11/09/2016, 09:37:AM
11/09/2016, 09:37:AM
Property Contract Rescission – What is it?
Contracts which are entered into due to duress, mistake, misrepresentation, undue influence and unconscionability may be set aside. This being known as rescission, which is an equitable remedy.
Rescission of a contract occurs where notice is given by the rescinding party to the other party of the contract. Where there is an order for rescission it will render the contract non-existent both at law and in equity.
A simple example of where rescission may occur is a fraudulent misrepresentation by B inducing A to purchase B’s land.
A more complex example is where a property purchaser is unable to settle on the due date and goes into default, or a vendor is unable to present clear title at settlement.
In either situation once a defaulting party is identified, the other party will take steps to protect their position, which may include:
1. Serving a demand for penalty interest, or compensation for reasonable losses.
2. Suing on the contract.
3. Issuing a notice of rescission.
If rescission occurs the notice must be carefully worded to avoid counter arguments that the document is defective and that the contract still remains in force.
Generally, in respect to the contracts for the sale of land, if one party fails to perform their obligation under the contract, the innocent party may either bring the contract to an end by repudiation or by rescinding.
As example:
1. Where the purchaser is unable to tender the settlement funds on the nominated date the vendor may rescind the contract.
2. A vendor who is not able to present clear title, or the title documents themselves at settlement is not willing and able to settle, and the purchaser may rescind the contract.
If the purchaser is intending to rescind the contract under the contract terms, the purchaser needs to be able to demonstrate that they were willing and able to settle on the due date, if the rescission matter is contested. In this situation if the purchaser was not able to settle on the contract date, the purchaser will be in breach of contract. However, to avoid a claim by the vendor that the purchaser was not able to settle, they should present the balance of the purchase monies at settlement.
Rescission of a contract of sale for property if not carefully assessed before rescinding, can have severe consequences if the rescission is incorrect or not carried out properly.
As the dynamics of the economy change, risks will increase with contract transactions, so get that legal advice in advance to protect your legal rights & interests.
The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799
Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”
