What does time of the essence mean?
Most real estate contracts in Queensland include the term to ‘time shall remain the essence of the contract’ or a term similar. This means that the critical dates of the contract (i.e. payment of deposit and balance deposit, satisfactory finance approval, building and pest condition, special conditions and settlement) must be adhered to promptly. If you fail to provide notice (i.e. that you received satisfactory finance approval) or are unable to complete an obligation under the contract on or before a critical date then the contract can be terminated and could possibly put you in breach of contract.
Can critical dates be extended?
Critical dates of the contract can be extended by mutual agreement between the Buyer and Seller. In order to obtain an extension to a critical date, a request must be made in writing from one party’s legal representative to the other. It is important that you provide your legal representative sufficient time in order to prepare a written request to the other party. Also, the other party will require time to receive the written request, obtain legal advice and respond to your request. Simply, telephoning the other party or the real estate agent is not the right way in obtaining an extension to a critical date of a contract and therefore, can result in termination or put you in breach of contract.
It has been held by the Queensland Court of Appeal (Caprice Property Holdings Ltd v McLeay & Anor ) that if time is to remain of the essence for a contract then regardless of any agreement, the parties have until 5:00pm to settle on the settlement date.
Failure to settle by 5:00pm on the settlement date will entitle the other party to terminate the contract and possibly sue for breach of contract. If you are the Buyer, who is at fault then you have breached the contract even if the failure is due to your financier’s failure to provide funds at settlement. If the Buyer is at fault; then the deposit will be forfeited and released to the Seller, the Buyer could be liable to compensate the Seller and real estate agent if the property is subsequently sold at a reduced price and further damages.
If the Seller is at fault then the Buyer can terminate the contract, the deposit will be returned to the Buyer and the real estate agent can claim commission from the Seller.
In order to sell the property, the Seller will need to release all debts held over the title of the property. It is common for Sellers to have a mortgage registered over the title. The Seller must contact the financial institution that holds the mortgage over the title of the property. We recommend that you advise your financial institution to prepare the discharge of mortgage as soon as the contract of sale has been executed by all parties and advise that we are acting on your behalf for the sale of the property.
It is also common for a mortgage to be registered on a property by an individual or a company (i.e. a mortgage that has been lodged by friends or family). If that is the case, you will need to contact that party and have them arrange a discharge of mortgage releasing their debt over the property on or before settlement. Mortgages can remain registered on the title even if there is no debt owing on the mortgage.
If there are other debts or interests registered over the property such as a writ or caveat, you must contact the party who holds the debt in order to arrange the debt to be released on or before settlement. Your solicitor will advise you if there are any registered debts over the property. You will need to let your solicitor know if you are expecting any caveats or writs to be registered on the title during the conveyance.
Please contact our Everton Park or Oxley office or complete our property enquiry form if we can be of any assistance to you.