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Could the property seller issue a Notice to Complete, terminate the contract and keep the 10% deposit? Which case won?
06 Aug | Which Case Won

Could the property seller issue a Notice to Complete, terminate the contract and keep the 10% deposit? Which case won?

by Daniel Ponepaseut, Bowral

The Facts

Property buyer to provide form of transfer of property

On 23 October 2014, two companies entered into a standard NSW contract for the sale of land with a sale price of close to $2 million. The contract specified a fixed completion date of 30 January 2015 and a paper-based settlement. The contract required that the buyer prepare and provide the seller with the form of transfer of the property at least 14 days before the completion date.

Property seller issues buyer with Notice to Complete

As the completion date approached, the buyer’s solicitor advised that the buyer would not be ready to settle on that day.

The seller issued a Notice to Complete to the buyer, advising the buyer that it must complete the contract “on or before 3pm Tuesday 17 February 2015”, adding that “in this respect time is of the essence of the contract.”

The buyer provided the seller with the form of transfer of the property. However, it was not in the correct form and the seller could not execute it as a company. The director for the seller instead executed the transfer in his personal capacity as an individual.

Defect in transfer document spotted at settlement conference

The parties agreed to complete the contract on 16 February 2015. At the settlement conference, the buyer’s agent pointed out that the transfer had not been properly executed. The parties decided to reschedule completion for the next business day, 17 February 2015.

However, the mortgagee for the seller later advised that it would not be able to effect settlement on 17 February 2015 as, due to an internal policy, it required three clear business days to reschedule a settlement. Nevertheless, the buyer’s solicitor advised that it remained “ready, willing and able” to complete the contract the next day.

The contract was not completed on 17 February 2015 and on 26 February 2015 the seller served a notice of termination of contract on the buyer, advising the buyer that the contract was terminated and that the 10% deposit paid by the buyer was now forfeited.

The property buyer commenced proceedings against the seller to recover the deposit.

casea
The case for the seller
  • The buyer provided an incorrect form of transfer on three occasions. It was the buyer’s responsibility under the contract to supply the correct form of transfer at least 14 days before the completion date.
  • Our only obligation was to execute the form of transfer submitted by the buyer.
  • The buyer should have advised well ahead of the completion date that the transfer was not in the correct form for execution by a company. We were not required to bring this defect to the buyer’s attention.
  • The settlement did not occur on 16 February 2015 because of the incorrect form of transfer supplied by the buyer, so the sale falling through is entirely the buyer’s fault.
  • The buyer defaulted on the contract by failing to complete in accordance with our Notice to Complete.
  • As a result of this default, the court should find that we were entitled to terminate the contract and retain the 10% deposit paid by the buyer.
caseb
The case for the buyer
  • It was the seller’s responsibility under the contract to produce at the settlement conference all documents necessary for us to be able to effect registration of the transfer with the Land Titles Office.
  • The seller failed to fulfil this condition by incorrectly executing the transfer as an individual, instead of as a company.
  • The settlement could still have taken place on 16 February 2015 as the transfer could easily have been amended by hand at the settlement conference itself. That option was acceptable to us, however the signatory for the seller was not present or contactable by phone.
  • We indicated to the seller’s legal clerk that if she was prepared to stay at the settlement conference, the matter could easily be rectified. However, she had to leave because she was “busy”.
  • We were ready, willing and able to complete the transaction on 16 February but the seller was not. When settlement did not take place that day, we were again ready, willing and able to complete the transaction on the following day, but again, the seller was not.
  • Because the seller was not ready to complete the transaction, it should have withdrawn its Notice to Complete. The court should find that we are not in default and that the seller is not entitled to terminate the contract or retain the 10% deposit.

So, which case won?

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Expert commentary on the court's decision

Daniel PonepaseutLawyer
“It is a fundamental principle of property law that a party who seeks to terminate a contract for breach of an essential stipulation, must itself be ready, willing and able to complete the contract.”
Trial judge finds in favour of seller

In the case Jaswil Properties Pty Ltd ATF Jaswil Unit Trust v Barrak Corporation Pty Ltd [2015] NSWSC 391, the trial judge concluded that the buyer failed to meet its obligation to issue a properly executed transfer pursuant to section 127 of the Corporations Act 2001 (Cth). In other words, it was the buyer’s obligation to provide the proper clause for execution.

In this case, the court only examined the conduct of the buyer and found that there was no obligation on the seller to examine the transfer. Thus, the seller was entitled to serve a notice of termination on the buyer.

Decision reversed on appeal as court finds in favour of buyer

In the case Barrak Corporation Pty Ltd v Jaswil Properties Pty Ltd [2016] NSWCA 32, the earlier decision was reversed on appeal, with the court concluding that the seller was not entitled to serve a notice of termination on the buyer. The Court of Appeal took a broader approach than the primary judge, examining the seller’s conduct in the property transaction as well as the buyer’s.

The judges reiterated the principle that “a party who seeks to terminate a contract for breach of an essential stipulation, must itself be ready, willing and able to complete.” Previous case law has not disputed this point. (See Carrapetta v Rado [2012] NSWCA 202; Malouf v Sterling Estates Development Corporation Pty Ltd [2002] NSWSC 920.)

The court added that the seller was also responsible for checking the transfer that the buyer had erroneously provided and should have completed it as a company, rather than as an individual. Failure to do so meant that the seller was not in a position to effect settlement by passing on the necessary documents to the buyer for registration.

This in turn meant that the notice to complete and notice of termination issued by the seller were invalid.

Seller not able to abide by own timetable for completion of property sale

The court concluded that neither party was in breach of the contract on 16 February 2015, as the Notice to Complete did not expire until the following day. However, when the parties rescheduled settlement for the following day, the seller advised that it was not in a position to settle, as its mortgagee on title required three clear business days to reschedule settlement.

The court concluded on this point that the seller should have withdrawn its Notice to Complete, as it was not in a position to complete settlement by the date of its own notice.

Implications for property and conveyancing transactions

This case illustrates the importance of all parties checking the necessary documents required for registration at the relevant land titles office.

While contractual documents such as transfers are now pre-populated on Property Exchange Australia (PEXA), conveyancers and solicitors still need to be diligent in checking documents and ensuring the correct execution for an individual, corporation, attorney or trustee. Legal practitioners need to ensure that the particulars of the contract, such as the purchasers’ names and title dealings, are correct.

Practitioners also need to examine their own legal position before issuing a Notice to Complete, as it can lead to invalid or void notices. Failing to comply with the terms of the contract can result in dire consequences, such as extra stamp duty and lodgement of incorrect title documents with the relevant authorities.

Further, the courts will examine the conduct of all parties, not just the defaulting party. In this case, the seller’s failure to check the correct execution requirements resulted in a costly mistake.

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.
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