You’ve sold your property. Contracts are signed, the settlement date arrives, and the purchaser doesn’t complete. What are your rights?
The Default Process
Under the standard general conditions of the Contract of Sale of Land, if a purchaser fails to settle on the due date the vendor can issue a formal default notice giving the purchaser 14 days to complete. The notice must be in the correct form and properly served — a defective notice can delay your rights or result in a waiver of them.
During the default period, penalty interest accrues daily on the unpaid balance of the purchase price at the rate specified in the contract (commonly 10-14% per annum). This is a contractual right and does not require proof of actual loss.
If the purchaser still doesn’t complete within the 14 day period, the vendor can rescind (cancel) the contract.
What Happens to the Deposit?
Once the contract is properly rescinded, the deposit — up to 10% of the purchase price — is forfeited to the vendor.
Example: Sam sells his investment property in Warragul for $800,000. The purchaser pays a 10% deposit of $80,000 and fails to complete. Sam properly serves a default notice, the purchaser doesn’t remedy the default, and Sam rescinds the contract. Sam is entitled to retain the $80,000 deposit.
But the Deposit May Not Be Enough
The deposit is a starting point, not a cap. A vendor who suffers loss greater than the deposit can sue for damages in addition to retaining the deposit — but the deposit is taken into account in calculating those damages.
The vendor’s actual loss might include:
- The difference between the original sale price and the price achieved on resale, if the property is sold for less
- Additional selling costs — agent’s commission, legal costs, advertising
- Holding costs during the period between the failed settlement and resale — mortgage interest, rates, insurance
- Bridging finance costs if the vendor had relied on the sale proceeds to fund another purchase
Example: Using Sam’s facts above. Sam resells the property 4 months later for $750,000. His losses include the $50,000 shortfall on resale, $12,000 in additional agent’s commission and legal costs, and $18,000 in holding costs and bridging finance — a total of $80,000. Sam has already retained the $80,000 deposit, so his net loss in this example is covered. But if his losses had exceeded $80,000 he could have sued for the difference.
What If the Property Sells for More on Resale?
If the vendor resells for a higher price, the purchaser may be entitled to credit for that gain in any damages calculation. This is why timing and market conditions matter — a vendor who rescinds and resells quickly in a rising market may find their damages claim reduced or extinguished.
The Practical Reality
Purchaser default does happen, particularly when finance falls through or market conditions change between signing and settlement. A vendor’s best protection is a well-drafted contract, a properly paid deposit, and prompt legal advice when a default occurs. Delays in issuing notices or errors in the process can significantly affect your rights.
For assistance with property transactions and contract issues contact Fleur Craig of Armour-Craig Legal on (03) 5636 4986 or fleur@armourcraiglegal.com.au.