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No 2 - Buyer’s Tardiness Could be Costly

Standard Contract Terms:
A Buyer is required to pay the deposit under clause 2.2 of the Terms of Contract at the times shown in the Reference Schedule. Failure to pay a deposit or any balance deposit on the due date amounts to a default under the Contract and entitles the Seller under clause 9.1 to terminate the Contract. Under clause 9.3, if the Seller terminates, the Seller may forfeit the deposit.

Facts:

  • John signed a standard REIQ Contract to purchase Tony’s property.
  • The Contract provided for payment of an initial $5,000 deposit on signing, which John paid, and a further $5,000 on finance approval date, 15 March.
  • Peter offered Tony a back-up Contract at a higher sale price.
  • John notified Tony in writing of finance approval at 5 pm on 15 March.
  • The balance $5,000 deposit was not paid until 16 March.

Question:
Is John in default by failing to pay the balance deposit on 15 March? What can Tony do to end the first Contract and accept the back-up Contract?

Answer:
John is in default by paying the second instalment of the deposit one day late. Tony can terminate the first Contract, and keep the $10,000 deposit. He can then proceed with Peter’s back-up Contract.

Law:
Berry v. Hodson [1988 decision] – Judge Derrington supported the above interpretation in a similar fact situation. This case is still good law.

Alert:
It is imperative that you inform Buyers to pay deposits on the due dates. Even if the initial deposit is paid one day late, the Buyer is in breach, entitling the Seller to terminate and forfeit the paid deposit.

Produced by:

  • Anita De Domenico – Conveyancing Manager
  • Naomi Wright – Conveyancing Support

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