Sometimes things don’t go to plan when purchasing a property. Here are the most common scenarios where a Purchaser may find themselves in default of a Contract of Sale.
What is a default?
A default is a failure to follow your obligations, or a breach of conditions, under the signed Contract.
What is a Default Notice? What happens when you receive one?
Although Vendors can charge penalties to the Purchaser, an alternative would be to issue the Purchaser with a Default Notice (also known as a Notice to Complete).
The Default Notice would detail the circumstances of default and a rectification period, usually 14 days from the notice issue date. Upon receipt of the Default Notice, the Purchaser must resolve the cause of the default. In the event the default remains, the Vendor may issue their right to rescind the contract AND claim any monies paid while executing the contract.
Examples for most common scenarios
Failing to pay the deposit in time
In the Contract of Sale, you and the vendor negotiate the deposit due date. After you enter into a contract, you need to pay the deposit into the Trust Account of the vendor’s Real Estate Agent or legal representative.
The vendor may issue a Default Notice if the deposit payment is not made on time. If you fail to make the payment within the notice period the contract may be cancelled, and any amounts previously paid to the vendor will not be refunded.
Note that in some states, the deposit is payable on the exchange date of the Contract of Sale.
Failing to settle on the due date
If you fail to settle your purchase on the scheduled settlement date, you may be required to pay penalty interest.
In Victoria, the General Conditions of a Contract of sale typically calculate the penalty interest rate at 12% per annum on the balance owed to the Vendor. However, this rate may vary depending on any Special Conditions in the contract.
Failing to comply with the conditions of the contract
The conditions in the contract guide what a purchaser can and cannot do. Where you fail to adhere to the requirements of sale, you may be in default of the contract.
For example, a purchaser would ordinarily be able to lodge a caveat on the title for a standard purchase contract. The caveat would protect their interest in the Property, giving notice to anyone who conducts a title search. However, the right to lodge a caveat is ordinarily removed under an Off-The-Plan contract. If a purchaser of an Off-the-Plan contract lodges a caveat, they would be in default of the contract. Consequently, the purchaser may be liable to pay penalties.
W Legal Group will always notify clients of essential conditions!
Is this something you want to avoid when purchasing your property? Contact us at W Legal Group, and we will assist you in navigating through the legal complexities to ensure a smooth purchase experience.
