In Simcevski v Dixon (No.2), the Victorian Supreme Court dealt with two common issues that arise in the sale and purchase of land.
It is common for a purchaser to pay a 5% deposit on exchange, with a rider that a further 5% deposit is payable on settlement or on default by the purchaser. The Court considered whether, following termination of the contract by the vendor because the purchaser could not complete the contract, the vendor was entitled to claim a further 5%.
In line with a series of cases in various jurisdictions, the part of the deposit payable on exchange was held to be an “earnest of performance” of the purchaser’s obligations and that any further payment that arose from default, and bore no relation to the damages or interests of the innocent vendor, is unrecoverable by the vendor because it is an unenforceable penalty.
Second, the Court made it clear that the vendor is not obliged to assist the purchaser to complete the purchase, including by giving access to the property to enable valuations etc to be undertaken. In this case, the purchaser complained that it was prevented from completing the purchase because it could not obtain finance and that was because it could not get access for a valuer to meet the financier’s requirements.
It is now abundantly clear that, if you accept a deposit of less than the normal 10% and the purchaser defaults, you have no legal entitlement to any other payment as it will be a penalty. Further, if you need or want, or may need or want, rights of access to the property between exchange and settlement, then this must be enshrined in the contract, usually in a special condition.