It is common with many purchasers (particularly high wealth individuals) to assume that they have the appropriate finance in place when purchasing a property. While this may be true in part, the reality is that there is often a discrepancy between having the money and being able to access the money.
Often, the funds of high wealth individuals are held in a managed fund, term deposit, a trust, a super fund, or some other form of structure. As a consequence, a purchaser assumes that they have the necessary finance to proceed with the purchase (and subsequently do not make the contract conditional upon finance) only to discover approaching settlement that the necessary funds are not available when required.
A purchaser wrongfully assuming that they have finance has the potential to cause massive headaches as they are then required to request an extension, which may not be granted. Given that the deposit is likely to be 10%, this amount may well be forfeited to the vendor where an extension is not granted and the contract is terminated. Alternatively, the vendor may grant the extension but request default interest up to the date of settlement. Given that the current default rate is 10.20%, this amount would be substantial.
Liam Kirby, an experienced business and property lawyer from the Quinn & Scattini Lawyers Gold Coast office, explains where he has experienced both situations come to pass.
"The first was where a purchaser was relying on funds from an overseas trust and, against advice, signed an unconditional contract.
At settlement, the funds from the trust were not able to be released by the trust and the vendor terminated the contract. As this was a purchase of property worth $24 million, the forfeited deposit was $2.4 million.
The second was for a purchase worth $15 million. Again, the transfer of funds was unable to be completed in time and a two (2) week extension was required.
The vendor granted an extension, but elected to charge default interest. The default interest rate at the time was higher, but as an example, on today's figures this would result in daily interest of $4,191.78. Multiply this by two weeks and the result is default interest of $58,684.93."