Our clients are sometimes faced with the dilemma of what to do when the contract for the sale of their house “falls over”. For the purposes of this commentary, we will assume that the buyer is in default to settle and has therefore failed to comply with an essential term or is in a fundamental breach of an intermediate term of the contract.

In this regard, the latest version of the REIQ contract provides as follows:

Clause 9.1 –

“Without limiting any other right or remedy of the parties including those under this contract or any right at common law, if the… Buyer… fails to comply with an essential term, or makes a fundamental breach of an intermediate term, the Seller…. may affirm or terminate this contract.”

Clause 9.2 –“ If Seller Affirms

If the Seller affirms this contract under Cause 9.1 it may sue the Buyer for:

• damages;

• specific performance; or

• damages and specific performance. “

Clause 9.4 – “If Seller Terminates

If the Seller terminates this contract under Clause 9.1, it may do any or all of the following:

• resume possession of the property;

• forfeit the deposit and any interest earned;

• sue the Buyer for damages;

• resell the property.”

To “affirm” the contract simply means that you will be holding the other party to the contract and may, ultimately, approach the court for an order that the buyer must proceed with the contract (“specific performance”).

When the buyer is in default, you need to decide what to do – affirmation or termination.

For the sale of residential property, affirmation of the contract is often not advisable as the seller will have to maintain the property and pay the mortgage, and may be financially stretched for quite some time. Even if court proceedings are ultimately successful, the buyer may be a “person of straw” and the seller will then be ultimately faced with the situation where the court proceedings were successful but it is impossible to recover any money from the buyer.

Bankrupting the buyer may provide some satisfaction but often does not yield any money.

In view of this, it is usually more advisable for a seller to terminate the contract and resell the property. (This is not always the case and you need to obtain legal advice about it.) In this way, the seller is able to limit the damage suffered and it may even be that on the resale, a similar contract price (or even more) may be achieved.

Sellers should however be careful to not simply resell the property for any price and think that they will automatically be able to recover the difference from the buyer.

In a recent case in the Supreme Court of Queensland (Tynan v Filmana Pty Ltd (No 2) [2015] QSC 367), a property was sold for $7 million and, when it failed to settle, was then after some time resold for $4.8 million. The seller then sued the buyer for the difference plus other damages. The seller alleged that the property was sold for market value but the buyer maintained the contrary and argued that market value was in fact $6,665,000.

On behalf of the buyer it was also contended that the property was not marketed properly and therefore the best sale price was not achieved. The court referred to the well-known principle that the sale price may be considered in deciding market value and may be quite important but is not conclusive. Other factors may also be considered. (That case commenced on 5 July 2012 and is still continuing.)

How We Can Help

At Quinn & Scattini, our Property Law and Commercial Litigation Teams are ready to assist you and provide guidance when you are faced with problems arising from what may be the largest financial transactions you may enter into.

Contact Us

Get the best representation. Contact Quinn & Scattini Lawyers on 1800 999 529, email mail@rmold.newwebsite.live, or submit an enquiry below.

We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.

This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.