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What happens if you cannot settle on the agreed settlement date

Buyer not ready to settle on time

You have found your perfect home or investment property, you have completed all your due diligence checks, you have paid the deposit in full crystallising the contract as unconditional, and are now looking down the barrel of the agreed settlement date.

What happens if something occurs preventing you from settling on the agreed date? In Queensland, the Settlement Date is as an essential term of the contact and time is of the essence. If the Buyer is unable to complete settlement on the Settlement Date, the Seller may:

  1. refuse to grant an extension, wait until close of business on the Settlement Date and send notification that the Seller is ‘ready, willing and able’ to settle and if the Buyer does not settle by that required time, the Seller can retain the deposit, terminate the contract, and sue for damages, or possibly obtain specific performance where a court would force the Buyer to have to settle; or
  2. grant an extension of time, however the Seller may impose penalty interest for the extra days. The Seller may also negotiate other penalties to cover any additional costs they will incur such as legal fees, storage costs etc.

In practice, settlements are delayed from time and time and most parties will work together to negotiate a fair outcome. There is however no obligation on the Seller to grant an extension and this is particularly relevant if the Seller has a backup offer in play, or they believe they have undersold the property.

Seller not ready to settle on time

You have finally snagged a sales contract with a price that you are happy with, the Buyer has completed their due diligence checks, they have paid the deposit in full crystallising the contract as unconditional, and now you are now looking down the barrel of the agreed settlement date.

As referred to above, the Settlement Date is an essential term of the contract and time is of the essence. If the Seller is not ready to settle on time, the Buyer may:

  1. refuse to grant an extension, wait until close of business on the Settlement Date and send notification that the Buyer is ‘ready, willing and able’ to settle and if the Seller does not settle by that required time, the Buyer can terminate the contract, recover the deposit paid and sue for damages, or possibly specific performance; or
  2. grant an extension of time, however the Buyer may negotiate penalty charges to cover any additional costs they will incur such as accommodation, storage costs, legal fees etc. The Buyer may also seek early possession to the property.

In practice, settlements are delayed from time to time and most parties will work together to negotiate a fair outcome. There is however no obligation on the Buyer to grant an extension and this is particularly relevant if the Buyer gets cold feet and wants to crash the contract.

How to avoid delays

There can be a multitude of reasons for a delayed settlement and it is critical that both parties are organised and act reasonably, to ensure the transaction proceeds smoothly. We recommend the following tips:

  1. Be organised and do not leave things to the last minute – as soon as you receive any correspondence from your solicitor, broker or banker, act on them quickly and return any documents by express post
  2. Nominate an account with your financier to draw funds from in the event of a shortfall of funds
  3. Pay attention to detail – review and double check all documents for discrepancies. Simple spelling errors on bank documents can cause havoc with settlements
  4. Communicate with your broker/banker, solicitor and real estate agent, and if you are not sure about anything ask
  5. Settle your transaction electronically using PEXA to reduce issues with the bank and human error
  6. Choose the right team to have your back – you want your solicitor, broker/banker and agent to be available to you and promptly answer any questions you might have.
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