Hypothetical by Manny Wood Published in the Coffs Coast Advocate on 12 October 2019.
Kate, director of KTZZ Pty Ltd is looking to purchase a property in the name of her company. She negotiates the price with the real estate agent and after conducting Pest and Building reports, exchanges contracts with the vendor, Chris.
The company pays a partial deposit of 5% on exchange.
Kate guarantees the obligations of the company under the contract of sale.
The day of settlement approaches and Kate’s bank advises her, after “unwarranted delays” that her loan application was not successful.
Chris serves the company with a Notice to Complete on the day following the scheduled settlement date. The Notice calls for settlement at 3.30pm, 14 days later. Chris subsequently grants the company a further month’s extension for Kate to arrange finance with another bank.
Unfortunately, the company cannot obtain finance and Chris terminates the contract.
Chris later sells the property to another purchaser for $200,000 less.
Chris sues Kate under guarantee, on the basis that the company has no assets. He claims breach of contract, seeking the $200,000 in damages plus the balance of the deposit, being a further 5% of the purchase price.
Kate argues that the Notice to Complete was defective because it did not give 14 clear days’ notice. The Court rejects her argument.
Kate argues that Chris cannot claim the additional 5% of the deposit because it is a “penalty” and is therefore invalid.
The Court finds that the resale of the property for $200,000 less was for market value.
The Court states that it need not make a ruling on whether the additional 5% was a penalty because it ultimately rules that Chris is entitled to recover the whole of the “deficiency on resale”.
Kate’s defence is unsuccessful and she is also ordered to pay Chris’ legal costs.
If you would like Manny to address a particular legal issue, send your request to manny.wood@ticliblaxland.com.au or call him on (02) 6648 7487.
