A rising market is often characterised by sellers seeking to back out of deals they suspect may have been at too low a price.
Glen and Leigh Parkes signed up for a $1.4 million home buy on 30 June 2015 subject to registration of a two lot plan of subdivision within 6 months.
Settlement of the Sydney property was to occur within 14 days of plan registration and standard conditions of sale were amended by the seller’s agreement to accept in lieu of payment of a $140k deposit, a bond equivalent to 5% of the sale price would be accepted.
The buyers obtained a Deposit Power Guarantee issued by CBL Insurance Ltd expiring on 24 December 2015.
In November, seller Ian Mamo notified he would not be able to obtain the necessary local authority approval by the 30 December sunset date and requested the buyer’s consent – necessitated by recent NSW sunset legislation – to terminate the deal.
In the context of a rising market, Mr & Mrs Parkes offered to extend the sunset date but refused a consent termination.
In January 2016, Mamo’s solicitors – relying on the buyers’ failure to replenish the expired deposit bond with cash – purported to crash the contract.
Parkes lodged a caveat and issued NSW Supreme Court proceedings for specific performance to compel Mamo to proceed with the sale.
The seller’s contention before Justice Rowan Darke was that the agreement to accept the deposit bond merely suspended the buyers’ obligation to pay the cash deposit.
In that sense, the bond was – he said – “merely security for the discharge of the obligation to pay the deposit”.
The court thought otherwise.
Having regard to the contract wording, his honour ruled the deposit bond was accepted in lieu of cash and its acceptance relieved the buyer of all other obligations thereby preventing the seller from demanding a cash payment.
As the expiry date was evident on the bond “prior to exchange of contracts” the seller was taken to have accepted the bond’s December expiry date.
Mamo was ordered to discharge his obligations to obtain registration of the subdivision plan and to complete the conveyance in favour of the Parkes.
For their part, the Parkes must pay the whole price at settlement without any allowance for “any deposit paid”.
As quickly as it arose, the 2015 “boom” experienced in southern states now appears to be on the wane.