You may remember the story last year where the couple were going to lose their $75,000 deposit because Westpac Bank was unable to settle on the date agreed on the contract? The seller exercised their rights and chose to terminate the contract, re-sell the property (for $65,000 more) and kept the deposit.
The couple requested Westpac pay this money since it was their error and the bank initially refused. Thankfully, after intense media pressure, the bank changed their mind and paid the couple their deposit of $75,000.
As a result, Fair Trading made a number of changes that took effect yesterday 20th January 2022 regarding settlements. These changes are designed to protect a buyer from this sort of event happening again but, it would appear, these changes could possibly cause even more issues for buyers and sellers.
In summary, the new legislation surrounding settlements is as follows:
“The ability of either party to obtain a short extension to settlement where the party is unable to settle due to the inaction or delay of a financier or for any other reason. The new clause 6.2 responds to ongoing difficulties faced by buyers who have been unable to settle on time, leading in some cases to contracts being terminated. This change to “time of the essence” will alleviate the circumstance where buyers are potentially unfairly affected by delays outside of their control.”
What this means is that either party may elect to unilaterally extend settlement by a maximum of 5 business days (7 calendar days) for almost any reason. The other party to the contract has no choice but to accept this extension, and the extension may occur multiple times providing the total extension is not more than 5 business days from the initially agreed contract date.
What’s even more ludicrous is that the party wishing to extend must inform the other party of this decision by no later than 4:00 PM on the date of settlement!
In the vast majority of cases, settlements usually occur between 2:00pm and 3:30pm on the designated settlement date which means that either party could effectively not settle and inform the other party almost 2 hours later that they wish to exercise their right to delay settlement.
When considering that many settlements are ‘contemporaneous’ (meaning a seller will settle their property and purchase another immediately after, literally moving straight from one home to another), can you imagine the mess this could cause.
Picture this…you are super excited, your home is packed up in a removalist truck and parked outside your brand new home waiting for settlement to be effected. You are told (after the agreed settlement time) that your buyer has decided to exercise their right to delay settlement for 5 business days!
Now imagine if this notification comes in at 3:58pm and your solicitor literally has not time to inform the seller of the home you’re purchasing that you need to do the same? And even if they do, where do you go? All the way back to your original home to unpack again?
Can you imagine the drama that this situation will create for buyers, sellers, solicitors, removalists and agents?
The ramifications of this could be massive. This sort of legislative change may well protect buyers such as the young couple in question, but it could also cost many other people thousands of dollars and huge amounts of stress.
Going forward, any contract entered into by both parties will mean that the settlement date agreed may not necessarily be the settlement date and is subject to either party unilaterally making the decision to delay it….there are some very interesting times ahead for us all.
Remember, if you need any help or advice, we are just a phone call away.
All the best, Simon (0408 734 419)
Source: My very good friend, Michael Spillane