ADLS Agreement for Sale and Purchase - General Terms - Clause 11. Notice to complete remedies on defualt
Written by Lana McCarroll - Legal Executive (Property)
We continue our series on the general terms of the ADLS Agreement for Sale and Purchase and in this article look at Clause 11: Notice to complete and remedies on default.
In the majority of cases, a property settlement is completed on the agreed date and each party can make use of their new property or sale proceeds. Occasionally a settlement is unable to be completed on the stipulated settlement date. Although these scenarios are rare, parties need to understand the options provided by clause 11 of the ADLS Agreement for sale and purchase.
If a party cannot meet their obligations on the settlement date, the other party may serve the defaulting party with a settlement notice.
What is a settlement notice?
A settlement notice is served on a defaulting party and gives that party notice that they have 12 working days to complete settlement. This time may be extended by the party serving the notice if they wish. To serve a settlement notice a party must be in all respects ready, willing, and able to settle. Remember, if neither party is in such a position clause 3.16 provides for the settlement date to be shifted to 3 working days after such time that one party is in all respects ready, willing, and able to settle.
Damages available to vendor: In the event of default by the purchaser, the vendor has two main forms of compensation. Their first option is to sue the purchaser for damages and retain the deposit if one was paid. When exercising this option the deposit can only be retained up to a value of 10% of the purchase price under the agreement. “Damages” includes any interest on the unpaid portion of the purchase price charged at the rate noted on the first page of the agreement, all costs and expenses incurred in any re-sale of the property and all outgoings (other than interest or maintenance expenses) in respect of the resale of the property. A vendor’s other option is to sue for “specific performance” whereby if successful, the court will order the parties to complete the transaction. Due to the costs involved specific performance is not commonly sought. Even if the
purchaser is in possession of the property, but has not settled, the vendor may cancel the agreement if the purchaser has not completed settlement within the time frame set out in the settlement notice.
If there is a surplus of these funds (i.e. the vendor ends up making a gain) this is not recoverable by the purchaser.
Damages available to purchaser: If a vendor does not settle before the expiry of a settlement notice then the purchaser may sue for specific performance or cancel the agreement. If the purchaser cancels the agreement in this way they may request the return of the deposit paid and any other money paid on account of the purchase price with interest added to this sum at the interest rate stipulated on the front page of the agreement.
If the agreement provides for the purchase price to be paid in instalments, and the purchaser fails to pay these instalments within one month of that payment’s due date, then the vendor may serve a settlement notice on the purchaser. If the purchaser fails to make payment within the allotted time under the settlement notice, the vendor may sue the purchaser for specific performance; or cancel the agreement and retain the deposit and/or sue for damages.
Once the agreement is cancelled, the vendor is then free to market the property immediately if they so wish. Remembering that the additional commission payable should be recoverable from the purchaser as part of “damages.”
Stress levels for clients are running high during this time, as clause 11 of the ADLS agreement is usually a worst case scenario. It is important that both agents and lawyers have a good understanding of these terms in the agreement.
For more information about what to do when a party might not be able to settle in time, speak with our friendly residential property team today.