A common problem faced by property developers who acquire multiple properties each year is not being able to settle on time as per the completion dates stipulated on the purchase contracts. Often, a property developer will face delays in obtaining finance or putting a lease agreement in place (on which finance is often contingent) and as such, will miss the originally scheduled date for completion under the contract. Here at Green & Associates, we have dealt with multiple late settlements and have become adept at liaising with vendors to allow our clients to obtain settlement extensions. This article provides a non-exhaustive list of methods a purchaser’s solicitor can employ to attempt to obtain an extension to settlement.
It must be understood that whilst contracts for the sale and purchase of land provide for a completion date by which a purchaser has to settle, principles of contract law provide that ‘time is not of the essence’ until a purchaser misses the date for completion and the vendor issues a ‘Notice to Complete’. What this means is that if a purchaser misses the settlement date, this will not be considered a breach of a material term of the contract which entitles a vendor to rescind the contract until the vendor issues a Notice to Complete and the purchaser misses the settlement date specified on the Notice to Complete.
So what is a Notice to Complete? A Notice to Complete is a notice served on a party who is in default under a contract requiring the defaulting party to complete the contract by a specified date (usually within 14 days) making time of the essence. If a purchaser receives a Notice to Complete and then misses the new settlement date specified on the Notice to Complete, the vendor will be entitled to rescind the contract, keep or recover the deposit up to a maximum of 10 per cent and sue the purchaser for damages. A purchaser should therefore avoid receiving a Notice to Complete where possible.
A vendor can only issue a Notice to Complete if they are ready, willing and able to complete the Contract by originally scheduled completion date. So if a vendor has not prepared their discharge of mortgage in the PEXA workspace, provided required certificates to a purchaser in advance of the original settlement date (such as a clear land tax certificate, strata information certificates or Foreign Resident Capital Gains Withholding Clearance Certificates), a vendor will not be able to issue a Notice to Complete and the purchaser may be able to secure a short extension on the settlement and/or delay receiving a Notice to Complete.
If we are aware that a client may face difficulty in completing a contract on time, what we have found works well is early and open communication with the vendor to advise that there may be delay to settlement and that our client seeks an extension on the settlement date. We have found that vendors appreciate the clarity that such an early request provides and are usually happy to provide a 1-2 week extension on the settlement date, without issuing a Notice to Complete on the purchaser. Vendors invest a lot of time and resources in marketing and selling their property to a purchaser and are usually keen to keep a transaction with the purchaser on foot without escalating to a Notice to Complete. The special conditions of a Contract usually provide that late completion interest is payable to a vendor if a purchaser is late in completing, and a commitment to paying this extra late completion interest from the originally scheduled settlement date usually placates the vendor. It is important to maintain goodwill with a vendor and their legal representative from the very start of a transaction so that a request for a settlement extension is more likely to receive a favourable response.
We recently dealt with a matter where the vendor was threatening enforcement action as our client was not going to be in a position to settle by the scheduled date for completion. Under the contract, completion was conditional upon the purchaser obtaining development consent for the construction of a childcare facility and there were certain cut-off dates by which the DA had to be lodged and the purchaser’s right of rescission could be exercised which had passed without client’s development consent being in place. We were able to argue that our client was entitled to rectification of the contract due to the parties being mistaken as to the suitability of an easement on title for the development, which had prevented our client’s DA from being lodged and required variation before Council would progress the DA. We argued that our client was entitled to rectification to extend the deadline to rescind in connection with the DA which was still on foot.
At Green & Associates, we are adept at managing property purchases such that any delays to settlement can be accommodated with the vendor and are experienced in all types of property transactions. We may be contacted on (02) 8080 7585.
