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Legal Tip 37: Don’t count of contracts completing

Discussion in 'Legal Issues' started by Terry_w, 25th Jul, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Don’t count of contracts completing


    I often see people assume that the money is in the bag well before the settlement of a property. However there are many reasons why the sale of a property may not happen. An unconditional contract does not give any guarantee of settlement.


    Death - what if the purchaser dies? Its a bit hard to complete when you are dead. Any contract will generally still be binding on the estate. But it can take 3 months to a year before the legal personal representative is appointed and until this time no one is legally able to act. A good contract will have special conditions allow either party to terminate on death of the other. The best thing to do in most cases is to terminate and resell.


    Bankruptcy - sometimes buyers end up bankrupt. Unlikely in the space of 42 days but possible.


    Finance - believe it or not some people go unconditional without finance and when they later find out that they cannot complete it causes both sides to suffer.


    Death - Sometimes people die after signing and before completion. If the seller dies then it can be many months until probate or administration is granted to someone. Settlement generally won’t be able to be completed until this is done and that could take 6 months or more. If the buyer dies the seller also would have problems settling too and a notice to complete may need to be issued.


    A person is still bound to a contract after they die. The estate is bound and the estate can be sued. So to avoid drawn out and costly disputes it may be wise to consider special conditions in contracts so that either party may pull out if the other party dies. This is common for contracts for the sale of land in NSW.


    I have seen people arrange to move out of their existing property and into the new purchase on the day or day after the expected settlement only for the settlement not to happen. They are then stuck with no where to go. Often there is a domino effect where the purchaser must stay in their existing property - which they may have sold, or given notice to the landlord to move out - so the person who intended to move into that property cannot move in.


    Therefore don’t assume the sale or purchase of a property will go through until the cheque clears!
     
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  2. RPI

    RPI Property Lawyer, Town Planner Business Member

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    Great Post Terry

    And although you may have grounds for legal action to try and enforce it, make it complete etc you need to be prepared to walk away.

    We do a lot of litigation in this area, if you can work out a settlement between the lawyers quickly that is often the best. Litigation is expensive, time consuming and draining and you can often be left feeling like the only ones who won are the lawyers, even when you win. To get through a reasonably straight forward matter in this type of area up to the end of the hearing you can kiss $55k goodbye, even if you get costs against the otherside (unless they didn't play nice during litigation) you are only going to get a portion of that back (halfish is normal). Sometime the overall costs can be significantly less than that, depends on what part you are arguing, aggressiveness of the otherside, amount of material relied on etc. It can make sense economically, also considering opportunity cost, stress etc to write it off and move on. Of course you need to consider that hopefully the otherside is also getting that sort of advice (although so many law firms, especially litigation ones and top tiers are so focused on meeting their billable hours targets for each person that they may not be so keen to dissuade you) so you can get to a settlement reasonably cheaply.

    Don't get me wrong on above, I have strong litigators who do nothing else but litigation work and will go hard trying to win for the client but you need to weigh up all the costs v the benefit and decide which way to go. Litigation is too expensive and draining to go through if you are not going to come out significantly ahead.

    .
     
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  3. jaybean

    jaybean Well-Known Member

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    I had the most unusual case last year. The seller's bank couldn't find the title to the house. Because the mortgage was like 30-40 years old, the original bank has been acquired by another bank who had then been sold to another etc etc so it was lost. They said they would cancel the contract since I had passed the finance date (so they had every right to) and would call me back asap when they found it. They assured me I was still at the top of their list. I said wait how about instead of canceling the contract you keep it going, that way you lock me in, cause I could find another house in that time. They said no we'll call you back. Sure enough I found another house and sure enough they found their title too, but by that time I had already decided to go with the other (better) house.
     
    Last edited: 25th Jul, 2015
  4. RPI

    RPI Property Lawyer, Town Planner Business Member

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    The last fortnight we are hitting over 30% of settlements not happening on the day due to banks not being ready, including the outgoing bank not being able to provide pay out figures on time. It creates enough of a hassle for us but for people who have planned to move in on the afternoon of settlement......
     
  5. Art Vandelay

    Art Vandelay Well-Known Member

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    Hi @Terry_w
    We're facing the possibility of the vendor passing away prior to settlement, with the contract having gone unconditional as of yesterday.
    Financially, it's much better for us to settle on or after the agreed settlement date, even if settlement wasn't to occur for 3-6 months. When you said "The best thing to do in most cases is to terminate and resell" - is this from the sellers perspective? ie., if there was a special condition in the contract to allow termination upon death.
    In order of preference, we would rather settle on the date agreed in the contract > settle in 3-6+ months time > settle early.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    If the vendor dies then they could not terminate - until their Legal personal rep is appointed via granting of probate or administration. This could be 6 months to 2 years away. You might wait 1 year only for the contract to be terminated.
     
  7. MRO

    MRO Well-Known Member

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    Great advice.

    I have had two settlement fail: one through the death of one of the owners (settlement was delayed by 6 weeks) and another when the purchaser just dissappeared (mental health issues and had done the same previously). The last one happened during the GFC and caused me a lot of pain.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, in many cases it is less stress to just terminate and not worry about the property.

