What happens if you cannot settle on time

Missing a settlement date rarely ends the contract by itself. Default interest starts running under the contract from that date, and the other side can then serve a notice to complete, which sets a fresh deadline and makes it essential. If that one passes, the vendor can terminate, keep the deposit and pursue the shortfall on a resale.

Missing the date is not the same as losing the contract

The fear that keeps people awake the night before a settlement they cannot fund is that the whole thing evaporates at 5pm. In the ordinary case it does not. Under the standard forms the settlement date is a date you are obliged to meet, and missing it puts you in breach — but a breach is not an ending. The contract carries on until somebody takes the next step, and the next step is a document, not a clock.

Two things start at once. Default interest begins accruing under the contract from the date you were meant to complete, at whatever rate the contract names, and it runs daily. And the other side acquires the right to serve a notice to complete: a notice fixing a fresh date and making that date essential, so that failing it is a breach serious enough to end the contract. The period the notice must give comes from your contract, and the state forms differ, so the only number worth planning around is the one your own solicitor reads off your own page.

There is one version with no give in it at all — a contract that already makes the original settlement date essential. Where that is so, there is no notice and no fresh date; the right to terminate arrives the moment the date passes. Which of the two you are in is the first question to answer, and it is answered by reading the contract rather than by hoping.

It is also worth naming the other half of the room. Not everybody short at settlement is buying. A vendor whose payout figure has grown past what the sale will produce is short too, and cannot hand over a discharge without finding the difference — which is why getting the payout figure early, in writing, is the single most useful hour a seller can spend before settlement week.

You are not the first one this week

Almost everybody in this position rings their bank first, and the bank almost always says no. It says no for reasons that have nothing to do with whether the loan would be repaid: the last financials look wrong, a lodgement is late, the credit file has a mark on it, or the file simply cannot be assessed inside the days that are left. Those are the things a bank exists to care about. None of them says anything about whether there is equity in the property.

That gap is where HomeSec has been since 2004. We are not here to judge how the gap appeared — a valuation that came back light, a purchaser who did not perform, a date that moved twice — and we have seen enough of them that it does not surprise us. What we look at is whether there is enough unused equity in Australian real property and whether the purpose is a genuine business one. No financial statements, no credit score threshold, no interrogation. From a clean, complete scenario funds can be available in as little as 24 hours, and interest can be capitalised for up to six months, so there is nothing payable while the settlement it rescued turns back into a working asset.

Back to the contract, because the settlement date does not care where the money comes from.

What the other side can do, in the order they do it

Each of these is a step somebody has to choose to take, and each one costs them something. That is the reason the early part of this list is negotiable and the late part is not.

1. 1
   Default interest, from the day you should have completed.At the rate the contract names, calculated daily. In Victoria many contracts adopt the penalty interest rate fixed under the Penalty Interest Rates Act 1983, which the Attorney-General sets and the Supreme Court of Victoria publishes; it has not moved since February 2017. Elsewhere the rate is simply written into the contract. Ask your solicitor for the daily dollar figure rather than the rate — the daily figure is what makes the decision obvious either way.
2. 2
   A notice to complete.A fresh date, and that date is essential. It is also the point at which the other side starts incurring legal costs that will be claimed from you. Serving one is a decision, and people generally prefer to be paid than to serve notices, which is precisely why an extension asked for before this arrives is easier to get than one asked for after.
3. 3
   Termination, and the deposit.If the notice expires, the innocent party may end the contract. Under the standard forms a vendor may then retain the deposit — commonly ten per cent of the price, and on a commercial purchase that is a serious number on its own.
4. 4
   The shortfall on a resale.Terminating does not have to be the end of the claim. Where the property resells for less, the vendor may sue for the deficiency and reasonable costs, crediting the deposit already held against it. This is the item people do not see coming, and it is the reason "walking away" is rarely walking away.
5. 5
   Specific performance.The other route: instead of ending the contract, ask a court to compel it. A vendor who wants the sale rather than the fight can take it, and a purchaser facing it is being ordered to find money they have already said they do not have.

The deposit is neither simply gone nor simply safe

Two wrong beliefs circulate here, and they are mirror images. One is that a forfeited deposit is always lost. The other is that a court will hand it back because the default was not deliberate. Neither is right.

In New South Wales the Conveyancing Act 1919 says that where a court refuses specific performance, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest. Read it closely: may, and if it thinks fit. It is a discretion the court holds, not a right the purchaser has, and it is exercised in a courtroom months after the settlement that failed. The position differs from state to state, which is another reason the useful conversation this week is with your own solicitor rather than with a search engine.

Nor is a late lender much of an answer. The finance condition, where there was one, has normally been satisfied or waived weeks earlier, so a slow lender after that point is your risk and not the vendor's. How little a single day is worth was argued as far as the High Court of Australia in Tanwar Enterprises v Cauchi in 2003, on whether vendors acted unconscionably in terminating where the purchaser's funds became available the following day. The lesson to take from a question fought at that level is not that it might go your way. It is that a day's grace is something to secure in advance, in writing, and never something to assume.

The first twenty-four hours

1. 1
   Read the contract for the completion date and whether time is of the essence.Those two lines decide whether you have a notice period ahead of you or nothing at all. If you cannot find them in ten minutes, your conveyancer can find them in two.
2. 2
   Get the exact gap, in dollars, today.Balance of price, adjustments, duty, discharge or payout figures, agent's commission, and the default interest if the date has already passed. A shortfall people guess at is almost always guessed low, and a lender cannot act on an estimate.
3. 3
   Ask for an extension in writing, now.Through the solicitors, with a date you can actually meet and a reason that is true. Asked early it is a commercial conversation. Asked on the day it is a concession, and concessions cost more.
4. 4
   Find out what security you already hold.Unused equity in a property you own — not the one being bought — is what can be reached in days rather than weeks. A caveat over property you already own does not need your existing lender's consent, which is usually what decides whether money arrives before the date or after it.
5. 5
   Tell your solicitor you are arranging funding.They conduct the settlement and they receive the funds into trust. A solicitor who knows money is coming can hold a line with the other side; one who finds out on the morning cannot.

Where money fixes this, and where it does not

Funding a settlement is one of the clearer cases for borrowing, because the sum is known, the deadline is real, and the alternative has a price you can put a number on. Penalty interest plus a notice to complete plus the risk to a ten per cent deposit is a large, calculable loss, and it sits on one side of a page against the cost of bridging the gap on the other. Where the purchase or the sale was sound and only the timing broke, that arithmetic is usually not close. If you are buying and the finance you had has fallen over entirely, our page on bridging loans for property settlements covers funding the purchase itself rather than the gap.

It does not work in three situations, and they are worth saying plainly. If there is no unused equity in real property, this is not our answer, and the honest advice is to put the extension request and the negotiation ahead of the finance application. If the settlement was only ever going to work on a valuation that has now come in lower, borrowing the difference buys an asset the numbers already rejected — the plan needs fixing, not funding. And if there is no exit — no sale, no completing refinance, no contract that settles — then a loan secured on the family's equity is a way of losing the property as well as the deposit. Your accountant, and in a genuinely bad case a registered liquidator, will tell you that faster than we will, and we will tell you too.

This page explains what a settlement contract does when a date is missed. It is general information, not legal or insolvency advice: what to do in your circumstances depends on your contract and your state, and it is a question for your conveyancer or solicitor, and where a company's solvency is in question a registered liquidator. The relevant state legislation and the courts are the primary sources, and a licensed conveyancer or solicitor is the person who should read your contract.

Reviewed by Paul Stone, Joint Chief Executive