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What happens when a buyer can’t settle?
You’ve secured an unconditional sale on your property, booked the moving truck, and got your ducks all lined up, in contemplation of a smooth move on settlement day. But what happens if the Purchaser throws a spanner in the works and defaults? Although the vast majority of transactions we see go without a hiccup, there is always a risk of a buyer not completing the purchase. So what options are available to you, should you end up in this position?
An Agreement for Sale and Purchase is used to buy and sell property and is a legally binding contract committing the buyer to completing the purchase on the agreed settlement day. The Agreement includes a clause which outlines what happens when the buyer does not complete (in lawyer-speak, this is called defaulting). Should this occur, the seller is entitled to charge a daily penalty until the buyer completes the purchase. This penalty interest rate is calculated on the unpaid purchase price at the interest rate on the front of the Agreement (usually 12% - 16% pa).
If the Purchaser does not settle, then we can issue a settlement notice. This means the Purchaser will have 12 working days to settle. After that, you have the option to cancel the Agreement and keep the buyer’s deposit (up to 10% of the purchase price). This is why a larger deposit is ideal from the seller’s perspective, as the deposit can cover any real estate agent commission that is due and then the balance is yours. You don’t have to cancel the Agreement, you could go back to market and see if the first Purchaser can settle before you sell to someone else. You are then in a position to sell your property to an alternative Purchaser. You can also claim any loss on the subsequent sale from the original Purchaser – for example if the property sells for less.
There is also another remedy - suing for specific performance. This means going to Court, seeking an order for the Purchaser to complete the settlement. We find most often that the reason Purchasers don’t settle is due to lack of funds, so going to Court may not be the best option and will involve significant time and money.
It is highly stressful when a buyer defaults, but you can rely on us to advocate on your behalf to achieve a successful outcome for you.
We recommend seeking advice before signing any Agreement for Sale and Purchase, so it is tailored to your specific circumstances.
Tina White is a Registered Legal Executive for ClearStone Legal.
p: 09 412 2005
