Time is of the Essence, seriously.

Much has been made in the media this week of a case of a young couple buying a home in Brisbane that, through apparently no fault of their own, forfeited a $75,000 deposit on their dream home.

$75,000 is a lot of money to lose – what happened?

In this case, it appears that the buyers had finance approval (and therefore had gone unconditional on their contract) but their bank was unable to have everything ready in time for settlement. The sellers were within their rights to require the buyers to settle on the agreed date, and with the buyers unable to do so, elected to terminate the contract and claim the deposit paid for the buyers’ default. The sellers subsequently were able to enter into a new (higher) contract with a new party, and sell their home.

From this point there has been a lot of opinions on both sides, with the buyers feeling the position was unfair (particularly as the bank was in a position to settle 24 hours later) and the sellers feeling their own position was reasonable – given they were still responsible for the costs of sale on that contract and the buyers were in fact in default.

Thankfully for the young couple, their bank has stepped up and covered the couple’s loss of deposit– though they find themselves without their dream home of course.

So what’s the takeaway? Traditionally, all Queensland contracts state that “time is of the essence”. In simple terms, this means that if a contract requires an action to occur on or by a date, that action must be completed on time. If not, the contract may be immediately terminated by the other party. An example may include the satisfaction of a finance clause. If the finance approval is not obtained (and satisfaction communicated) by the time stipulated in the contract, the seller may terminate. Where the contract is subject to finance approval, the seller is not however, entitled to retain the deposit. In this case, the buyers were unable to settle the contract on the required date which meant the sellers were able to establish contract default and terminate the contract and retain the deposit. 

Given the importance of meeting time limits, it is critical that parties carefully consider the time they request for certain actions such as pest and building reports and financial approval. In this particularly busy market, time delays are becoming increasingly common. As a safeguard, buyers should consult with their banks (or brokers) and pest and building inspectors to determine realistic timeframes for carrying out these activities. Although buyers may assume a 24-48 hour delay is insignificant, the above case highlights the risks associated with time delays, even short ones. Although contract terms are important and binding on both parties, communication is key. If delays do arise, keep communication open with agents and lawyers at all times and hopefully any delays can be amicably negotiated.