Delayed Settlement

Hey All,

Just generally interested to know what happens in the event of a delayed settlement from the point of view of both sides. Brokers any experience or interesting stories?

Let's use the example that the lender is not ready for settlement, what action does the vendor and buyer have if the other party causes a delay? Do most people just get on with it and acknowledge at times banks are slow?

I am just thinking what happens if you planned to move, or ended a lease.etc. It could be quite horrible and expensive if things went belly up.

 

Depends on the State. In some State's you'll be liable for penalty interest (ie, could be circa 2% above the prevailing interest rates of the day), in other States the contract can be invalidated and deposit taken.

You certainly don't want to be late in QLD, especially in a hot market - the vendor might decide to keep your deposit and sell at a higher price again.

 

Wow are you serious? That's crazy!
So your saying if settlement fails in QLD because your bank was not ready then the vendor could keep your deposit and sell it again?
Could the buyer pursue legal action? What happens if it was the brokers fault because they did not lodge the application correctly?

 

Lenders rarely accept responsibility unless they have cleary messed up eg: had to re-issue docs several times their error. Otherwise they will simply point that you took 4 days to return the docs etc. Lots can go wrong with many participants so never a good idea to waste a day.

If you are looking at real possible delays best to have the discussion early with the vendor/solicitors to try and come to an understanding but needs to be lawyer to lawyer or otherwise in writing. Never rely on an estate agent.

Qld is strict but technically any failure to settle is a breach of contract - you may have recourse to those who caused it but generally good luck.

 

I just had a client settle a day late in QLD and was charged a penalty. Bank offered to reimburse because they were to blame (according to client).

In NSW the vendor cannot terminate the contract until a notice to complete is properly issued. This will then give an additional 14 days to settle. If this doesn't occur the vendor can terminate and keep the deposit and potentially sue for losses. This is under the standard contracts and can be varied.

 

Both my purchases the vendor has had to delay. The first time we just stayed with family until settlement, about 4 weeks from memory. Just recently we asked if we could move in early because our house had settled and they had moved out already. Fortunately they were happy with that so we got two weeks of free rent.

 

Usually the main consequence is penalty interest. The contract will describe exactly what that is, but around 11% isn't uncommon.

QLD certainly can be draconian about it, especially when you consider they lean towards 30 day settlements. Despite this I don't believe I've ever seen a QLD (or any other state) completely fall over due to a late settlement.

If it can be clearly demonstrated that the lender was the cause of a late settlement, most are fairly good about reimbersing the borrower.

 

Most common i've seen is penalty interest.

Timely question, i've had quite a few '7-14 days to settlement, help!' calls over the last couple months from clients who may have got caught in with APRA changes (OTP and Auction purchases). In the cases were settlement dates have been pushed its been penalty interest in QLD.

 

Sorry pardon my ignorance but when you say penalty interest, how exactly does that work? Interest on what exactly?

For example if I'm the vendor and settlement is delayed by say 5 days by the buyer, then what? Would my conveyancer work out how much I would have recieved by the sale and then told the buyer to pay say 11% interest on that?

 

I think it's something like interest on the entire purchase price for the number of days it's late by.

$400k purchase, 5 days late, 11% interest
= $400k x 11% x 5 / 365
= $602

There could also be other costs such as settlement re-booking fees. If the vendor has another simultaneous settlement, you might also be liable for the costs around that.

 

Thanks Peter, I'm not in this situation but just generally interested to know.

What about if its the vendor who fails to settle? Any recourse?

 

Not that I'm aware of.

 

Just settled on a place, in QLD and settlement was missed twice due mistakes by the conveyancing team. (who I had used before, but will never again).

Thankfully had an understanding vendor and I did not have to pay penalties.

Part of the problem was delay in the building completion. I purchased it when it was "less than a month" away. It took 14 weeks, I should have included a time penalty clause.

The mortgage I was using needed to be drawn onwithin 90 days so I had to redo the paperwork which changed settlement numbers...see conveyancing comment above (they missed this crucial step).

 

Very interesting, thanks for clarifying all.
I do think it to be a bit unfair with penalties only going one way. As I mentioned in my original post a delayed settlement for the buyer could be just as painful.

They could have ended a rental lease with new tenants moving straight in so need to find accomodation for X period. Need to move furniture twice and pay those costs.etc
Guess the lesson is if buying, make sure you leave a move-in buffer.

 

Settlement was delayed twice and extended by over a week by the vendor on a property I purchased earlier this year.
Its only a problem when its the purchaser causing the delay which is a little unfair.

 

It can work both ways. I've charged a vendor penalty interest in WA for not settling on time (they had some dispute with council over outstanding rates that had to be resolved)

 

Yes in WA buyer can receive penalty interest after I think a 3 day grace period.

 

That's the beauty of auctions.

 

This just happened to me in QLD.

Firstly I gave the sellers an extension of 2 weeks because they couldn't settles in time. I didn't hesitate to give them extra and also it worked in my favor to have an extra 2 weeks to advertise.

For reason out of my control when it was time to settle I needed an extra 2 days and they wanted to charge me $2,000 penalty. My solicitor wrote a big email saying this was out of my control and they finally accepted that it was going to be 2 days late. In the end it settled 1 day late.