A couple of years ago, a Brisbane renter wanted to buy her rental property. She made the winning bid at auction, paid the deposit and applied for bank finance. All was well until the bank made an error that delayed settlement by 13 minutes. The vendors, instead of granting an extension, terminated the contract and kept the deposit. They had the legal right to do that.
Queensland has quick turnaround laws for housing contracts compared to other States. Most settlements occur within 30 days. And while this is good news for most transactions – delays that are beyond your client’s control can void a contract. They could lose their ‘dream’ house and their deposit.
Time is of the Essence
Standard REIQ contracts state that ‘time is of the essence’. These words give sellers the legal right to terminate if the buyer isn’t ready.
Not long after the above case, there were a spate of frustrated sales, and contractual requirements changed in response. Today, a buyer can request an extension of five business days.
The Extension Notice must be in writing and submitted before 4pm on the settlement day. A party cannot refuse an extension request. But settlement must occur before the end of the five business- day extension. If settlement does not occur, the seller has the legal right to terminate the contract and keep the deposit. (See clause 6.2 of the REIQ’s Contract for Houses and Residential Land, 17th Edition).
One year after her winning bid, the purchaser still lives in the rental property she thought she’d bought. The issue hadn’t been solved –she didn’t have the deposit, she was paying off a loan for a property she didn’t own, and she was caught in a legal triangle as negotiations between the seller and the bank stonewalled.
Things to bear in mind re: settlement.
- Realistic timeframes are essential for on-time settlement. Remind clients of the dangers of a failed settlement.
- Clause 6.2 can be waived – but why would anyone risk it? It’s only five days and unforeseen circumstances can arise.
- The wording of the Extension Notice is best prepared by the party’s solicitor.
- The seller can charge penalty interest if the buyer fails to pay the balance of the purchase price by the settlement (extended) date.
- If there is a settlement chain ie buyer settling their property; seller purchasing another – it is essential that legal advice is sought so that special conditions can be added to the appropriate contracts.
- Compensation is not a contractual right if dates change – this must be made explicitly clear to clients.
- Banks try to work with settlement dates but do not guarantee their paperwork will be ready on time.
- Money expectations – clients may have been promised a cheque, money transfer on or by a certain date, but all too often the cheque does not clear or the money does not appear in their bank account in time for settlement. Naïve buyers should be warned of the many things that can prevent settlement – even though it is not their fault, they could still lose their deposit.
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We specialise in providing short, simple and usable legal advice to clients at all levels, and we speak in plain English, demystifying the law. We are your problem solvers.