It is not uncommon common with some purchasers (particularly high wealth individuals) to assume that they have the appropriate finance in place when purchasing a property. While this may be true in part, the reality is that there is often a discrepancy between having the money and being able to access the money.
Often, the funds of high wealth individuals are held in a managed fund, term deposit, a trust, a super fund, or some other form of structure.
As a consequence, a purchaser assumes that they have the necessary finance to proceed with the purchase (and subsequently do not make the contract conditional upon finance) only to discover approaching settlement that the necessary funds are not available when required.
A purchaser wrongfully assuming that they have finance has the potential to cause massive headaches as they are then required to request an extension, which may not be granted. Given that the deposit is likely to be 10%, this amount may well be forfeited to the vendor where an extension is not granted and the contract is terminated.
Alternatively, the vendor may grant the extension but request default interest up to the date of settlement. This amount can be substantial.
Case Example 1
A purchaser was relying on funds from an overseas trust and, against advice, signed an unconditional contract.
At settlement, the funds from the trust were not able to be released by the trust and the vendor terminated the contract. As this was a purchase of property worth $24 million, the forfeited deposit was $2.4 million.
Case Example 2
There was a purchase worth $15 million. The transfer of funds was unable to be completed in time and a two week extension was required.
The vendor granted an extension, but elected to charge default interest. The default interest rate at the time was higher, but as an example, on today’s figures this would result in daily interest of $4,191.78. Multiply this by two weeks and the result is default interest of $58,684.93.
How We Can Help
Quinn & Scattini Lawyers regularly assist vendors and purchasers with their property and business purchases / sales. We are able to not only assist with the conveyancing but also offer advice to assist clients so that they do not face the situations outlined above.
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.