A recent number of conveyancing transactions in Queensland have fallen over due to the buyers’ failure to make settlements. In this podcast, Legal Practitioner Director Sylvia Lopez provides insight to minimise the risk of failed conveyancing contracts.
TRANSCRIPT
Speaker 1:
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Dan:
You may have noticed in recent weeks a number of conveyancing transactions in Queensland that have fallen over due to the buyer’s failure to make settlement. The consequences are of course massive, with not only the purchase not happening, but the deposit, which invariably, given the state of the market, which is often massive, is being clawed back by the seller because of the buyer’s failure. Now, if you’re a buyer, what can you do to minimise a risk of this happening to you? Well, today, I’m with Sylvia Lopez, partner at Big Law. Sylvia, maybe a starting point is to get back to the fundamentals, which, of course, is the REIQ contract. What does that tell us about the future transaction?
Sylvia:
Sure, Dan. Look, the REIQ contract is by far the most frequently used contract to transact real property in Queensland. So, nine times out of 10, that will be the document that will be used. It is a legally binding document, so, the minute you sign it, you are bound, subject to a cooling off period that applies. Putting that aside, though, the contract does provide that in Queensland, unlike other interstate jurisdictions, time is of the essence. What does that mean? It means time is critical. If there is a deadline, it must be met on the due date for that deadline, as provided for in the contract. There’s no obligation on either party to allow extensions. So, it becomes really, really important to make sure that you are firstly, aware of what dates you’re agreeing to be bound by, secondly, that you keep track of those dates and you understand that the due date is the due date.
Dan:
Sylvia, I opened with reference to some recent cases. Just to give people some context around this, what actually went wrong with these particular conveyancing matters?
Sylvia:
Look. From reading the articles, Dan, it appears that what has happened was that there were two critical deadlines in a contract. The first one is your finance approval date and then your settlement date, and it appears that either or one of those dates has been missed. If you miss your finance approval date, it’s not great. But if you miss it, your seller can terminate the contract. So, you might miss out on buying the property that you really wanted, but you will get your deposit back if there’s no amendments to that standard REIQ contract. The critical date, though, that cannot be missed is your settlement date. So, the settlement date you agree to is a settlement date that everyone has to be ready to settle. It must occur by 4:00 PM and in both of the cases that have been publicised recently, it appears that the buyers were unable to meet that settlement date and did not make settlement.
Sylvia:
In one instance, based on the reports, the bank was ready at 4:15 PM which is too late, and in the second instance the bank was ready the next day. So, it is absolutely critical that you make settlement on the due date by no later than 4:00 PM. So, once that deadline is missed, you’re in breach of contract and as you quite rightly pointed out before, you forfeit your deposit, which in both of those instances appear to have been substantial deposits, and you are then at risk of having to pay damages to a seller. No those damages can be anything from a reduction in the purchase price which are, except in the current market, probably unlikely. But legal costs, agents’ commissions fees, and so forth. In one of them, it appears that the buyers lodged a caveat, which then led to expensive court preparation for the sellers to have that caveat removed. So, they weren’t in default in the second contract that they had signed. So, very painful, very expensive, and extremely stressful for everyone involved.
Dan:
I’m assuming, Sylvia, that if settlement, or in fact finance, that date’s missed, then the next step of the buyer is to perhaps wrongly assume that a guarantee will be extended to them. That’s not the case always, is it?
Sylvia:
Absolutely not. And look, at the moment, particularly in the current market, there is a general reluctance on parties to grant extensions. So, if your date comes up and there is an issue and we’re not going to make it, we’ll always ask for an extension. But it is up to the seller to decide whether they’ll grant that extension, and if they grant it, on what terms? So, they can apply default interest, which at the moment is roughly about six and a half percent per annum. So, there’re various conditions that can attach if you’re lucky enough to get an extension to the settlement date, but no legal obligation on the seller to grant one. So, if they have other offers for example, that their agent is telling them that they would be able to accept, particularly if it is for more money, then they’re just as likely to terminate that contract.
Dan:
So, what are the really take home tips for a buyer?
Sylvia:
Sure. I think it’s so easy to get caught up in the emotion of when you’re negotiating a contract. You don’t want this to end up in your worst nightmare. So, give yourself enough time to meet your conditions. From my perspective, I would not be signing a contract that provided for less than 21 days for your finance approval due date. And then for 45 days from the date of the contract for a settlement date. Now I know traditionally in Queensland, we’ve always tried to make 30 day settlements, but they are just too hard to meet at the moment. So, I guess what I’m saying is be smart and be less emotive. When you are negotiating that contract, be ready with your finance approval documentation for your bank. Your banks do generally endeavour to make your deadlines, but they have a process to go through and it is also quite involved.
Sylvia:
So, whether you’re going directly through a bank or whether you’re going through a broker, have a chat to them, gauge from them, how long they think they are going to need to process your application. And have your documents ready, your pay slips, your tax returns, all of those things so that you can provide them readily. The more that you’re able to do that, the smoother that the process with the bank will go and be proactive, contact the bank, keep on top of that side of things, to make sure that everything that you needed to provide has been provided. We assist you in that process and we follow up your bank as well, regularly for you. But it’s important that you do that as well in that buyers are signing their loan documentation and returning it to the bank as quickly as they can so that there’re no delays there. So look, they’re the main things that I would be saying to buyers at the moment to make sure that their dream stays a dream and it doesn’t become the worst nightmare that they’re going to have to deal with
Dan:
Sylvia, great tips for buyers. I couldn’t help think that when I came across those recent cases, that from a seller’s perspective, it does emphasise the importance of having lawyers do your conveyance, as opposed to perhaps conveyance in agencies that actually don’t have a commercial legal arm to them, I suppose. Because when things go wrong, you’re in a world of pain if you haven’t got almost a holistic legal service that does convey of course, commercial litigation disputes, does that ring true for you as well?
Sylvia:
Absolutely. Look you need to be able to have someone who is acutely aware of all the legal issues and how they come at play. If you terminate a contract, you may very well be within your rights, but understand that a buyer may seek to enforce other rights as well. Such as lodging a caveat, if they believe that they have a caveat able interest. And then it becomes critical that you have someone with the experience and the knowledge both in property and in litigation to be able to resolve that, so that you don’t end up having two contracts and two different issues on the go that you’re trying to deal with. So, look absolutely critical both from a sellers and a buyer perspective that they really do have experience legal representation when they’re dealing with these issues.
Dan:
Sylvia, thanks for joining me.
Sylvia:
Thanks Dan.
Speaker 1:
Thanks for listening. Need further information. Visit us @biglaw.com.au.
