Stacks Law Firm is a leading Australian legal service provider with more than 250 people operating locally in many Australian communities.
We are committed to supporting the legal needs of everyday Australians and businesses across every stage of life.
Buyer and sellers exchange contract for sale and purchase of
land
On 19 January 2018, a buyer and seller exchanged contracts for
the sale and purchase of a property in Kissing Point Road, South
Turramurra, in NSW. The sale price was $2.83 million, with a 10%
deposit of $283,000.
The buyer was a company. The sole director and secretary of that
company signed the contract as guarantor.
On exchange of contracts, the buyer paid a five per cent deposit
of $141,500. A clause in the contract provided for the balance of
the deposit to be paid "on or prior to completion".
The date for completion was 19 July 2018, being six months from
the date of exchange.
Under the contract, if the buyer did not complete on the due
date then the sellers could issue a notice to complete, making time
of the essence. The new completion date set out in the notice to
complete had to be "not less than 14 days after the date of
service of the notice".
Buyer unable to settle, sellers issue notice to complete
As the 19 July 2018 settlement date approached, the buyer gave
notice that it may not be able to settle on that date because it
could not finalise its finances in time. However, it stated that it
could settle by 21 August 2018.
At 6:22am on 20 July 2018, the sellers issued the buyer with a
notice to complete, requiring completion of the sale on or before
3pm on Friday 3 August 2018.
The notice to complete stated that time was of the essence, and
that unless the buyer completed within the time specified, the
sellers would be entitled to terminate the contract.
Sellers agree to extend completion date under notice to
complete
The buyer subsequently notified the sellers that its finance had
been approved, but that the bank had arranged a new valuation of
the property, which was $510,000 less than the purchase price.
The buyer needed more time to organise the shortfall in funds
and requested that the date for completion under the notice be
extended to 23 August 2018. The sellers agreed to this
extension.
Buyer still unable to settle and sellers terminate
contract
On 23 August 2018, the buyer notified the sellers that it had
failed to rectify the shortfall in funds.
On 27 August 2018, the sellers terminated the contract by notice
to the buyer and sent the buyer and guarantor a demand for payment
of the balance of the deposit, plus interest, and reserved their
rights to claim damages.
In response, the buyer alleged that the sellers' purported
termination was invalid and amounted instead to a repudiation of
the contract by the sellers. The buyer gave notice that it accepted
the sellers' repudiation, that it was itself terminating the
contract and demanded that the sellers repay the five per cent
deposit already paid.
In November 2018, the sellers commenced legal proceedings
against the buyer and the guarantor in the Supreme Court of
NSW.
Prior to the hearing date, the sellers sold the property to
another purchaser for $2.23 million, which was $600,000 less than
the original sale price which the buyer had agreed to pay.
case a - The case for the property buyer
case b - The case for the property sellers
It is not our fault that the bank's valuation changed, and
we were unable to obtain finance.
We never told the sellers that we would be unable to complete
the purchase. We simply flagged that we might not be able to
complete.
The notice to complete was invalid because it allowed less than
14 days for completion after the date of service of the notice. The
notice was served on 20 July 2018 and required completion by 3
August 2018. That is only 13 days for completion, if you exclude
the day on which it was served, which is the general rule when
interpreting contracts of this nature.
Since the notice was invalid, time was not of the essence,
which is a legal requirement for the sellers to terminate the
contract.
The sellers cannot make time of the essence by extending the
completion date under an invalid notice to complete. The sellers
should have withdrawn the original notice and served us with a new
notice to complete.
In any event, the conduct of the sellers in negotiating the
extension of time was inconsistent with maintaining that time was
of the essence.
The sellers' conduct amounted to a wrongful repudiation of
the contract and the contract was therefore validly terminated by
us, not by the sellers.
In those circumstances, the sellers cannot recover anything
from us or from the guarantor. The guarantee only extends to the
guarantor performing its obligations under the contract, and there
are no obligations under that contract if it was terminated by
us.
We seek an order that the sellers repay our $141,500
deposit.
While the general rule of construction may be that the date of
service is not to be included in calculating a notice period, that
rule did not apply in this case. There was a specific provision in
the contract stating that the notice period would commence "at
midnight on the day on which the notice is served". That is,
under this contract the day of service was included when
calculating the 14 days.
The notice to complete was therefore valid and time was of the
essence.
When the buyer agreed to an extension of the completion date
under the notice to complete, they never made any suggestion or
complaint that the notice to complete was invalid.
Since the notice to complete was valid, so was the agreed
extension. Time continued to be of the essence, and we were
entitled to terminate the contract for breach of an essential
obligation.
Irrespectively, the buyer's behaviour conveyed to us an
intention not to be bound by the contract any longer. This was a
repudiation of the contract that also entitled us to
terminate.
If we cannot recover damages from the buyer, of course we can
instead recover damages from the guarantor, since the guarantee
makes her liable as if she had purchased the property herself.
Because the sale did not proceed, we have subsequently made a
loss on the resale of the property and we seek an order for damages
in the sum of $600,000, less the five per cent deposit already
paid.
So, which case won?
Cast your judgment below to find
out
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.