A missed settlement, a vendor or purchaser who wants out, a fight over the deposit. When a property contract breaks down, the right move in the first few days often decides the outcome.
Most property transactions complete without incident. When one does not, the consequences move quickly from inconvenient to expensive. A buyer who cannot settle, a vendor who refuses to complete, a dispute over the deposit or the condition of the property: each of these turns a contract into a dispute, often with a settlement date bearing down.
The contract for sale sets out what each party must do and what happens if they fail to do it. The rights that follow a breach, including terminating the contract, forfeiting or recovering the deposit, and claiming damages, are governed by the contract and by NSW law. For how a normal completion is meant to run, see our article on what happens after contracts exchange.
This article explains how property contract disputes can arise in NSW, the options available to buyers and vendors when the other side will not complete, and how these disputes are resolved.
Key takeaways
• A failure to complete a property contract by the settlement date is a breach, but the right to terminate usually depends on first serving a valid notice to complete.
• When a buyer defaults, a vendor can generally terminate, keep the deposit, resell the property, and claim the shortfall and costs as damages.
• When a vendor defaults, a buyer can seek to compel completion, terminate and recover the deposit, or claim damages.
• The notice to complete and the phrase ‘time is of the essence’ sit at the centre of most settlement disputes, and the timing and wording of a notice matter.
• Most property disputes are resolved by negotiation or mediation rather than a court hearing, but the strength of your position depends on acting correctly from the start.
When a property contract is breached
A breach occurs when a party fails to do something the contract requires, the most common being a failure to complete by the settlement date. Other breaches include failing to pay the deposit, failing to give vacant possession, or breaching a warranty about the property.
Not every breach allows the innocent party to terminate. The contract distinguishes between essential terms, where a breach allows termination, and lesser terms, where the remedy is usually damages. The settlement date is generally not an essential term until a notice to complete makes it one, which is why the notice is so important.
When the buyer cannot or will not complete
If a buyer fails to complete, the vendor is not automatically entitled to terminate on the settlement date. The usual course is to serve a notice to complete, giving the buyer an agreed or reasonable further period to settle and making time of the essence. If the buyer still fails to complete, the vendor can terminate and pursue the following:
1. Forfeit the deposit. The standard ten per cent deposit is generally forfeited to the vendor on termination for the buyer’s default.
2. Resell the property. The vendor can put the property back on the market and claim the shortfall. If the resale achieves a lower price, the vendor can claim the difference as damages. The vendor can also claim costs of reselling and holding the property.
3. Claim interest and costs. Penalty interest and other costs provided for in the contract may also be recoverable.
The vendor must act properly in reselling and limiting the loss. A buyer facing default is not without options, and early advice can sometimes preserve the contract or reduce the loss.
When the vendor will not complete
A vendor who refuses or is unable to complete also breaches the contract. A buyer in this position has three broad options:
- Compel completion. The buyer can seek an order for specific performance, which is a court order requiring the vendor to complete the sale. Because each property is treated as unique, the courts will order specific performance of a land contract in circumstances where they would not for other contracts.
- Terminate and recover the deposit. The buyer can terminate, recover the deposit paid, and walk away.
- Claim damages. The buyer can claim the loss caused by the vendor’s failure, which may include the difference between the contract price and the market value if prices have risen, together with wasted costs.
The right choice depends on what the buyer wants, whether the property is still desired, and how the market has moved since exchange.
Notices to complete and time of the essence
A notice to complete is the document that converts a missed settlement date into a right to terminate. It tells the defaulting party that they must complete by a new date, that time is of the essence, and that failure to complete will entitle the server to terminate.
For the notice to be effective, the server must be ready, willing, and able to complete, the period given must be agreed under the contract and/or be reasonable, and the notice must be correctly worded and served. A defective notice can leave the innocent party in breach if they then purport to terminate. For this reason a notice to complete should be prepared with care and on advice.
Deposits, cooling off, and recovering loss
The deposit is the security at the centre of most settlement disputes. On a buyer’s default it is generally forfeited. A buyer who paid less than the full deposit on exchange, for example a smaller amount on a deposit bond arrangement, can remain liable for the balance of the agreed deposit even after termination.
During a cooling-off period, a buyer who rescinds forfeits only 0.25 percent of the price, which is a different and much smaller exposure.
How property disputes are resolved
Litigation is not the only path, and it is rarely the first. Most property disputes are resolved through:
• Negotiation between the parties’ lawyers, often resulting in an extended settlement, a price adjustment, or a release of the deposit.
• Mediation, where an independent mediator helps the parties reach agreement, which is faster and less costly than a hearing by the court.
• Court proceedings, where the dispute cannot be resolved and a party seeks specific performance, damages, or a declaration about the deposit.
The earlier advice is taken, the more options remain open. Serving the wrong notice, missing a deadline, or terminating without the right to do so can turn a strong position into a weak one. Many disputes trace back to terms that were not addressed before exchange. We highly recommend you review the Contract Review article on our website for what your lawyer should check before you sign.
Working with & Legal
Our dispute resolution team acts for buyers and vendors in property contract disputes across NSW. We advise on whether a breach has occurred, prepare and respond to notices to complete, and pursue or defend claims for termination, forfeiture of the deposit, specific performance, and damages. Where a dispute can be resolved without court, we can negotiate in an endeavour to protect your position and your costs.
If a property transaction is at risk of falling through, contact us at andlegal.com.au as soon as possible. In settlement disputes, the right action in the first few days often decides the outcome.
Frequently asked questions
The buyer has not settled on time. Can I keep the deposit straight away?
Not automatically. A missed settlement date is a breach, but you usually need to serve a valid notice to complete giving the buyer a further reasonable period before you can terminate and forfeit the deposit. Terminating too early, without the right to do so, can put you in the wrong. Take advice before acting.
The vendor wants to back out because prices have risen. Can they?
Not simply because it suits them. A vendor who refuses to complete is in breach. You can seek specific performance to require the vendor to complete, or terminate and claim damages for your loss. Each property is treated as unique, so a court can order a vendor to go through with the sale.
What is a notice to complete?
It is a formal notice requiring the other party to complete the sale by a new date and making time of the essence. If they fail to complete by that date, the party who served the notice can terminate. The notice must be correctly worded, allow a further period, and be served by a party who is itself ready to complete.
How long does a property dispute take to resolve?
Many are resolved within weeks through negotiation or an extended settlement. Where the matter proceeds to mediation, it can still be resolved relatively quickly. Court proceedings take longer and cost more, which is why they are generally a last resort. The timeframe depends on the issue and the willingness of both sides to deal.
Can I recover more than the deposit?
Yes, if your loss is greater than the deposit and you can prove it. For a vendor, this is often the shortfall on resale plus costs. For a buyer, it can be the difference between the contract price and the market value, plus wasted expenses. You must act reasonably to limit your loss, and a court will not award more than the loss actually suffered.
This article is general information only and does not constitute legal advice. The rights and remedies available in a property dispute depend on the terms of your contract and your circumstances. You should seek independent legal advice before serving a notice, terminating a contract, or refusing to complete.