Many Vendors, including Developers, agree to accept payment of Deposit monies days or weeks after a Contract has been signed.
So can a Vendor recover monies from a Purchaser who has ‘cooled off’ before the Deposit has been paid?
A recent Supreme Court Case, Leahy v Javni [2020] VSC 680, applies the strict plain reading interpretation of s31(4) of the Sale of Land Act 1962 (‘SLA’).
Section 31(4) of the SLA, allows a Vendor to retain from the Deposit an amount which is the greater of $100 or 0.2% of the Purchase Price, if a Purchaser cools off.
The Supreme Court concluded that if a Purchaser exercises cooling off rights before the Deposit monies are paid, the Vendor will not be entitled to recover any monies. As prices continue on an upward trend, the consequence to a Purchaser of cooling off can be significant.
On a $5million sale, with a 10 % Deposit, a Purchaser will think twice about cooling off if it means losing $10,000. But it won’t be a problem for Purchasers who haven’t paid any Deposit.
We now know that a Vendor is not entitled to take steps to recover the amount which Section 31(4) prescribes if it has not been paid.
This should serve as a warning to Developers in particular who might be inclined to agree to delayed payment of the Deposit.
If the Deposit has not been paid in an amount sufficient to cover the cost of the Purchaser of cooling off, a Vendor cannot demand payment from the Purchaser pursuant to s31(4) of the SLA.
Vendors and Developers in particular should ensure that the Deposit, or at the very least 0.2% of the Purchase Price, is paid by the Purchaser at the time of signing the Contract.
