Instalment Contracts and Forfeiture of Deposits

A recent matter reminds us all that in a hot real estate market and rising prices, any delays in settlement can be a fundamental breach. However-not all may be lost if there is an instalment contract.

We recently acted for a buyer of an off the plan property on the Gold Coast who initially signed a contract for $2,000,000 in 2017.

A deposit was paid of 10% of the purchase price at the time of signing.

4 years later when the developer called for settlement, the buyer’s financier was not ready to settle and sought a short extension to settle.

The developer refused to grant the extension, and purported to terminate and forfeit the deposit of $200,000 on the basis that the contract expressly provided time was of the essence and the failure to settle on the due date was a fundamental breach of the terms of the contract. The developer then offered to re-sell the property to the buyer at what it considered to be the current market value of $2,500,000-an increase of $500,000 ! Clearly, the developer had simply sought to take advantage of the market conditions and the increased value.

Naturally the Buyer was less than impressed and sought our advice.

Upon further investigation, it transpired that some months before the settlement was due, the developer’s had offered to build an additional storage area for the buyer attached to its basement carpark for $3,500. This additional storage area was offered on the basis that it would be “on title” and that the buyer would have exclusive use, and the CMS would reflect the additional space.

This offer was accepted and the additional storage area fee was paid.

Instalment Contracts definition

Was the additional storage space fee payment a payment “other than a deposit”?

In our view, this additional storage fee triggered the instalment provisions of the Property Law Act.

Under the Property Law Act 1974 (Qld) (PLA), section 71 defines:

a “deposit” as follows:

deposit” means a sum—

(a) not exceeding the prescribed percentage of the purchase price payable under an instalment contract; and

(b) paid or payable in 1 or more amounts; and

(c) liable to be forfeited and retained by the vendor in the event of a breach of contract by the purchaser.”

an “instalment contract” as follows:

“instalment contract” means an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments.

a “prescribed percentage” as:

“prescribed percentage” means—

(a) for a contract for the sale of a proposed lot—20%; or

(b) otherwise—10%. 

30 days notice to terminate required

The effect of this was that the Developer had failed to terminate in accordance with S 72 which provides:

S71 (1) An instalment contract shall not be determinable or determined because of default on the part of the purchaser in payment of any instalment or sum of money (other than a deposit or any part of a deposit) due and payable under the contract until the expiration of a period of 30 days after service upon the purchaser of a notice in the approved form.

Following our robust representations to the developer’s legal representatives and threats of court action, the developer relented it position and offered to re-sell the unit at the original contracted price and credit the forfeited deposit to the new contract.

Our client buyer refused this kind offer and sought an immediate refund of the deposit, storage fee and interest. This was agreed upon and paid.

But for the fact that the additional storage fee made the contract an instalment contract, the developer was entitled to terminate and forfeit the deposit.

The matter was a timely and stark reminder that in a rising market with property values rapidly escalating, buyers must have their finance in order to settle on time or face the possible termination and loss of their deposits. However-in certain circumstances, and with the benefit of good legal advice, it may be possible to avoid the drastic consequences of a purported termination. It also emphasises the need for developers to  be aware of the consequences of accepting additional payments “other than” deposit monies before deciding to terminate.

If you have any queries on these matters-please contact us;

QLD: 07 3009 8444
NSW: 02 9307 8900
Email: [email protected]


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