    If it is an undermarket value transfer it could also be attacked under notional estate orders in NSW.
     
  9. Perthguy

    Perthguy Well-Known Member

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    Another one to add to the list @Terry_w. My brother recently sold a new townhouse he built in Melbourne, which is one half of a duplex. He sold it pending council issuing an occupancy permit. Council inspected the property and ordered modfications to the building be made prior to issuing the occupancy permit. The modifications were made prior to the settlement date but council will now take 3 weeks to reinspect, delaying settlement by about 2 weeks.

    This is another example where a seller and purchaser can't assume that settlement will occur on time.
     
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  10. Art Vandelay

    Art Vandelay Well-Known Member

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    So once their Legal personal rep is appointed (at some time in the future) they have the power to terminate the contract?
    Looks like we will have to sort ourselves out for an early settlement if possible..
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes - bound by the same contract.
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Don't start me on the awfully inadequate issues with OTP contracts. In many instances they appear as much a contract as a McDonalds traymat is. I have had several client burned.

    - Developers not building what was agreed and then the buyer must choose to lose and walk away meanwhile market has run and there is NO recourse
    - Developers coercing buyers to pay more for what was contracted.
    - A contract for a 2 bedroom unit built as a 1 bedder etc.
    - Sunset clauses that go up and down just like the sun....Often a joke and if you seek to enforce it the vendor can terminate.

    The rise in Sydney prices has demonstrated many of these problems. Also other states. Fixing it now is too late for many.
     
  13. Propagate

    Propagate Well-Known Member

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    When we sold our last house it didn't settle on the day due to our dumb banks settlement agent turning up to settlement without all our paperwork!!!

    Buyers had already left there place, as there's settled on the morning of the same day, we were out a week earlier anyway so our place was empty and waiting for them.

    They sat in their car in front of their removalists for a stressful afternoon whilst our solicitor drew up a license for them to occupy. We thought it was all sorted until our solicitor, at about 4:45pm then said "oh wait, they can't have a license to occupy as they didn't (too cheap to bother) insure the property when they signed contracts", so they frantically arranged insurance whilst sitting in our selling agents office waiting for us/our solicitor to let our agent give them the keys.

    That was a stressful weekend waiting for it to settle on the following Monday, the buyers were *insert expletive of choice here* all the way through, and for some reason that escapes me we couldn't have their deposit released to us prior to settlement as the buyer has to sign to allow it and they wouldn', yet for some reason that also escapes me, we couldn't not let our deposit to our vendor stop being released to them prior to settlement?

    Result was, our buyers who had been pricks through the whole process, were living in our house under license and we didn't have a cent for it.

    We could justifiably have denied a license to occupy, but even though these people wound us up fro the get go, I just couldn't let them be homeless for a weekend with 2 removal guys and a truck full of their gear with no where to go.

    Karma got them in the end, but that's another story.
     
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  14. Perthguy

    Perthguy Well-Known Member

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    It's always nice to get great service from someone you are paying. That reminds me of one of my settlements that was delayed because the bank's solicitor just didn't turn up to settlement. If I recall correctly it was the vendor's bank's solicitor who didn't turn up. The vendor's settlement agent blamed my settlement agent for "the mix up" but I reckon it was the vendor's settlement agent who messed up. Anyway, the vendor (who I never met) left a nice note to welcome me to my new home and letting me know I should use a better settlement agent next time! Classic.
     
  15. Stewart

    Stewart Member

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    Interesting post TW...

    I have a query
    1. couple agree to buy OTP property as tenants in common
    2. not due to settle for 3-4 years
    3. special condition allows vendor to end agreement if death of purchaser likely to impact settlement date
    So, what happens if one of the purchasers dies well before settlement (like 1-2 years beforehand)?

    I understand that the executor takes responsibility for the contract as it forms part of the estate. But presumably the executor has to administer the estate eventually. What happens to the right to purchase the property - does it go to a beneficiary or does the executor just manage the contract until the purchase settles and then distribute to beneficiaries? So long as the purchaser dies well before settlement, surely it shouldn't have to impact settlement....?

    Sorry for the long-winded question!
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I have never though about that before.
    Executor would stand in the shoes of the deceased so would pass the TIC share on to the beneficiary(s) under the will - I presume.

    This is assuming the vendor doesn't terminate.
     
  17. Stewart

    Stewart Member

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    Thanks TW!

    Yup that's what I was thinking too. I just wasn't sure if an executor could hold off making final distributions to beneficiaries until the purchase finally settled. Might mean the estate stays in probate for a few years. Not a great outcome for anybody.
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't think there would be a need to wait, but it may depend on the terms of the will.
     
  19. Stewart

    Stewart Member

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    Might depend on the will and any specific directions to the Executor I guess.

    But the money to fund the purchase will probably have to come from the estate. A smart Executor wouldn't want to distribute the estate without holding back the balance of the purchase price first.
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Finance might be tricky if it is needed.

    has a scenario like this actually happened?