Contemporaneous Settlement - Case Study
- by Siva Rajadurai
Contemporaneous settlements are double settlements occurring on the same day. When completing a contemporaneous settlement it is wise to seek the advice of a solicitor before signing an agreement, regardless of how clear cut or simple the process may appear. The case study below shows how a seemingly simple transaction can go wrong, and how this could have been prevented had the family received legal advice prior to the settlement.
CASE STUDY: THE PARK FAMILY
Susan and Jimmy Park lived in Glenfield in their three bedroom house and wanted to move to a better house in Takapuna. They found a lovely house with a sea view, and at the auction they successfully bid for the house for $2.6m. The settlement date was a month from the date the agreement was signed. The Parks then immediately put their Glenfield property on the market and two weeks later received an offer for $1.2m which was more than they expected. The overseas purchaser made an unconditional offer but the deposit was only 5% of the purchase price.
The settlement date was two weeks later, to coincide with the date for the purchase of their Takapuna property. The Parks were happy, as their property was almost mortgage free with only $200,000 owing to the bank. They had everything well planned. They will pay off their mortgage from the sale proceeds and use the balance of $1m to pay for their purchase together with a bank loan for the balance of $1.6m.
On the settlement date, the sale of their Glenfield property did not settle. The purchasers were from China and the estate agent who had been liaising with them had not been able to get in touch with the purchasers, and the money hadn't been transferred from China. Hence, the purchasers’ solicitor was not able to complete the settlement.
Come 4pm on settlement date, the Parks had their furniture on the truck outside the Takapuna property but were not able to move in. They had two young children aged 2 and 4 respectively. The situation obviously was very stressful for the whole family. In the end, settlement of both the purchase and sale was not completed and the Parks had to move back into their Glenfield property. They were in default for not settling on their purchase and had by now incurred penalty interest at 15% pa on the unpaid amount of $2,340,000 ($2.6 million less 10% deposit). The interest was $961 per day.
Susan and Jimmy’s solicitor (via the estate agent) managed to get in touch with the purchasers two weeks later who claimed they had had some financial difficulties and would not be able to complete the sale. Their bid to enforce the sale or claim for damages was shattered as the purchasers were from overseas. Susan and Jimmy relisted the Glenfield property four weeks later but did not receive any offers. They subsequently managed to sell the property ten weeks later for $870,000. By this time, their late penalty interest owing to their vendor had skyrocketed.
If you think this situation sounds familiar, or you are thinking of completing a contemporaneous settlement and are seeking advice on how to proceed for your situation, feel free to give our
Property Team a call - we are more than happy to help.