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COVID-19 restrictions and affects on Contract of Sale of Real Estate

Melbourne is now the most locked down city in the world and is currently enduring lockdown 6.0. It has become increasingly difficult to predict the governments’ responses to the pandemic and restrictions that are ever evolving and changing. For vendors and purchasers, the restrictions have affected property inspections, auctions, finance approval and any works or repairs that have been agreed to be completed prior to settlement.

Although property listings were substantially withdrawn from the market and potential buyers holding back on purchasing properties particularly with the restrictions on property inspections, with one-on-one private inspections now open, the market is beginning to pick up again. Melbourne continues to see property prices growing. If you plan to buy or sell during these times, it is important to understand that there are additional risks and possible implications on your contractual obligations.

Below are some general points that should be considered in a Contract of Sale.

 What if I cannot satisfy the contract conditions due to the COVID-19 restrictions?

The past and present restrictions have made obligations under the Contract of Sale difficult to satisfy for reasons that are unforeseeable or outside of one’s control.

The standard Contract for Sale provides no mechanism whereby the purchaser could rescind the contract or delay settlement due to the current impact of COVID-19.

If a purchaser is not able to settle on the date required under the contract, the vendor, subject to the terms of the contract, may charge penalty interest on the purchase price for each day that settlement is delayed. If the restrictions caused by COVID-19 has delayed the purchaser’s obligations under the contract and subsequent settlement, it will not ordinarily entitle the purchaser to extend settlement. Further, purchasers who are unable to complete their purchase would forfeit their 10% deposit and may be liable to being sued for damages by the vendor. An option would be to seek the vendor’s consent and agreement to an extension to settlement.

If the vendor is not able to settle on the date required under the contract, subject to the terms of the contract, the purchaser generally will be able to terminate the contract once the time stipulated in the Notice of Default has lapsed.

Another example is where a vendor may be required to self-isolate due to infection with COVID-19 and cannot move out of the home to provide vacant possession. In such circumstances, this would be a breach of the contract and it would likely be in the vendor’s interests to negotiate an alternate settlement date following the isolation period or for the parties to enter into a licence agreement whereby the vendor can remain in possession. However, it is open to the purchaser to seek compensation arising from the vendor’s default.

How can contracts be drafted to provide protection during this time of uncertainty?

Due to the unpredictable nature of COVID-19 and the restrictions imposed, unforeseeable delays should be considered when selling or purchasing a property to protect both vendor and purchaser. Contracts of Sale should be carefully drafted and reviewed, allowing for insertion of special conditions to avoid possible disputes. The following may be considered:

  • Inability to complete pest and building inspection
  • Inability to complete repairs, if required and agreed
  • Inability to obtain necessary approvals i.e finance approval due to lenders being busy or short staffed and re-valuation of property and loan to valuation ratio or valuers not being able to attend properties
  • The risk of delay in either party being able to settle and the method to extend or suspend settlement
  • Include clauses that give either the vendor or the purchaser the right to delay settlement without penalty or risk of termination should one of the parties be required to self-isolate or quarantine

Whether the parties (vendor and purchaser) agree to the inclusion of these provisions would be a matter for negotiation.

To reduce your risk when selling or purchasing a property during this time, it is important to speak to a lawyer who can advise you on your rights and obligations, review the Contract of Sale and draft appropriate clauses in your best interests that consider the current pandemic, restrictions imposed and the risk that the vendor or purchaser is seeking to deal with.

If you are planning to sell or buy a property, please contact our Real Estates lawyers today.

Insight written by Sandra Le

Contacts

Kristy Muhlhan

Principal

Kristy Muhlhan

Principal
LL.B (Hons) GRAD DIP. L.P., GAICD.
Since 2014, she has been an owner and Principal of the firm and has mastered a broad range of essential commercial and business skills which go hand in hand with the work she does for...

Sandra Le

Associate

Sandra Le

Associate
LL.B BCom
Sandra is professional and takes exceptional care with every matter she undertakes and is a natural problem solver.

Stewart Davis

Associate

Stewart Davis

Associate
LL.B (Hons) B.Com
As well as property law, Stewart has had exposure to VCAT administration matters and commercial law, particularly servicing developer clients.

Wendy Toura

Conveyancing Team Leader and Law Clerk

Wendy Toura

Conveyancing Team Leader and Law Clerk
Licensed Conveyancer, BCom
Wendy’s role is primarily in conveyancing.

Emma Dickens

Paralegal

Emma Dickens

Paralegal
Emma previously completed a Bachelor of Legal and Dispute studies at RMIT University in 2015.

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