The dangers of simultaneously selling your property in NSW and purchasing in QLD
Most people assume that conveyancing legislation in Queensland and New South Wales is essentially the same. However, they could not be more wrong! There are a wide array of differences starting with the preparation and signing of contracts and ending with the differing consequences of not being ready to settle on the agreed date.
In respect to cross-border conveyancing (buying/selling in one state to fund a simultaneous purchase in another), arguably the difference of the greatest consequence is that the standard Queensland conveyancing contract makes “time of the essence”, which this is not the case in New South Wales.
Time of the essence
If time is of the essence, the parties to the contract must be ready, willing and able to settle by no later than 5:00 pm on the settlement date provided under the contract. In the event that one of the parties is unable to settle by 5:00 pm on the settlement date, this would amount to a breach of an essential term of the contract entitling the other party to terminate. The most common reason for a party not being ready for settlement is due to an issue with the outgoing or incoming bank, who sometimes at the last minute advise that they are unable to settle as scheduled.
In most cases, the parties put aside their disappointment and agree to reschedule settlement for another day in the near future, as the seller still wants to sell and the buyer still wants to buy. However, in some circumstances, a party may wish to get out of the contract for a variety of reasons, including but not limited to:
(a) a better offer being received;
(b) changes in personal circumstances since signing the contract, such as divorce or other personal issues; or
(c) a severe breakdown in the relationship between buyer and seller over the course of the transaction (spite is a powerful motivator for some people).
Due to time being of the essence in Queensland but not New South Wales, this can cause serious headaches for people selling in one state to finance a purchase in another. If the appropriate conditions are not included in the contract, a serious headache can become a financial and personal disaster.
Consider the following example:
Person A is selling a property in Tweed Heads and the funds from the sale are being used to facilitate a purchase in Coolangatta for $750,000, with a 10% deposit. As per the normal course, both contracts are scheduled to settle simultaneously so that the funds received from the sale can immediately be handed over for the purchase (settlements in Queensland are still predominantly competed with bank cheques).
A week before settlement, the seller of the Coolangatta property receives an offer of $50,000 more than the contracted price to Person A and wishes to get out of the contract at all costs – in addition to the pressing need for additional funds stemming from a poor investment, they have decided they do not like the way Person A has conducted themselves throughout the transaction, particularly in relation to reductions in the purchase price due which were negotiated due to pest and building issues. The day before settlement, the purchaser of the Tweed Heads property advises Person A that they need to delay settlement by 1 week due to their lender not being ready. Under the NSW standard contract, there is little that Person A can do, other than charge penalty interest and issue a notice to complete, which enables termination of the contract after fourteen days from the original settlement date.
As a result, Person A requests a one week extension to the date for settlement of the Coolangatta property, due to their Tweed Heads sale not proceeding on schedule and funds not being available. However, the Seller of the Coolangatta property, who is looking for a reason to terminate, advises that no extensions will be granted and the contract will be terminated at 5:01 pm on the scheduled day for settlement, unless Person A completes the transaction. Due to virtually all the funds for the purchase being provided from the sale of their Tweed Heads property, Person A will be unable to complete the transaction unless they can borrow money within a seven day window. Person A applies for a bridging loan but cannot get approved in time and at 5:01 pm on the date for settlement, the Seller terminates the contract and Person A forfeits their deposit to the Seller.
The Tweed Heads property settles one week later and Person A has lost their $75,000 deposit, their legal costs and is frantically looking for a place to rent and store their furniture/household items.
On the other hand, the Seller of the Coolangatta property has retained the $75,000 and sold the property for an additional $50,000.
This all seems incredibly unfair, and it is, however it is a sequence of events that has taken place on countless occasions. Importantly, the circumstance described above can easily be avoided by engaging a solicitor experienced in cross-border conveyancing who can ensure the appropriate special conditions are included in the standard conveyancing contract.
This article was written by Sean Powell a property law expert practising on the border of Queensland and New South Wales, with extensive experience in residential and commercial cross-border transactions.
For further information:
Contact: Sean Powell, Wilson Haynes, solicitors
Phone: 07 5536 3055 x 4