Purchaser Walking away from
an off the plan contract could cost more than the deposit; pays vendor $458,500 for loss on
Purchasers who do not complete a Contract for the Sale of
Land not only risk losing their deposit but also paying the
loss on resale of the property, if the loss exceeds the
In a falling real estate market, it is likely that more
and more purchasers who purchase under a delayed completion
contract, whether off-the-plan or otherwise, will be exposed
to claims for loss on resale if they cannot obtain
sufficient finance to pay the amount required to complete
the purchase contract.
This was the situation in Cole v Raykir Holdings Pty
Ltd  NSWSC 1017 (13 August 2019), a decision of
Justice Darke in the Supreme Court of New South Wales.
The Facts in Cole v Raykir
Holdings Pty Ltd
On 19 January 2018, Mr & Mrs Cole entered into a Contract
for the sale of their home at 253 Kissing Point Road, South
Turramurra to Raykir Holdings, a property developer. The
price was $2.83 million. The purchaser paid a 5% deposit of
$141,500. It was a delayed completion contract in that the
completion period was 6 months.
On 20 July 2018, the vendors’ solicitor issued a Notice
to Complete in accordance with the Contract. The Notice
called for completion 14 days afterwards, on 3 August 2018,
time of the essence.
The purchaser was unable to obtain sufficient finance to
complete because the property valuation fell short by
$510,000. The purchaser requested an extension until 24
On 2 August 2018, the vendors agreed to the extension of
the Notice to Complete, on conditions which included the
release of the deposit, payment of interest and legal costs.
On 27 August 2018, the vendors terminated the Contract
because of the purchaser’s failure to comply with an
essential obligation: i.e. to complete by 24 August 2018.
On 2 November 2018, the vendors commenced proceedings for
On 15 April 2019, the vendors resold the property at a
price of $2.23 million, $600,000 less than the price the
purchaser had agreed to pay 15 months beforehand.
Was the Notice to Complete
The Court found that the Notice to Complete was valid for
- The Notice specified a date for completion ‘not less
than 14 days after the date of service’. In this case,
Additional Condition 36 of the Contract which provided
that “For the purpose of calculating the Notice Period,
the Notice Period commences at midnight on the day on
which the notice period is served’ overcame the general
rule that the date of service is not included and the
notice period commences at the end of that day.
Therefore the Notice expired on the 14th day – on 3
August 2018, as it stated. The Court said that even if
this were not the case, an agreement to extend the time
for completion could overcome this defect.
- The extension of time for the Notice to Complete was
agreed before the Notice had expired. There was no need
to withdraw the earlier Notice and issue a fresh Notice
to Complete. The Notice to Complete was treated as
altered to require completed by 3:00 pm on 24 August
2018, with time being of the essence.
- It did not matter that there was an inconsistency
between the time specified in the Notice of 20 July of
12:30 pm as the time for completion, and the time for
completion in the agreement to extend the time which was
The Court found that the vendors were entitled to
terminate and did terminate the Contract based on the
failure by the purchaser to comply with the Notice to
Complete by completing on 24 August 2018 (an essential
The Court also found that the purchaser had repudiated
the Contract by conduct ‘such as to convey to a reasonable
person in the situation of the other party, renunciation
either of the contract as a whole or of a fundamental
obligation under it’. The vendor was entitled to accept the
repudiation and terminate the Contract.
The Court said that it was not necessary for the vendor’s
solicitor to attend at the time and place appointed for
settlement because they had been advised that the purchaser
was unable to complete the purchase.
Was payment of the second
instalment of the deposit a penalty?
The Contract contained an Additional Condition which
permitted the 10% deposit of $283,000 (as stated on the
cover page of the Contract), to be paid by two instalments.
The first instalment was 5% of the price - $141,500 which
was paid on entry of the Contract.
The second instalment was “a further sum equivalent to 5%
of the purchase price (“the Balance Deposit”)” which was
payable “on or prior to completion of this contract” subject
to the proviso that the Balance Deposit is due and payable
if the purchaser was in default.
The Court considered that this provision for payment of
the second instalment was penal in nature, and not
enforceable, for these reasons:
the Balance Deposit lacks the character of a deposit.
If the contract was performed in accordance with its
terms, the Balance Deposit would not have to be paid
before the actual completion of the contract. In those
circumstances the Balance Deposit could not be
characterised as an earnest of performance. Whilst no
clear submission to that effect was developed, it seems
to me that the Balance Deposit cannot be regarded as an
earnest of performance and hence a payment truly in the
nature of a deposit (see Kazacos v Shuangling
International Development Pty Ltd (2016) 18 BPR
36,353;  NSWSC 1504 at , -,  and
It is not necessary to express a concluded view on
this point given that, on the conclusions I have
reached, the plaintiffs are entitled to recover the
deficiency on resale pursuant to cl 9.3.1 of the
contract. Under that clause, the plaintiffs have to give
credit for any amount of the deposit recovered.
Did the personal guarantee
of the purchaser’s obligations cover the loss on resale?
The Contract contained an Additional Condition which
contained a personal guarantee given by the sole director of
the purchaser corporation, as follows:
(a) If the Purchaser under this Contract is or
includes a corporation (other than a corporation listed
on the Australian Stock Exchange) then each person who
signs this Contract on behalf of that corporation will
be personally liable for the due performance of the
purchaser’s obligations under this Contract to the same
extent as if that person was the Purchaser under this
(d) This guarantee is deemed to constitute a principal
obligation between the guarantor and the vendor.
The Court found this condition was sufficient to make the
director who signed as guarantor for the purchaser
corporation personally liable for the loss on resale.
What damages were payable
for loss on resale?
The purchaser and the personal guarantor were liable to
pay $458,500 under clause 9.3.1 of the Contract, namely:
9 If the purchaser does not comply with this contract
(or a notice under or relating to it) in an essential
respect, the vendor can terminate by serving a notice.
After the termination the vendor can-
9.3 sue the purchaser either-
9.3.1 where the vendor has resold the property under
a contract made within 12 months after the termination,
the deficiency on resale (with credit for any of the
deposit kept or recovered …); and
the reasonable costs and expenses arising out of the
purchaser’s non-compliance with this contract or the
notice and of resale …; or
9.3.2 to recover damages for breach of contract.
The value of the property was assessed at $2.23 million
at the date of termination (being the sale price under the
15 April 2019 Contract), which was $600,000 less than the
contract price of $2.83 million. Deducting the deposit paid
of $141,500, the loss on resale was $458,500.
Although entitled to do so, the vendor did not claim any
costs or expenses for non-compliance with the contract or
the notice or of resale. Interest was payable from 15 April
2019 and the purchaser and personal guarantor were ordered
to pay the vendor’s legal costs.
Note that cl 9.3.1 – the liquidated damages clause
was relied upon to recover the loss in this case, as opposed
to cl 9.3.2 – the general damages clause.
Inability to obtain (sufficient) finance is a real risk
in delayed completion contracts, for these reasons:
- finance approval is available for a limited time
(usually 90 days)
- unconditional loan approvals require a property
valuation, which is valid for a limited time (usually 90
days) and can only be done when the building is
completed (this is relevant to off-the-plan contracts)
- market values may fall during the delayed completion
In this case, finance approval was available, but the
amount was insufficient because the market value of the
property had fallen since the date the contract was entered
Conveyancers can draw comfort from the fact that the
Court upheld a relatively simple personal guarantee clause.
However, conveyancers should review and if appropriate
revise their clause for payment of the deposit by
instalments to ensure that the delayed instalment is not
payable on completion. To be an ‘earnest for performance’,
it needs to be payable on a specific date, independent of