The stress to settle
Buying and selling property can be a stressful exercise for even the most experienced property mogul. As time is of the essence in standard property transactions throughout Queensland, it is a requirement that contractual deadlines be met as they fall due. Perhaps the most stressful deadline is being in a position to settle on the settlement date, as there may be severe consequences for failing to do so. This stress can be further compounded when you are unable to settle in time as a result of various problems arising which are out of your control.
This issue was addressed by the Queensland Law Society and the Real Estate Institute of Queensland (REIQ) in January this year. New editions of the REIQ Contract of Sale for residential property were published, which introduced a number of amendments and additions to standard contract terms. Relevantly, one of the most prominent changes was the inclusion of a clause that gives both parties the right to extend the settlement date.
How does the clause work?
Clause 6.2(1) of the REIQ Contracts state that:
- 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.
The practical effect of this clause is that either party can give notice to the other as late as 4pm on the settlement date that they wish to extend settlement by up to 5 business days. Notice of the extension can be given at any point between the contract date and the settlement date. The settlement date can be extended any number of times as long as the nominated settlement date does not exceed the date that is 5 business days from the original settlement date.
Why does the clause exist?
This clause was primarily introduced to address the risk that incoming or outgoing banks can pose to parties at settlement. There are a number of reasons why banks may not be prepared for settlement, including short settlement timeframes, errors on relevant bank documents or general processing delays.
If a party’s bank is not in a position to settle on the relevant date and settlement does not proceed as a result, the party will be in default and will be liable for any potential consequences, even if the party itself was prepared for settlement. A news story published late last year is an infamous example of this situation unfolding. To prevent this from happening, parties can now elect to postpone settlement if they discover on the day that their bank is not prepared for settlement.
How can this clause affect me?
The clause is worded in such a way that it gives either party the right to unilaterally extend settlement without needing to provide any context or reason for the extension. Even if a party does not have a bank involved as part of the conveyance, they will still have a right to extend settlement and this right can be exercised for any reason.
An extension of the settlement date can cause issues for parties who make plans expecting their property to settle on the original settlement date. An example of this may be a buyer who has hired removalists with the intention to move into a property on the settlement date, only for the seller to extend settlement at the last minute. While parties generally aim to settle on the intended date, buyers and sellers should keep in mind the potential for clause 6.2(1) to be exercised when preparing for settlement.
What should I look out for?
This clause is only present in the standard conditions of current REIQ residential contracts. The same clause was also implemented in REIQ commercial contracts in late July this year. Accordingly, the REIQ contracts that contain clause 6.2(1) are as follows:
- Contract for Houses and Residential Land (17th edition);
- Contract for Residential Lots in a Community Titles Scheme (13th edition);
- Contract for Commercial Land and Buildings (9th edition); and
- Contract for Commercial Lots in a Community Titles Scheme (8th edition)
This clause is not contained in previous editions of REIQ contracts. Clauses which have a similar effect may be present in other forms of contracts, though REIQ contracts are generally the standard form of contract used in Queensland conveyances.
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Our Conveyancing Team can help
Before you sign a contract of sale, it is important for you to be fully informed regarding the potential for settlement extensions and terms of the contract generally.
If you have any questions about buying or selling property, please do not hesitate to contact us for more information or call us on (07) 5532 3199.