What happens when the Seller breaks the contract?

Take a look at any standard contract for the sale of property in Queensland and you will fairly easily find some specific clauses that clearly explain what happens to the Buyer if they default under a contract and wrongfully fail to complete.  Typically, any deposit paid is forfeited to the Seller and the losses on resale of the property to an alternate Buyer at any lesser price can also be recovered.  In cases however, where it is the Seller who is in default, standard contracts typically say nothing and therefore seemingly leave the Buyer with no rights at all.  In this scenario, the protection for the Buyer sits outside the contract in old legal principals available in common law and equity.

Damages:   Like any contract, a Seller who wrongfully fails to complete a contact is liable to financially compensate the Buyer for any losses as a result of going into the failed deal.  Money spent on expensive building and pest reports, legal fees and any other out-of-pocket expenses that might have been reasonably foreseeable can all be recovered from the Seller.  These losses are typically called “damages” and if the Seller refuses to pay, the Buyer can apply to Court for an Order to compel payment.  Typically in this scenario, the Seller will then not only be required to pay the damages, but also pay the Buyer’s costs (or at least a substantial proportion of them) in having to bring that application.

Specific Performance:  This is a special type of Order which actually compels the Seller to go through with the deal and transfer the property to the Buyer in exchange for the agreed contract price.  To succeed, the Buyer must first demonstrate that they had the money/capacity to complete the purchase and that the property was sufficiently unique to render mere “damages” as inadequate compensation.  The Seller has a variety of defences, the most common of which fall into eight different categories.

  • Mistake & Misrepresentation – This arises, for example, when the Seller owns lots 1 and 2 and has signed to sell lot 1 when the intention was to sell lot 2. Specific performance will generally be refused when a mistake or misrepresentation has been made which puts doubt that the subject matter of the contract was not what the parties were bargaining for.The mistake or misrepresentation must be of a substantial nature anything less and the contract will be usually left to stand and the debate will be moved to the compensation that should be paid to address the error.
  • Hardship – To prove “hardship” the Seller must show that completing the sale would cause them extreme adversity amounting to oppression which would far outweigh the inconvenience to the Buyer in simply having to look elsewhere and/or being compensated for damages.  This is one of the more important defences to specific performance.
  • Unconscionable conduct – Here the Seller is seeking to establish that the Buyer has abused some kind of inequality between the two parties to his or her own personal advantage. For example, an adequate purchase price was not contracted to because of the Seller’s illiteracy, low intellect, drunkenness or physical or mental problem in negotiating the terms of the contract of sale.
  • Absence of fairness or candour  – This defence focuses on the Buyer’s conduct at the time or before entering the contract and whether it would be unjust and/or unreasonable to grant specific performance. There could be a wide range of conduct relevant here, but a good example is making misleading statements to the Seller or whether the Buyer has conducted themselves honestly or would benefit from their own wrongful conduct.
  • Impossibility – If the Seller is not potentially able to complete the contract then the Seller cannot be held to it. This might occur where the property has since been sold to another party or the Seller’s bank is refusing to release a mortgage because the debt is greater than the sale price. In the first example though the Buyer may be able to recover compensation or an account of the profits from the resale.
  • Illegality – In particular circumstances, if a contract becomes unenforceable under the law, it will not be able to enforced unless it’s capable of being performed legally. An example here might be where the property has been attained under proceeds of crime order. However, in some situations, the illegal or unenforceable terms of the contract can be severed and the remainder of the contract enforced.
  • Laches – If the Buyer has unreasonably delayed in commencing proceedings for specific performance and the Seller can show that due to the delay it would now be unjust to grant specific performance, the Buyer may be denied the remedy of specific performance.  However, it the Seller cannot prove that the delay has prejudiced him or her, the defence will not be successful.

Just because these rights are not embedded in the written word of the contract does not in any way mean that these rights are any less powerful for the Buyer.  Whilst it is true that these issues can only be resolved by way of litigation if the Seller refuses to co-operate, that litigation will be every bit as inconvenient and expensive for the Seller as it will for the Buyer and this usually keeps most Sellers (at least the ones who are getting good legal advice) suitably engaged in the process of co-operatively working with the Buyer to resolve the dispute.

We would like to acknowledge the assistance of Matt Hannam, Law Clerk at Zande Law, for the research for this article.

Jenny Zande is a Solicitor of Zande Law Solicitors, with 20 years experience in practice. Jenny has extensive experience in conveyancing matters. Please feel free to review our firm and staff profiles at www.zandelaw.com.au .

The information in this article is merely a guide and is not a full explanation of the law. This Firm cannot take responsibility for any action readers take based on this information. When making decisions that could affect your legal rights, please contact us for professional advice.