Are there any protections under the REIQ Contracts?
Under the standard REIQ Contract terms, time is of the essence. This means that if a party does not comply with a deadline (such as settlement) in the contract, there may be a breach.
However, the current REIQ Land Contracts (both residential and commercial) do contain a suspension of time mechanism whereby, if a party is unable to perform a “Settlement Obligation” solely as a consequence of a “Delay Event”, then time is suspended and ceases to be of the essence.
Whether this option is available will depend on the exact circumstances and specific contract.
What is a Settlement Obligation?
What constitutes a “Settlement Obligation” varies between the different types of REIQ Contracts but includes actions such as:
- payment of the Balance Purchase Price;
- granting vacant possession of the Property;
- providing an executed and registrable transfer of the Land; and
- procuring stamping of the transfer for duty payable on the transaction.
What qualifies as a Delay Event?
A “Delay Event” is defined to mean:
- an actual or imminent threat of tsunami, flood, cyclone, earthquake, bushfire or other act of nature;
- an actual or imminent threat of riot, civil commotion, war, invasion or terrorist act; or
- compliance with any lawful direction or order by a Government Agency.
Notably, a Delay Event does not include a pandemic. Therefore, the clause is unlikely to trigger a suspension of time in the absence of a lawful direction or order being issued by a Government Agency (such as mandated lockdown or isolation).
It is also important to note that the inability to perform a Settlement Obligation must arise solely as a consequence of the relevant Delay Event.
How does the suspension of time clause operate?
If, for example, a party is unable to perform a Settlement Obligation solely due to a Government mandated lockdown, that party must:
- notify the other party of the impact of the relevant Delay Event and that time is suspended as a result of its occurrence; and
- take reasonable steps to minimise the effect of the Delay Event on the ability to perform its Settlement Obligations.
When the affected party is no longer prevented from performing its Settlement Obligations, it must notify the other party promptly. Either party may then give the other a written “Notice to Settle”, which must nominate a new Settlement Date (between 5 and 10 Business Days from the date of the Notice to Settle).
Are there any exclusions?
The suspension of time mechanism does not apply where the inability to perform is attributable to:
- damage to, destruction of or diminution in value of the Property or any other property of a party; or
- termination or variation of any agreement between a party and another person whether relating to the provision of finance, release of an encumbrance, the sale or purchase of another property or otherwise.
To provide clarity and comfort for Sellers and Buyers, we recommend the inclusion of a special condition which:
- amends the definition of “Delay Event” to include the inability of a party to perform a Settlement Obligation for reasons outside of their control associated with the COVID-19 pandemic (such as compulsory lockdown, periods of self-isolation or suspension of paper settlements); and
- extends the time period for settlement to 20 Business Days after Notice to Settle is given to ensure that all parties (such as banks, solicitors, agents and mortgage brokers) have the capacity to settle the transaction following an extended closure period.
If you are concerned about signing a Contract and the effects of the COVID-19 pandemic, please contact us and we can provide you with an appropriate special condition for inclusion in your Contract.
If a Contract has already been executed, it is important to note that in present circumstances you are only entitled to an extension if the other party agrees to allow an extension. Incorrectly invoking the suspension of time mechanism in the REIQ Contract may amount to a repudiation and result in a claim for damages.
Alternative Settlement Methods
To minimise the impact of COVID-19 on property transactions, we recommend that all REIQ Contracts be settled through PEXA, eConveyancing or other electronic settlement platforms. Whether this can be done will depend on whether all stakeholders (including banks and solicitors) are registered to use the service.
Please note that this has been prepared for information only and is not legal advice specific to your circumstances.
For further support, advice or specific queries, please contact our property lawyers on (07) 5574 1000.