When Things Go Wrong: Default, Penalties and Disputes in Property Settlements

Property settlement is the final and most critical stage of a real estate transaction; it’s the point at which legal ownership transfers and all financial obligations are fulfilled. For most buyers and sellers, this process goes smoothly. But when deadlines are missed, documentation is incomplete, or finance falls through, property settlement can unravel quickly, leading to costly consequences and legal disputes.

In this article, we explore what can go wrong during property settlement in Victoria, how the standard contract deals with default, and what remedies are available when a dispute arises.

What Constitutes a Settlement Default?

In the context of a property transaction, a party is in default if they fail to fulfil a key contractual obligation. Common examples include:

• The purchaser fails to pay the balance of the purchase price on the settlement date
• Vendor fails to provide a clear title or vacant possession (if required)
• Delays due to incomplete finance, discharge of mortgage, or missing documents
• Failure to meet other contract conditions, such as supplying certificates or releasing the deposit

The Contract of Sale usually sets out clear remedies in the event of default. But navigating those remedies often requires legal guidance from professionals experienced in managing property settlement risk.

Consequences for the Purchaser

If a purchaser defaults, the vendor may issue a notice of default. If the purchaser fails to remedy the breach within time:

• The deposit may be forfeited
• The vendor may rescind the contract
• The vendor can retain any part of the deposit already paid
• The vendor may resell the property and pursue the purchaser for:
  • The difference between the resale price and the original price
  • Legal costs
  • Interest under the contract (often at penalty rates of 10%+)

This is particularly significant where the property settlement is linked to other transactions or where market conditions have shifted unfavourably.

Consequences for the Vendor

If a vendor defaults, for example, by failing to provide:

• Good title
• Required documents (e.g. Section 27 disclosure)
• Vacant possession (where promised)

the purchaser may also issue a notice of default.

If the vendor does not remedy the breach, the purchaser may:

• Rescind the contract
• Recover the deposit
• Claim interest and damages, particularly if they incurred losses (e.g. bridging finance, rent, or wasted removalist costs)

In practice, most parties will attempt to negotiate a resolution before exercising their right to terminate the property settlement contract.

Common Causes of Dispute

While some disputes stem from deliberate breaches, many arise from delays or miscommunication. Common examples include:

• Finance is not ready in time for the settlement
• Discharge of mortgage delays from outgoing lenders
• Unclear contract conditions (e.g. what constitutes vacant possession)
• Damage or deterioration to the property between the contract and the settlement
• Disagreement over adjustments or inclusions/exclusions

Experienced legal support during the property settlement process can significantly reduce the risk of escalation.

Interest and Penalties

If settlement is delayed due to a default, the party at fault may be required to pay default interest on the balance of the purchase price. This is typically set out in the contract (often 10% p.a. or more) and is calculated daily. In addition, penalties and losses may be claimed. For example:

• Bridging finance costs
• Loss of rent or accommodation costs
• Legal and administrative fees

It is critical to document all costs and losses during this period in case recovery is required as part of a property settlement dispute.

How Disputes Are Resolved?

Not all disputes end in litigation. Often, disputes are resolved through:

• Negotiation between legal representatives
• Variations or extensions (e.g. extending the settlement date by agreement)
• Retention arrangements, where funds are held in trust to resolve specific issues

In more serious cases, parties may consider:

• Mediation
• Supreme Court proceedings for larger or complex matters

Timely and informed legal advice can often resolve property settlement disputes without the need for formal proceedings.

How to Protect Yourself?

To minimise the risk of a dispute during property settlement:

• Engage a property lawyer early in the transaction
• Ensure all contract conditions are clearly understood and diarised
• Maintain regular communication with your lender, broker, and agent
• Request pre-settlement checklists and confirm all documentation well ahead of time
• Be proactive in addressing issues as they arise

Above all, don’t wait until the day before your property settlement to check that everything is in order.

Need Legal Support with a Property Settlement Dispute?

At Flint Lawyers, we advise buyers and sellers on all aspects of property settlement in Victoria from pre-contract review through to dispute resolution, enforcement, or termination.

If you’re facing a delayed or disputed property settlement, contact us today. Timely legal advice can make all the difference.