Practitioners need to be proactive where there are time pressures in contracts of sale.
Part 1 looked at the risks of practitioners failing to properly advise purchaser clients on subject to finance clauses as well as the importance of documenting instructions and advice. This week we look at the need for practitioners to be proactive where there is time pressure and changes to the contract such as time extensions.
A contract of sale was subject to a special condition that the purchaser obtain finance within 12 days of the date of execution.
With the end of the 12-day period approaching, the purchaser instructed her practitioner to request a 10-day extension from the vendor. By way of compromise, the vendor told the practitioner it agreed to extend the date for notification of no approval by five days. The purchaser’s finance application was not approved by the end of the extension period.
The purchaser subsequently rejected two offers by the vendor to rescind the contract on terms, each open until 4.30pm on the day it was made. The vendor then claimed the purchaser breached the contract by failing to pay the deposit when it was due and payable.
The purchaser alleged she was not advised on the operation of the finance clause. The practitioner had written to the purchaser noting the contract was subject to the purchaser obtaining finance by the original date specified but there was no advice about the mechanism and deadline for rescinding the contract if finance was not approved. When the vendor agreed to the five-day extension, the practitioner drafted an email to the purchaser but failed to send it and diarise the unconditional date.
The purchaser alleged she was not advised of the date and that she would become liable to pay the deposit after it. She also alleged the practitioner did not communicate the vendor’s rescission offers in a timely manner to allow her to make an informed decision.
Risk factors in this claim included the short time frame to obtain finance, the purchaser’s lack of knowledge about her rights and obligations under the finance clause and the practitioner’s minimal involvement in the finance process.
Where time was of the essence, the practitioner should have explained the terms of the contract and operation of the finance clause to the purchaser immediately upon receiving the contract. Practitioners need to emphasise time limits and the consequences of not meeting them. Additionally they should test the purchaser’s understanding of their rights and obligations. Diarising the relevant dates and proactively seeking instructions are also critical.
The practitioner should also have promptly informed the purchaser of all material communications with the vendor, including the extension of time to obtain finance and offers of rescission.