We recently acted for a married couple who were the purchasers of some property in Western Sydney. After some negotiations resulting in the entry into a contract and payment of a deposit in excess of $100,000, the vendor refused to complete for reasons that had nothing to do with my client.
Vendors who have entered into a binding contract can still refuse to go through with it. If this happens, what do you do?
Our clients were committed to the property and had booked the removalists and organised renovations following settlement. But despite their best intentions and through no fault of their own, they were unable settle on the property as the vendor had walked away. They had three choices –
- Sue the Vendor
- Negotiate with the Vendor; or
- Walk away themselves
Early this year a contract was exchanged between our clients and the vendor for over $1,000,000.00 for a property in Western Sydney (Contract). Without disclosing too many details of the property, it was quite unique and would not be described as a 'run of the mill' house by any standard. Our clients paid a deposit for the full 10%, namely in excess of $100,000.00, which was held by their real estate agent as the stakeholder. Thankfully, it was not released to the vendor in this circumstance which can be common.
At the time of entry into the contract our clients were represented by a competent licensed conveyancer. Settlement of the contract was due early this year, and when our client came to us with the problem, settlement was already overdue, and the licensed conveyancer had not been able to progress the matter any further. The licensed conveyancer and our client reached out to us to attempt to resolve the matter and we worked with the licensed conveyancer representing our client and the agent in a collaborative manner to resolve it.
What did we do?
First, we worked with the licensed conveyancer to issue a notice to complete. A 'notice to complete' has the effect of providing the other party with 14 days from the date of service to complete the contract in accordance with its terms; failing which it gives the issuer of the notice a right to terminate the contract.
Usually, a notice to complete is served by a vendor when a purchaser fails to settle. In this unusual situation, it was the purchaser who was financed and ready, willing and able to settle, however the vendor had a change of heart.
Unfortunately, this 'notice to complete' had no practical effect in moving the matter towards settlement, like it normally does.
The notice to complete expired after the 14-day period and still we had no response from the vendor.
Sue the Vendor, negotiate with the Vendor or walk away?
This left us in the predicament of having to advise our client that they had the following options:
- Sue the vendor for specific performance of the contract
- Walk away from the property and terminate the contract under the notice to complete.
- Negotiate – however there was no ability to negotiate as the vendor was not responsive.
Our client tried to negotiate, but the vendor's unresponsiveness, meant that all negotiation attempts were unsuccessful.
If the Vendor won't complete should I sue for specific performance?
An action for specific performance of the contract is not always advisable, however our clients were of the view that the property they had purchased was unique.
This resulted in significant stress for our clients. They had sold their previous property in readiness for obtaining finance and completing the purchase of this property. Accordingly, the vendor's failure to complete put a significant amount of stress on the family, as they were staying at their parents' house with their teenage children.
Our client took into account a number of factors including:
- The litigation timeframe was an estimated minimum couple of months.
- Our client had the money to fund the litigation.
- No legal proceedings are ever guaranteed (even when they are textbook).
- If they were to pursue specific performance, the contract would need to stay on foot. and the deposit of over $100,000 would remain in the agent's trust account for the entire timeframe of the litigation.
In the words of our client:
"It feels like the purchaser has no rights when it comes to situations like these - what does it really mean to have signed a contract of sale?"
Our client decided to terminate the contract for sale, and can still decide to sue the vendor at a later date for damages, but will they?
Whilst we believe that pursuing an action for specific performance would have been successful, our clients were satisfied that they had received all of the expert advice and had made every attempt (other than court action) to resolve the matter. We then worked in unison with the licensed conveyancer to issue a termination notice and our clients received their deposit back, and our client, with the assistance of that conveyancer, has purchased another property.
In a rising market, purchasers can be at risk of a vendor having second thoughts about their sale and pull out. The following lessons were learnt:
- Even if you have an exchanged contract for sale, the purchaser of a property is never guaranteed until you have settled on it.
- Even if you have a textbook case of specific performance, it is still a very significant and difficult decision to pursue it.
- Purchasers should think twice about releasing their deposits to vendors or put strict requirements around it. Thankfully in our client's case, the deposit was held by the agent and they got their deposit back.
- It can be very difficult for licensed conveyancers who are sole practitioners to manage these types of disputes and we can be of assistance in working collaboratively with them to manage matters.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.