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Consequences of Repudiation When Purchasing Property

In conveyancing matters, purchasers sometimes may repudiate the contract of sale and refuse to effect settlement. The Vendor could incur considerable loss in such situations. Therefore, basic legal knowledge of how to deal with such situations is essential for vendors.

What constitutes repudiation?

Simply put, purchasers’ following conducts are likely to be regarded as repudiation:

  • Unwilling to perform the contract (e.g. they change mind and thus become unwilling to pay further money to settle); or
  • Incapable of performing the contract (e.g. they have insufficient fund to settle)

The purchaser’s refusal to perform the contract is of significant evidentiary value in any subsequent legal proceedings, therefore, the vendor must be able to substantiate, with evidence, the purchaser’s refusal. This may be a difficult task in certain circumstances.

In other words, vendor must be able to  show the purchaser failed to perform the contact. In law, this criterion is objective – that is, whether a reasonable person in the position of the vendor should regard the purchaser’s behaviour as a refusal to perform the contract.

Example 1 (Clear expression)

The purchaser, by phone or email, clearly expresses that they are unwilling to or incapable of performing the contract. These conducts are likely to be regarded as repudiation.

Example 2 (Inference from language or behaviours)

The purchaser settled a second property before the settlement of the first property while they only have financial ability to settle one property. This behaviour may also be regarded as repudiation.

It is risky to infer the repudiation based on the purchaser’s behaviours. If the vendor makes a wrong judgement and thus takes legal actions, then it is possible that the vendor’s conducts will be regarded as repudiation and, therefore, the vendor may suffer the consequences of contract repudiation.

How can vendors deal with repudiation?

There are two ways for vendors to deal with the purchaser’s repudiation.

1 Terminate the contract

Vendors could accept the purchaser’s repudiation and, subsequently, terminate the contract. After the termination,  to the extent that some rights and obligations do not merge with the termination, the contract is at an end. The parties will not be bound by the contract or be required fulfil their obligations, safe for the aforementioned rights and obligations. Chief among these rights and obligations is that the vendor could claim compensation for any losses and damages reasonably incurred from the purchaser.

Example 3

The purchaser changes his/her mind and decides not to pay further money to settle the property. In this situation, the vendor could terminate the contract. After termination, the vendor could resell the property to other people. If the resale price is lower than the original price, then the vendor could claim the price difference from the purchaser.

2 Continue the contract

If the vendor does not choose to terminate the contract, then the contract continues and the parties has are required to fulfill their respective obligations. Before the acceptance of the repudiation by the vendor and the termination of contract or settlement of the property, the purchaser is entitled to withdraw their repudiation and to continue with the contract. If the purchaser cannot settle on the settlement date, then the vendor could claim compensation from the purchaser for breach of contract.

Example 4

If the purchaser has expressed their inability to pay the settlement fund and the vendor does not choose to terminate the contract, then the contract continues and the vendor cannot resell the property to other people. If all is well and the settlement is successfully completed on the settlement date, then congratulations are in order. However, if the purchaser still cannot settle on the settlement date, then the vendor could claim compensation.

Conclusion

Repudiation has serious consequences and, therefore, purchasers must weigh their option and assess their financial situation carefully before purchasing a property so as to avoid adverse and undesirable consequences. On the other hand, vendors need to be aware of their rights, how they could deal with the purchaser’s repudiation and how they could claim compensation from the purchaser, and what they can claim from the purchaser?

We provide free written guide to claim compensation in conveyancing matter, if you would like to get a free guide, please send an email to [email protected].

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