The current rising property market leads to some interesting legal scenarios with parties who cannot or will not perform their obligations under contracts for the sale of property.
In a contract for sale of a property, a party may inform the other that they are unable to settle on the appointed date, or they are unwilling to do so, for some other reason.
Where a buyer expresses that intention, the seller may rely upon that stated intention and may have the right to immediately exercise its rights under the contract and either seek to enforce the contract or accept the repudiation and terminate the contract . They do not have to await the due date for the performance obligation and can act immediately.
This immediate right arises because of the other party’s statement of intention that they cannot or will not meet their obligations.
The temptation to act immediately to terminate is most likely to be attractive if the seller can forfeit the deposit and has another buyer ready willing and able to settle and pay a better price.
In a declining market, the opposite may apply. That is, a seller may want to try to enforce the contract out of fear that on a resale the price will be lower, and they will have to pursue the defaulting buyer for damages.
Make sure the statement of intention is clear and unequivocal
However, before any consideration of electing to terminate for an anticipatory breach of contract, the innocent party needs to be absolutely certain that the expression of intention to default is clear and unequivocal. A prudent party would seek to have a written statement to that effect as evidence of the anticipatory breach of contract.
Statements such as “We may not be able to perform our obligations /settle “ or “there might be some delay” will not be sufficient and it would be unsafe to act upon such statements.
If the party making those statements were, contrary to their tentative comments, in a position to meet their obligation, then a premature termination may lead to a damages claim against the party wrongfully terminating.
Acting upon comments or statements of inability to perform obligations under contract such as settling a purchase of property is also a risky proposition if the party has caused or contributed to the other side being unable or unwilling to perform. Any purported termination may in such cases be wrongful and lead to a damages claim against the party wrongfully terminating.
If you are a buyer-make sure that you do not, unless absolutely certain, prematurely make any statement which may be regarded as an intention not to perform your obligations under the contract (usually to settle on the due date) without having regard for the possible consequences. Every effort should be made to negotiate an extension of the time to perform the contractual obligation with or without conditions attached.
One of the key issues facing a party who may want to terminate immediately in these situations and which will influence and determine the choices that they make is that of mitigation of loss. A party who has suffered a wrong and terminates a contract, usually has an obligation to mitigate their loss-that is they must act to minimise their loss and not simply let any loss increase if they could stop or minimise it.
If a party chooses not to terminate the contract before the time arises for its performance, they are under no immediate obligation to mitigate (i.e. diminish) their loss resulting from the failure of the repudiating party to perform their side of the bargain (see Huppert v Stock Options of Australia Pty Ltd (1965) 112 CLR 414).
However, if a party chooses to terminate the contract before the time for the performance of their obligations they are under an immediate obligation to mitigate their loss (however they can sue for damages immediately).
In the current property market, there are many risks for parties who are in a situation of non-performance of a contract. How you deal with it requires sound legal advice and understanding of the law. If you get an anticipatory breach of contract matter wrong, the consequences may be damaging.
If you would like to discuss how best to approach an anticipatory breach of contract issue, please contact one of our experts online, by email at [email protected], or by telephone at 07 3009 8444 to engage in an obligation-free discussion.
Rostron Carlyle Rojas