Buyer’s Default: Timing is Everything

Journal,  Principals,  Salespeople

Agents are no doubt familiar with the scenario whereby a buyer defaults on a contract of sale, leading to forfeiture of the deposit by the seller. In some cases, a seller may also elect to sue for damages.

A recent decision of the Southport District Court[1] provides a useful example of a seller’s successful bid for damages arising from a buyer’s default.

The case involved the sale by the plaintiff, John Clancy (seller) of a luxury villa located in Miami, Queensland (property) to the defendant, Tessa Carslon (buyer).

The contract price on the sale was $1,105,000, but the sale did not ultimately proceed.

The contract was dated 25 October 2018, with settlement due at the end of June 2019. Upon payment of the deposit in the amount of $75,000, the buyer entered into rent-free occupation of the property (with a “licence fee” set to kick in at the end of March 2019).

The contract included terms which provided, relevantly:

  • a settlement date of 28 June 2019;
  • to encourage an earlier settlement, the buyer was to pay $900 per week by way of a ‘licence fee’, but only if settlement had not occurred by the end of March 2019;
  • a default interest rate of 9.3 per cent per annum applying as at the contract date;
  • if the buyer failed to comply with an essential term, the seller may affirm or terminate the contract;
  • if the seller terminated the contract, he may do any or all of the following:
    • (a) resume possession of the property;
    • (b) forfeit the deposit and any interest earned;
    • (c) sue the buyer for damages; and
    • (d) resell the property;
  • that the seller was entitled to claim damages for any loss he suffered as a result of the buyer’s default, including his legal costs on an indemnity basis and the cost of any “Work and Expenditure”; and
  • for payment of interest at the default rate on, relevantly:
    • (a) any amount payable under the contract which was not paid when due and accruing from the date it was due until paid;
    • (b) any judgment for money payable under the contract and accruing from the date of judgment until paid; and
    • (c) that the buyer indemnified the seller against any expenses or damages incurred by the seller as a result of the defendant’s possession of the property.

In breach of the contract, the buyer failed to pay the balance of the purchase price on or before the settlement date of 28 June 2019. As a result, the seller terminated the contract (on or about 18 November 2019) and the deposit was forfeited to the seller.

The seller commenced legal proceedings claiming:

  • the difference between the purchase price and the market value of the property as at the date of settlement (i.e. the date of the buyer’s default);
  • $9,488.77 for conveyancing fees incurred by the seller;
  • commission payable to the real estate agent with respect to the contract;
  • unpaid licence fees, being an amount of $900.00 per week from the end of March 2019 until settlement;
  • rates, water charges and body corporate fees;
  • interest on the licence fees, rates, water charges and body corporate fees;
  • indemnity from the buyer for expenses or damages incurred by the seller as a result of the buyer’s possession of the property, together with interest on those amounts; and
  • legal costs of the court proceedings on an indemnity basis.

The seller relied on the expert valuation report of Tod Gillespie of Herron Todd White, which assessed the market value of the property, as at 28 June 2019, in the amount of $975,000.

The buyer did not challenge this evidence (and elected not to appear at the trial, rather, the trial proceeded in her absence[2]). The court accepted the market value of the property at the settlement date to be $975,000.

The court therefore accepted that the seller suffered damage in the sum of $130,000 (being the difference between the price on the contract and the market value as at the date of settlement).

The seller was also awarded:

  • conveyancing costs and commission paid to the agent (against which the forfeited deposit was credited);
  • interest;
  • holding costs, repairs and unpaid ‘licence fees’; and
  • legal costs of the proceedings on an indemnity basis.

The total judgment awarded in the seller’s favour amounted to $137,800.63.

The matter is unusual in that the buyer did not appear at trial and therefore lost the opportunity to counter the seller’s evidence as to the market value of the property as at the settlement date. The court accepted the seller’s unchallenged evidence. Had the buyer tested the seller’s evidence as to the market value of the property, the outcome may have been very different.

The trial was held on 3 February 2021. Notably, three months prior to the trial (in October 2020), the seller on-sold the property for a sale price of $1,075,000 ($30,000 less than the contract price on the sale to the buyer).

In this instance, the outcome for the seller was favourable, however, as always, it is recommended that parties seek independent legal advice prior to deciding whether to sue for damages for a buyer’s (or seller’s) default on a contract of sale.

Settlement delays and getting involved in litigation can be stressful for everyone involved. It is important to carefully consider the terms and conditions of the contract of sale prior to determining the right course of action.

References:

[1] Clancy v Carlson [2021] QDC 33.

[2] In the buyer’s absence at trial, the court pleadings set the limit of issues to be tried.

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