Settlements and Extension of Settlement Date in REIQ Contracts
What happens if I’m not ready to settle?
Settlements in Queensland are serious business.
We are a jurisdiction that relies on the principle of ‘Time is of the Essence’. This basically means, you need to fulfil your obligations when you said you would.
Effecting Settlement of your purchase/sale is a key example of that and is one that can lead to serious consequences if not strictly followed.
Thankfully, these obligations were relaxed slightly in the recent updates to the Real Estate Institute of Queensland (REIQ) versions of the Contracts for the Sale of Residential House and Land, Commercial Land and Buildings, as well as the Contracts for residential and commercial units.
We will explore the updated position today.
For ease of reference, we will utilise the terms in the Residential House and Land REIQ contract (hereafter referred to as ‘the Contract’) for the purposes of this article, however, be aware that the other forms of REIQ contracts have corresponding conditions that may appear under difference clauses.
Is time still ‘of the essence’?
Yes. Clause 6.1 of the Contract still provides that Time is of the Essence under the Contract. You still need to pay your deposit, satisfy your conditions, carry out your obligations, and effect Settlement when you say you will. This remains a staple of Queensland Contract law.
A party may find themselves in default under a Contract because they forgot to transfer the Deposit to the Agent on the required day, for example, leading to consequences such as that Contract being terminated, among other damages sustained by the Seller.
Extension of Settlement Date
Recent changes to the Contract came following a tough time in Queensland, when we saw many Developers during the Property boom following COVID-19, capitalising on Buyers who weren’t ready to settle on the required day of Settlement (usually due to something like a trivial bank paperwork issue). This saw many Developers refusing to extend Settlement, terminating when the Buyer couldn’t settle on the day, claiming the deposit, and selling the Lot to someone else for a higher purchase price.
Thus, Standard Term 6.2 was born.
Standard Term 6.2 of the contract reads as follows:
Extension of Settlement Date
(1) Either party may at any time up to 4pm on the
Settlement Date. extend the Settlement Date by
giving a notice under this clause nominating a new
date for settlement which must be no later than 5
Business Days after the Scheduled Settlement Date.
(2) The Settlement Date will be the date specified in the
Extension Notice and time is of the essence in
respect to this date.
(3) More than one Extension Notice may be given under
clause 6.2(1) but the new date for settlement
nominated in an Extension Notice may not be a date
later than 5 Business Days after the Scheduled
Settlement Date.
(4) in this clause 6.2. "Scheduled Settlement Date
means the Settlement Date specified in the
Reference Schedule as extended:
(a) by agreement of the parties; or
(b) under clause 6.3 or 11.4.
but excludes any extension of the Settlement Date
as a result of the operation of this clause 6.2.
So, what does all this mean?
A party who is not ready to settle on the Settlement Date, for whatever reason, may write to the other party by no later than 4pm on the Settlement Date, and unilaterally extend the Settlement Date to a date that is no further than 5 Business Days after the Scheduled Settlement Date.
Importantly, you don’t even need to extend for all 5 business days, you can extend a few times if needed, provided the total number of extensions does not exceed the 5 Business Days from the Scheduled Settlement Date.
EXAMPLE
Let’s say you are a Buyer who is ready to settle on your property tomorrow. You get an email from your lawyer stating they just heard from your bank, and they can’t settle tomorrow due to an ID issue, and the bank needs 3 days to resolve the issue.
Your Lawyer can now write to the Seller’s lawyers and extend the Settlement Date by those 3 days, and if required, will have the capacity to extend up to a further 2 business days if required.
This has ensured that the Seller does not terminate the Contract, and claim your deposit for failing to settle on the required date.
Even if it were determined to be a fault of your bank, from the Contract’s position it was your fault!
PROFESSIONAL TIP (Party who needs the Extension)
If you are the one who needs the extension, consider requesting the Seller to agree to your request first, without exercising your rights under Standard Term 6.2. That way, if you still weren’t ready to settle after the first extension, you would still have access to the rights under Standard Term 6.2 if they were needed!
PROFESSIONAL TIP (Party who does not want or need the extension)
Much the contrary of the above tip, if you want to settle as soon as possible, and you are ready to, consider forcing any party who makes a request to extend Settlement to exercise their rights under Standard Term 6.2, rather than granting any extension request they ask of you. This way, you keep the pressure on.
What if I can’t settle by the extended Settlement Date?
As we saw above, time is still of the essence. If you have exercised your rights under Standard Term 6.2, and still are unable to meet the Settlement Date, your only option is to ask the other party for an extension.
If this is not granted, you could be in default under the terms of the Contract, rendering you liable to have the Contract terminated, with the other party being in a position to pursue you for damages. If you are a Buyer, you could stand to lose your Deposit, and could also be responsible for paying any deficiency in purchase price on resale under Standard Term 9.6 of the Contract!
The full range of rights, obligations, damages and penalties for failing to settle a Contract are a topic for another article, however the penalties are likely to be severe,
Are there any other reasons I can delay my Settlement?
You may have some luck with utilising Standard Term 6.3 of the Contract, which allows extensions of time for certain ‘delay events’.
This clause is less commonly utilised in practice, because as you will see, the definition of an event allowing you to exercise these rights are defined as follows under the Contract:
(b) "Delay Event" means:
(i) a tsunami, flood, cyclone. earthquake, bushfire or
other act of nature;
(ii) riot, civil commotion, war, invasion or a terrorist act;
(iil) an imminent threat of an event in paragraphs (i) or (ii);
(iv) compliance with any lawful direction or order by a
Government Agency; or
(v) if clause 2.5 applies. the computer system operated
by the ATO for the GST Withholding notifications referred to
in clause 2.5(5)(c) is inoperative;
As you can tell, the threshold for exercising these rights is quite high. You will need a pretty good reason to use Standard Term 6.3!
In practice, subclause (iv) became crucial during COVID-19 lockdowns to extend settlements before parties were able to settle electronically.
If you have any question about your Settlement, speak to one of our lawyers today. Bradley & Bray Lawyers are Property experts, and can assist you with your Property matters.
This information is general only and is not anticipated to be used as legal advice. If you require assistance with a legal matter, we suggest you contact ourselves or another lawyer to speak about your specific legal issue.
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