Delayed Property Settlement: Your Rights As A Seller or Buyer

28 Apr 2019

Just because the seller has signed the contract, it doesn’t mean the property now belongs to you. The complete purchase will only happen on the settlement day, where the complete payment of the contract price is made to the seller and the buyer can take legal possession of the property.

However, it’s important to note that delays to settlement from either buyers or sellers can occur. So, what are your rights and obligations as a buyer or seller, and what can you do to protect yourself if the other party fails to settle on the due date? In this blog post we will detail each possible situation and what can you do to protect yourself as a buyer or seller.

What causes settlement to be delayed?

Planned or unplanned delayed settlements can happen for a number of reasons, including:

  1. Off-the-plan Purchases. This is the most common reason for a long settlement period and allows for the purchased property to be constructed.
  2. Post-settlement improvements. Occasionally buyers will want a longer settlement to plan for improvements on the property Post settlement, such as renovations or new additions to the property.
  3. Sellers relocating. Sellers have not yet purchased their next property and would like the comfort of a longer settlement to allow them time to purchase.
  4. Unexpected incorrect paperwork. An example of this would be  incorrect Discharge of Mortgage documentation, which must be completed by a seller for the sale to go through.

What can cause a vendor to delay settlement?

The most common reason for delayed settlement is the failure to complete the discharge of mortgage. The mortgage loan provider, usually a bank, has rights over the property due to the money borrowed by the seller. Therefore, this document is necessary for the seller’s mortgage loan provider to agree to allow the property to transact on settlement to the buyer.

Sometimes, the Personal Property Securities Register (PPSR) might have a security interest over the house which disrupts the settlement. This could happen, for example, when other parties have a financial interest on the property as the sellers used the house as a means to secure a loan from the lender. The financial interest will be registered on the PPSR to ensure that if the owner sells the house, their debt can be recovered or transferred to another asset of the seller.  

Some buyers request delayed settlement as a cash flow strategy – how common is this in this market?

Buyers have more power now than they did 12 months ago, so this is a strategy we are starting to use more and more. This is also a strategy with increasing popularity.

For instance, as a buyer you do not start paying a mortgage until the property settles. When the property is under contract, it is the seller’s responsibility to ensure the mortgage is paid. So, as a buyer you can use a longer settlement period to plan post settlement renovations if necessary. Renovations usually take time to plan and complete, so rather than having the property sit vacant, costing extra money as you may need to continue renting a place while the house is being renovated, having a longer settlement period can let you plan and design these improvements before you settle and start paying a mortgage.  

If the vendor delays settlement, what are your rights as a buyer?

If you are the buyer, you have the right to charge a penalty interest. The interest amount will need to be detailed in the contract.

In addition, you can issue a Notice To Complete to request the receiver complete the contract within a reasonable timeframe following the provisions of the contract.

What is the maximum allowable time for the vendor delay?  

Unfortunately, there is very little flexibility for the vendor to extend the settlement unless an agreement has been made. Usually 4pm on the day of settlement is reinforced in Queensland unless otherwise agreed with the buyer.

Can you cancel the contract with no penalty?

Unfortunately, at this stage the contract is usually unconditional so there will be a penalty charged from one side to the other.

How do you protect yourself from penalties if you fail to settle?

The best strategy is preparation for on time settlement. Liaise with your broker to ensure that they have the appropriate documentation and settlement funds before settlement. You should also communicate with your solicitor to ensure they have completed the due diligence and undertaken the appropriate settlement process. These steps will ensure all parties are ready for the settlement day.

Always keep an open line of communication with the vendor and their representatives. If an extension is required by either party then communicate with each other well in advance.

If the buyer delays settlement – what can you do as the seller?

As a seller, you can charge a penalty interest.  The interest amount will be detailed in the contract. You also have the right to keep the deposit and cancel the sale all together. As a seller you can also issue a Notice To Complete to request the buyer to complete the contract within a reasonable timeframe following the provisions of the contract.

Can you extend the settlement time as a seller or buyer?

Settlement dates can be changed if mutually agreed. This is usually carried out through official correspondence via your solicitor.

How about the agent – do you have to pay them commission if the sale falls apart due to delayed settlement? Can you hold off paying their commission until the property is settled?

This would depend on the conditions of the agent’s appointment. For example, buyer’s agent fees are usually payable when the contract is unconditional. Selling agents are usually only paid on settlement day, so if settlement is delayed so does the commission. However, there are exceptions to this. Some agents might request payment of part commission when the contract is unconditional and balances on settlement for long settlement contract.

What are your top tips for buyers & sellers dealing with a delayed settlement?

Be understanding and engage in an open dialog with the other party to understand their situation in order to achieve the best outcome. This will help with avoiding further costs on both sides.

Request that your solicitor corresponds via formal communications to show that you take the contract  seriously, this will also hold the other party accountable in the settlement process.

If you have to take civil action against the other party, consider the consequences of the action and ensure the actions are worth the outcome.

In some cases it might be easier to cut your losses and move on from the deal if one party is refusing to settle, but if the deal is worth pursuing perhaps for a larger potential financial gain, it could be worth taking further legal action.

Do you have a delay to the settlement and need more advice on? Contact us for a quick chat today!


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