“Time” is very relevant to the legal issues arising in a contract to purchase and/or sell real property. There are obligations under a Contract for Sale of Land which are required to be performed by both vendors and purchasers within a specified time. What happens when a party fails to meet these time obligations?
The right to terminate a contract as a result of a party’s failure to comply with an obligation within a specified time period does not necessarily occur unless it is expressed that the compliance with that obligation is ‘essential’. This does not mean that the innocent party will not be entitled to compensation for loss suffered as a result of a delay. It may however allow the other party to argue that the delay disentitles the offending party from taking some other action under the contract.
Often (although not always), when parties are in dispute over a contract, it is the expressed obligations for completion of a contract by a specified time that are scrutinised by the Courts.
Contracts must state a date for completion to occur. It must be expressed whether the date stated is essential or whether there is a Notice to Complete period that applies before completion of the contract becomes essential. Clause 15 of the contract states:
“15. The parties must complete by the completion date and, if they do not, a party can serve a Notice to Complete if that party is otherwise entitled to do so.”
Most contracts contain a provision for a Notice to Complete period to apply before completion of the contract becomes essential (or ‘time being of the essence’). The purpose of a Notice to Complete is to appoint a completion date which will be an ‘essential date’. Failure of either party to perform on or before the essential date will therefore entitle the other party to pursue certain remedies. These include the right to terminate the contract.
In the case of Raineri v Miles (1981) AC 1050 House of Lords, the vendor delayed completion of his sale when he learnt late the day before completion that he would be unable to move into another property being purchased simultaneously due to difficulties the vendor of that property was having in financing another property being purchased by him. The purchaser arrived at the new home with their removalist van only to be told that they could not move in until the Vendor was able to move into his other property. The Court held that the Vendor was liable to the Purchaser for damages even though he argued that the delay was not his fault. The Court considered that the vendor’s family “could have left the house and moved into temporary accommodation themselves but they decided not to do so and left it to the purchaser to find temporary accommodation. The delay was therefore due to their ‘willful default’”.
A Notice to Complete does not ‘substitute’ a new completion date for the completion date in the Contract. In the case of Raineri v Miles, the vendor attempted to avoid damages by claiming that a Notice to Complete issued by the purchaser operated to change the completion date to the date in the notice so that he was not in breach of the requirement to complete on the completion date. The Court did not accept this view.
Clients should be aware that a Notice to Complete can be a ‘double edged sword’. That is, once a party serves a Notice to Complete, both parties are obliged to complete the contract by the date appointed to be essential.
Serious consideration should be given to the position and obligations of the parties, particularly the issuing party of the Notice to Complete. That is, the issuing party should not be in default of any obligations under the contact and will be in a position to complete on the essential date to be appointed in the notice (Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 (at 299)).
Contract punctuality is important particularly when the timing to comply with obligations is essential. Clients should understand their obligations under a contract particularly the terms of completion and any consequences that may result if they fail to meet those obligations.
LEONIE BLAZEY
Lawyer
Property and Finance
