04 Dec What is ‘time is of the essence’? – Rob Balanda Part 1
In a two part series, we feature some sound legal advice from Rob Balanda about time is of the essence, gazumping and dutch auctions. In the first part he talks about the quaint and hazardous clause in some contracts that can catch you out as a buyer if you are not on the ball. In the second part he talks about why in some parts of Australia it is legal to gazump yet in others it isn’t. He also explains what it is to be gazumped.
Kevin: When we talk to investors in different parts of Australia, it’s always interesting to note the different types of systems of buying property, and I’m going to talk to Rob Balanda about that right now. Rob, of course, is our expert. He’s from MBA Lawyers on the Gold Coast.
I guess you probably see both Queensland and New South Wales. Well, you see contracts from all around Australia, I guess.
Rob: Yes, we do. It’s a very vibrant part of the world here.
Kevin: Let’s firstly talk about “time is of the essence,” where it applies and what it really means.
Rob: Time of the essence is a unique system. It’s an integral part of a conveyancing system that operates only in the two big resource states in Australia. It operates in Western Australia and in Queensland. As you know, from time to time, there’s a fair bit of action in both of those states, Kevin.
Kevin: Yes, but it has nothing to do with resources, has it? It has more to do with the way the laws were set up in those states.
Rob: That’s right. They were set up by those parliaments 100 or 150 years ago, and we’re all stuck with them now in this modern age.
But as an investor, especially as this market is recovering or at least an emerging recovering market, and recovering in a lot of places around the country, you need to understand what this time of the essence system is and what the fundamental difference is between the two big resource states, the legal system, the contract system from start to end, how it operates versus how it works in the big, eastern seaboard states, Victoria and New South Wales.
Otherwise, Kevin, you will come to grief; it’s just a matter of time. You’ll be Dutch auctioned, you’ll be gazumped, you’ll be terminated because you didn’t comply with payment of monies by a definite date.
We probably should start with what underpins the system in the big eastern seaboard states, this concept of time of the essence. It’s a sudden-death concept. What it means is in Western Australia and in Queensland, if you sign up to buy a property and you agree to pay, say, a balance deposit by, say, tomorrow or settle in 30 days, and that is tomorrow or 30 days, that date is set in concrete.
Nine times out of ten, if you have a reasonable reason not to be able to meet that deadline, sellers will give you an extension, but investors need to understand they do not have to and they can terminate you at the knees, keep your deposit – you lose the property and lose your deposit.
When doing business in Queensland and WA, investors need to understand that very clearly and they need to be asking their conveyancer and solicitor, “Tell me; is it time of the essence here? What does that mean? What are the big dates? Why are they so important? Will you follow them up? Will I follow them up?”
My strong advice is never assume because you have a dog, you don’t have to bark too, if I can put it that very blunt way.
Kevin: Yes, you can, and I want to make a comment about “time is of the essence.” It seems to me that it’s a major benefit to the seller but it is an area of great caution for the buyer. Is that what I’m reading into it?
Rob: To a degree. But having worked in both systems – the eastern seaboard states and Queensland for many years – no, it’s generally overall for the benefit of the buyer and the seller. It’s a much superior system. The buyers’ take on it, the twists for them that make it so good is they have certainty.
Especially if you’re buying a place, you want to book your kids into a school, you want to book a removal, and you can do it with great confidence in those states. But in other states, it’s just an estimated date, Kevin.
Kevin: That’s what I was getting back to in terms of the seller. The seller has some certainty if they have a contract in Queensland or WA and there are dates on that contract. They are dates that must be met, so therefore, a settlement date on such and such a date must be met on that date.
Rob: Yes, or something as simple as paying the balance deposit. If another $10,000 balance deposit is payable tomorrow, if you don’t pay it tomorrow – you pay it at 9:00 the next working day – you are in default. The seller can terminate the contract and keep your deposit. That’s something.
In a moving market, sellers hover there waiting. They just wait. They have another offer for another $30,000 to $40,000 from another buyer. They’re just waiting for you to miss that date in Queensland or WA, and if you do, they’ll often just swoop.
You must, as an investor, beware of those dates, make sure you and your conveyancer/solicitor have them in your diary and you both follow them up and make sure you get the money there on the due date.
Kevin: It’s at 5:00 on that particular day; is that the cutoff point?
Rob: That’s it, mate. It’s 5:00.
It gives certainty, though. I always like to reframe these things. It’s not something that you should be unduly worried about. It’s just a matter of allowing a property period of time to pay a balance deposit. Never say “Balance deposit payable – quote – ‘on approval of finance,’” because that means the day you tell the seller that finance is approved, that’s the day in Queensland and WA, if you use that wording, that you have to pay the balance money.
It’s much better to use a form of wording such as “Balance deposit payable within two working days of finance approval.” Then you always have got that in-built governor and you’ll never get caught.
Ditto with the settlement; always allow a proper period of time, at least 30 days, ideally 35 or 45 – especially if you’re interstate and the money is coming from an interstate lender.
Kevin: I guess it also underscores the importance, if you’re buying a property in another state, to make sure that you’re dealing with a lawyer or a conveyancer who is familiar with the law in that particular state.
Rob: You must use the local sheriff, Kevin.
Kevin: Indeed. Rob, we’re going to round it out there. I want to come back and talk to you about another couple of issues. One was one you mentioned in our chat this time, which was gazumping. I thought we might just have a quick look at that next time we come back if that’s okay.
Rob: Perhaps also Dutch auctions. They’re ugly, as well, Kevin.
Kevin: Absolutely. We’ll talk about those next time we come back with Rob Balanda from MBA Lawyers. Thanks for your time, Rob.
Rob: Good day to you.