. They may say “Yes! Yes! Yes!” And then do nothing at all. People lie. Some people have learned that a contract can be ignored. They know that pursuing legal compulsion is likely to be expensive and takes time and effort, and is not always likely to succeed.

Insurance contracts are a good example of a contract that is often negotiated in good faith and managed in bad faith. Insurance companies often simply do not want to pay – and refuse to pay. An acquaintance had a computer fried when someone bumped the electric cord next to the computer causing a crackle – a smell and a spark. The computer was never quite the same, although it did work “somewhat”. The insurance company refused to pay. They said they checked with Energex (at the time the public company managing the electrical supply) and there was no record of brownouts or voltage surges in the area. The argument was therefore that nothing happened to the computer. The insurance company refused to pay.

People do Lie

 

Goo : Remember that there are avenues of appeal in such circumstances. Best to approach the issue by:
Document everything.
Get your witnesses to sign simple statements.
Look at the appeals process and go for it. There are also solicitor-free public court systems, (QCAT in Brisbane).

 

Kinkajou : Remember you are often entitled to appeal. In the case of an insurance company – work through the company first, then the insurance body, then the insurance ombudsman then take an appeal to court. Writing your own Letters is much cheaper than legal action.

In Queensland, we have QCAT where people are entitled to present their case to a judge without a solicitor and at minimal cost. If you are prepared to fight it all the way, you are likely to succeed. Most people give up as soon as you get a letter from the insurance company refusing to claim. To win then requires time and effort and money. And the contract is the basis of what you are arguing about.

Goo : Give us a summary of all our accumulated wisdom in dealing with contracts.

Erasmus :
Read contracts.
Before negotiating a contract, always write your own list of problems. You are the person on the ground and are most likely to see potential future problems.

You are allowed to change the terms of the contract, before it is signed. You can add or subtract anything you think you want to. A contract is an agreement between two parties.

Generally, use a contract that has been drafted with knowledge and experience. Solicitors are often used for commercial contracts. Residential contracts are often available through residential agencies such as the REIQ in Queensland for a very small fee – certainly much less than employing a solicitor.

Solicitors are not always a source of wisdom. Some are quite stupid. Not all solicitors of the same.

You are entitled to tell a solicitor exactly what to do. You are allowed to include yourself in a negotiation process. You are allowed to act in a way that reduces your own costs. Instruct the solicitor as to how you wish to proceed.
One little trap. Instruct a solicitor that if You are paying costs for someone else, any money remaining must Always be returned to You, not to the person whose bills you may be underwriting.

Beware of legal costs. Beware of bracket creep if you have negotiated legal costs. If you have negotiated an agreement for legal costs – try to get it in writing.
Always consider a contract from the other person’s point of view.
Remember that you do not always need to agree to a contract or to sign a contract.
Consider your BATNA.

Always remember that people “lie”. Some people bank on you not being able to enforce a contract. Contracts are useful but can fall apart in the face of determined opposition – unless you are as determined yourself to obtain justice.
You are entitled to an appeals process on any decision – especially insurance contracts with insurance companies that do not want to pay.

Goo : Good luck.  Keep your wits about you.