Anybody familiar with Queensland conveyancing knows that it is an essential term of the standard form REIQ contract that settlement is “time of the essence”. What does that actually mean? This question was recently decided by the Queensland Supreme Court of Appeal in the matter of Caprice Property Holdings Pty Ltd v McLeay.
The contract involved a $1.35 million home on the Isle of Capri, Gold Coast. The contract was due to settle on 25 September 2012 and the parties had nominated 3pm as the time for settlement. The buyers solicitors arrived and were informed that the release of mortgage would not be available for another 15 minutes. The buyer’s settlement clerk declined to wait any more than five minutes and left. The sellers’ solicitor contacted the buyer’s solicitors shortly thereafter and requested that the buyers clerk return and stated that the sellers had reserved their rights to settle any time up to 5pm. The buyer’s solicitor did not agree to re-attend settlement nor did the buyer attempt to make any other arrangements for settlement.
The seller’s solicitor then sent a facsimile to the buyers solicitor at 4.36pm holding the buyer in fundamental breach of the contract as it had not effected settlement by 5pm. This fax was sent prematurely in that it was not 5pm and the buyer was not yet in breach of the contract . The buyers argued that this facsimile was an intimation by the sellers that the buyers need not settle the contract after receipt of the fax at 4.36pm, thereby excusing them from having to settle. The court disagreed with this argument.
The court held that the buyer’s failure or refusal to settle at any time after 3.05 pm on the settlement date prevented and excused the sellers from performing their obligations at settlement. The buyer was in breach of the contract in failing to settle and was thereby in breach of an essential term of the contract because time was of the essence. Accordingly, after 5pm on 25 September 2012 the sellers were entitled to terminate the contract for the buyer’s failure to comply with an essential term as well as being entitled to do so at common law.
This case has affirmed a common sense approach to the meaning of “time is of the essence” in Queensland contracts and makes it clear that a party is not in breach of the contract if they are unable to settle at the time nominated by the parties. The parties are obliged to settle any time up to 5pm on the date of settlement. This is a reasonable approach given the uncertainties and unforeseen events which can prevent a clerk from arriving at settlement exactly at the time nominated. It should also place a sense of urgency and some commonsense amongst settlement “agents” who habitually ignore settlement times and are very rigid in their arrangements regarding settlement. Many of the major banks now use “agents” who are very inflexible with their settlement arrangements. This decision should ensure that if a party is unable to settle at an agreed time, there will still be scope to settle the matter at any time up to and including 5.00 p.m.
The premature fax sent by the seller’s solicitors prior to 5.00 p.m. was an example of what could have been an incorrect termination of the contract. The law surrounding termination of contracts and wrongful repudiation is extremely complex and we quite often find that parties to conveyances make an incorrect election in relation to terminating the contract. This can have catastrophic consequences in relation to the rights of each of the parties and the real estate agent whose commission rides on the result. It is also well established that if a vendor correctly terminates a contract and forfeits the deposit, the agent can still press for payment of their commission.
Attwood Marshall have a dedicated litigation department with experienced lawyers who specialise in contract disputes and terminations. Our litigation team are on hand to assist our conveyancers in these sticky situations to ensure that things are done correctly. Careful advice and guidance will reduce and potentially avoid the backlash from termination or dispute over a contract.
Real estate agents need to be careful about who they refer buyers and sellers to for their legal work on their conveyance. In many cases, inexperienced conveyancers are unable to deal with these situations. We believe it is better to be safe than sorry for the sake of saving a couple of hundred dollars on fees for a conveyance.
For any further information, please contact our Commercial Litigation Department Manager Holly Gilholme on 5506 8202, or email email@example.com.