A property purchaser cannot complete on their settlement date. What happens next?

To answer these queries, we're referring to clause 11 in the Sale and Purchase Agreement: Notice to complete and remedies on default. If the purchase is not completed on the settlement date, either the vendor or the purchaser may serve a settlement notice on the other.

If the vendor wants to issue this notice, they must genuinely be ready, willing and able to settle. At that point, the purchaser must settle on or before the 12th working day after the date the notice is served.

What actions could a vendor take if a purchaser doesn't comply with the settlement notice?

If the purchaser doesn't comply with a valid settlement notice, they've essentially breached or repudiated the contract, and the vendor has the right to cancel the Agreement immediately. Under a sub-section of that clause 11, they may either:

• Sue for specific performance of the contract, or
• Cancel the Agreement and claim the purchaser's deposit (up to 10 per cent of the total purchase price) and/or seek damages.

Let's look at these options ("remedies") in more detail.

What does 'suing for specific performance' mean?

If the vendor elects to sue for specific performance, they will seek a court order for the purchaser to complete the settlement.

If the vendor takes this route, it is usual to issue summary judgment proceedings on the basis that the purchaser has breached the terms of the Agreement by not completing on the settlement date without an arguable defence. The onus will be on the purchaser to prove that they have a defence, of which there are not many available.

There have been some instances where "impossibility" has been cited.

Based on a few real-life cases, it appears that if the purchaser can prove financial hardship (due to Covid-19) is rendering it impossible to fulfil the terms of the Agreement and complete settlement, this could be a defence against a specific performance claim.

However, "impossibility" is a high threshold to prove, requiring extensive financial evidence to rebut any claim/s for breach of contract. This would almost certainly include the Court looking into the purchaser's overall financial position, such as personal assets, bank accounts, and the ability to obtain further finance.

It should also be noted that if a claim for specific performance is brought against a purchaser, the vendor can seek damages as an alternative.

What does it mean if the vendor cancels the Sales and Purchase Agreement?

Rather than suing for specific performance, the vendor could cancel the Agreement and (1) claim forfeit and retain the deposit paid by the purchaser and/or (2) sue for damages.

The vendor can retain or recover the deposit because the purchaser cannot take advantage of their default. In other words, the purchaser cannot benefit financially by receiving this money back from breaching the contract. Legally, only 10 per cent of the purchase price (as the deposit) is subject to forfeiture on the purchaser's default, even if the vendor does not suffer a loss.

If the vendor elects to cancel the Agreement, they can retain the deposit paid by the purchaser and seek additional damages. However, the vendor cannot be put in a better position than they would have been if the original contract had been completed.

The damages claimable include the loss incurred by the vendor on any bona fide resale of the property. This applies only if the resale contract is entered into within one year from the date when the original purchaser was due to settle.

How are a vendor's actions judged as being appropriate?

If a purchaser defaults, the vendor's remedies should put both parties in the same position they would have been in had the Agreement been settled on its due date.

The difficulty with this is that someone has to decide what position the parties would have been in had the contract gone ahead. As property markets can change quite rapidly, broader industry evidence at the appropriate time needs to be used to determine what the intended outcomes would have been.

The key evidence in any such dispute will relate to expert valuations of the property in the changing market, and steps taken to mitigate losses.

This is a complex area of law, further heightened because emotions are likely to be running high. Our article here is intended only as a general summary to raise awareness of some key points, it is not intended as Legal advice as we would always need to understand your specific circumstances before providing relevant advice.

If you are a purchaser in this tricky situation, Turner Hopkins' specialist property and property litigation team can help you assess your options, the vendor's options, and consider the potential repercussions. Contact Kate Chivers, Catherine Pendleton or Joy Yuan for a confidential chat.