Important Legal Considerations when Buying or Selling Residential Property during the COVID-19 Pandemic
There is currently a great deal of uncertainty as to just how great of an impact the COVID-19 pandemic will have on the residential property market. With the real possibility of a second wave of the pandemic reaching QLD, there are also contractual issues which those who are currently engaged in the buying/selling process need to consider.
One of the most common questions we are receiving at the moment is ‘what happens if a party is unable to complete a Contract of Sale due to the impact of COVID-19?’ The answer will always depend on the individual Contract however given the vast majority of residential property sales are conducted using the standard form REIQ Contract, it is prudent to be aware of how this particular contract deals with the issue.
The REIQ Contract specifies that time is of the essence. This key concept means that by not completing the Contract (i.e. settling) on the due date, you may find yourself in breach of an essential Contract term, entitling the other party to terminate the Contract and sue you for damages.
The Contract does however contain a provision that will, in certain circumstances, suspend the parties’ obligation to complete the Contract and make time no longer of the essence. In order for these obligations to be suspended, a Delay Event must have occurred. A Delay Event is defined in the Contract as the following circumstances:
1. A tsunami, flood, cyclone, earthquake, bushfire or other act of nature;
2. Riot, civil commotion, war, invasion or a terrorist act;
3. An imminent threat of an event described in the above two paragraphs; or
4. Compliance with any lawful direction or order made by a Government Agency.
Whilst there may be a possibility in very limited circumstances for a COVID-19 related delay to fall within the scope of paragraph 4 above, in most instances the types of delays encountered as a result of COVID-19 are very unlikely to be classified as a Delay Event. Therefore, in most cases, a failure to settle on the due date as a result of COVID-19 will not prevent you from breaching an essential condition of the REIQ Contract and exposing yourself to considerable legal risk.
The simplest solution to avoid any unnecessary risk is to negotiate the insertion of a special condition into your contract prior to signing. An appropriately drafted special condition will ensure that the common COVID related delays will suspend your settlement obligations until such time as completion of the contract becomes possible.
Please note that the advice contained in this article is general in nature. If you are considering buying or selling residential property in these uncertain times, contact Rostron Carlyle Rojas Lawyers prior to signing a contract of sale. Our team will be able to review your contract, provide legal advice tailored to your individual circumstances and ensure you are adequately protected against the uncertainty posed by COVID-19.