Contributed by Mark Lillicrap
In Queensland conveyancing, time is “of the essence”. Basically, that means “a day late is too late”.
As a result, if a Buyer is late in meeting an obligation under the contract, the Buyer may be in default, meaning the Seller has various rights including termination, damages, legal fees, interest and declaring the deposit forfeited. The quickest, and sometimes most appealing remedy (at first blush at least), is the forfeiture of the deposit.
While forfeiting the deposit looks like easy cash, is it too good to be true?
Some potential consequences, which may not be immediately obvious, of a Seller terminating the contract and forfeiting the deposit include:
1. Agent’s commission. The standard terms of appointment prepared by the Real Estate Institute of Queensland provide that where the Seller is entitled to terminate a contract and forfeit the deposit, the Agent is entitled to its commission. Unless the deposit is significantly greater than the Agent’s commission, there may be no financial gain to the Seller from receiving the deposit.
2. Delays and uncertainty involved in a resale. Having already sold his or her property to the Buyer, presumably the Seller still wants to sell the property. If a contract is terminated and the Seller still wants to sell the property, then the Seller may have to go through the process of marketing the property, negotiating a new contract and thereafter waiting for that contract to settle. If the default of the original Buyer was caused by some glitch, such as the Buyer’s bank not being ready for settlement, then that issue may be resolved in a matter of days and might enable the Seller to complete the sale of the property with the original Buyer, while avoiding the uncertainty and delays of trying to resell the property on the open market.
Obviously, the Seller should take legal advice before making any decision about a default by a Buyer. The Seller should also have some genuine discussions with the Agent about issues such as the likelihood of the Seller reselling the property at the same price or better and likely delays associated with any resale of the property.
In short, Sellers should beware: the low hanging fruit isn’t always sweet.