Property Settlements during COVID-19 Crisis

Property Law: 01 April 2020

The COVID-19 virus is likely to create circumstances where parties to some conveyancing transactions are unable to complete the transaction in the normal manner. However, although the frequency of those circumstances is now greater, those circumstances are no different than those which have always been possible and which property lawyers have worked through on many occasions over many years.

For example:

1. a party to a transaction is unable through illness to execute a transactional document: this was always a problem when Transfers of Land were being urgently signed in the last few days before settlement but now that client authorisations are used, there is a much larger window during which an ill client can sign;
2. a purchaser is unable through illness to complete mortgage application documents.

The one circumstance which is new is where a vendor is required to remain in the sold property beyond the due date for settlement because of a requirement to quarantine or self-isolate. In that circumstance the vendor will be unable to provide vacant possession at settlement. Again however, there have always been transactions where a vendor has been unable to provide vacant possession - normally because a tenant has failed to vacate.

What is significant with the LIV/REIV Copyright form of Contract of Sale of Land is that General Condition 34 provides that a "party is not entitled to exercise any rights arising from the other party's default, other than the right to receive interest and the right to sue for money owing, until the other party is given and fails to comply with a written default notice.The 14 day 'window' that the Notice provides affords parties sufficient time, in most cases, to overcome the unexpected circumstance (albeit at the risk of being charged interest at the penalty rate). Our Contract is different from that in use in NSW (and, it seems, SA).

Whilst it is of course possible to insert a special condition allowing a party to defer settlement without penalty if specified circumstances arise, such conditions cause significant problems where simultaneous settlements are anticipated. For example if in one transaction a purchaser defers settlement because of a supervening event, the vendor will be denied the moneys required to settle its purchase of a replacement property. Where there is a chain of settlements, each dependent on the other, the problem is magnified.

True, those same problems will occur if the purchaser is genuinely unable to settle but:

1. the presence of a deferral clause will create a chance that it is abused; and
2. it seems preferable that the party with the greater ability to prevent the supervening event suffers the consequences rather than the party without any fault.

It should also be remembered that the LIV/REIV Contract includes a general duty to co-operate and at a time when "we are all in this togetherthere is also a moral obligation to 'cut a bit of slack'. Together, that duty and that obligation will normally be sufficient without the need to add any special condition.

For more information, please contact Rob Bradley on 03 8600 6002 or rbradley@aitken.com.au