Allens

Real Estate

Client Update: Errors in settlement figures and notices to complete

12 September 2012

In brief: A recent New South Wales decision provides an interesting insight into the effect of errors in a settlement statement prepared by a real estate seller. These errors can mean that the seller is in default under the contract, by demanding money it is not entitled to. It could, in an extreme case, lead to a buyer having a right to terminate the contract of sale. Partner Tony Davies (view CV) and Senior Associate Liam Chambers report.

Background

Notices to complete are commonly used in conveyancing practice, where time is not of the essence under the relevant contract or time has ceased to be of the essence due to the conduct of the parties. While it is customary for a buyer to prepare and issue a settlement statement (given that the buyer is the party advancing settlement proceeds), a seller will often prepare and submit the settlement statement where the buyer is in default or unresponsive, to demonstrate the vendor is ready, willing and able to settle. At law, a seller must be ready, willing and able to settle (ie not itself in breach) to validly give a notice to complete. It is therefore common for a seller to prepare and submit both a notice to complete and a settlement statement if settlement is anticipated to be difficult.

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The case in question

The case of Carrapetta v Rado1 involved an erroneous settlement statement prepared by the seller (relating to a miscalculation of interest on the purchase price), which was sent to the buyer, following a notice to complete having been issued to the buyer. The buyer alleged that the seller was in default by issuing a settlement statement demanding an incorrect amount of money to effect settlement. Accordingly, if this submission was accepted, the seller could not terminate the contract for the buyer's default (failing to settle as required by the notice to complete), as the seller was itself in default. However, the court held that, as the seller had issued the settlement statement after the seller issued the 14-day notice to complete, the seller was not in default at the time of issuing the notice to complete and therefore the buyer's argument failed.

Perhaps fortunately for the seller, the court was not required to consider the outcome if the settlement statement had been issued with, or before, the notice to complete. English cases have permitted a buyer to terminate a contract on the basis of an incorrect settlement statement given before a notice to complete was issued.

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What does this mean for you?

When sending a settlement statement to a counterparty, we recommend that you request comments on the statement as soon as possible and advise that, if comments are not promptly received, you will assume figures are agreed. You should also confirm that the settlement statement is issued on the basis that it is subject to the terms of the contract. Where possible, a notice to complete should also be sent before a settlement statement. Given most notices to complete provide 14 days or longer for settlement, this is likely to be common practice.

If you would like to discuss this matter further, please contact us.

Footnotes
  1. [2012] NSWCA 202.

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