David’s Snippets (A collection of legal articles taken from real life in a conveyancing office.)

Walking away from sale agreements!

So there in your inbox is this email from a purchaser calmly advising that he has reconsidered the sale and he has decided to bail out! For some peculiar reason, it happens more frequently these days. Perhaps it’s something to do with ‘the consumer protection culture’ that has crept into society, since the advent of the CP Act? Big mistake – that does not apply to property sales!

Our Law allows freedom of contract and reinforces that principle with legal consequence for breach of contract. Just ‘walking away’ is what is called repudiation and it has even worse consequences that breach of contract. A breach requires a warning notice period followed by cancellation if you don’t shape up and perform as per contract. Repudiation however, places the other party in a position to accept the repudiation and declare immediate cancellation, which means a sudden death to the contract. For the person ’walking’ that sounds just what he wanted hey?

The sting in the tail however comes when the lawyer’s letter arrives! You see, cancellation of a sale contract, either as a result of an accepted repudiation or breach notice ignored, has potentially draconian consequences. It’s called damages – that delightful legal term covering all loses directly related to the cancellation.

Typically damages would comprise:-
• Agents commission on the cancelled sale
• Any reduction in purchase price on resale
• Wasted legal costs

It’s plain to see, that a damages claim can quickly add up to a significant sum of money. It’s precisely this debt exposure that the ‘walking party’ does not think about when contemplating a bale out. Conveyancers should make sure the risk is outlined to a party wanting ‘out’.

A recent case illustrates the point succinctly. We responded to the repudiation with a warning letter as to the consequences. In this case, there was also a deposit at risk. In the heat of the moment, the purchaser persisted with the repudiation and so the contract was cancelled.

It only took one or two sleeps for the bad decision to be recognized. A request to continue with the contract followed, but of course, that was not possible as the contract was already cancelled. All ended well however, with a new agreement being signed and the matter is proceeding on its way.

Next time, let’s talk about the ‘mora’ clause.

Bye for now – David

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