A recent settlement case has highlighted how important well-written contracts are in subject sales.
In this case, Mr and Mrs Buchan* were buying a family home with a cash offer, which was written up stating that it was “subject to successful settlement of the purchaser’s property located at 42 Wallaby Way, Thornlie and settlement of sellers property and buyers property are to coincide”. It had a fixed settlement date.
However, the people who had put an offer on Mr and Mrs Buchan’s property were unable to obtain finance, and that deal fell over.
Since their contract to buy the new family home had no fixed dates other than the settlement date, the Buchans were determined to find another buyer for their property before the appointed settlement day. With just three days to go, they accepted another offer – but they couldn’t meet settlement date.
Mr and Mrs Buchan could have been charged thousands of dollars in penalty interest for the late settlement. Fortunately for them, the sellers chose to grant them an extension, and both settlements went through successfully.
However, it was a close call. They almost incurred costly penalty interest, and had the Buchans not been able to find another buyer, the sellers of the family home would have lost several weeks of marketing time by having their property off the market.
This situation could have been avoided by making the contract more specific. Had the contract specified a date on which it had to be unconditional by, along with the settlement date, the sellers would have had the option to terminate or renegotiate the contract after the unconditional date was not met. **
The agent could also have chosen to include a 48-hour clause, which would have allowed the seller to keep marketing their property while Mr and Mrs Buchan continued to look for a new buyer.
Subject sales can be complex, but smart contract-writing can help to smooth out the process. What would you have done to prevent this situation?
* Details changed
** This does not constitute legal advice. For specific advice on writing contracts, please consult a legal professional
Image by Caitlin Childs via Flickr.