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QLD Business Sale Contract - Did Time Cease to be Of The Essence?

Discussion in 'Commercial Law Forum' started by GloveDontFit, 26 September 2014.

  1. GloveDontFit

    GloveDontFit Member

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    Hello,

    Would anyone be able to shed some light on this one?

    In the sale of a going concern, the contract contains:
    #1. The standard conditions state "Time is of the essence of this Contract".

    #2. There are special conditions that state "Contract is subject to and conditional upon the Seller and the Buyer agreeing to the remaining terms of the new lease within 30 days immediately following execution of this contract", and "if the Seller and Buyer cannot agree on the balance of the terms of the lease (acting reasonably) within such period then this contract will be at an end and the Buyer will be entitled to a full refund of any deposit paid".

    Note: the landlord of the premises is also the Seller of the going concern in the capacity of Director.

    Here is where it starts to get interesting...
    - 3 July: contract is signed by both parties.

    - 15 July: Seller's lawyer provides draft of new lease to Buyer's lawyer.

    - 2 August: the 30 day deadline for agreeing to the new lease terms comes and goes.

    - 15 August: Buyer's lawyer sends letter to Seller's lawyer asking for extension of special conditions (listed above in #2) until 26 August, with time to remain of the essence.

    - 22 August: Seller's lawyer notifies that his client agrees to extension.

    - 26 August: Buyer's lawyer sends a letter to Seller's lawyer asking for a second extension of the special conditions (listed above in #2) until 2 September (due to difficulty contacting client as client was overseas at the time), with time to remain of the essence.

    - 2 September: at 3:30pm Seller's lawyer notifies Buyer's lawyer that his client agrees to extension.

    - 2 September: at 5:10pm Buyer's lawyer sends letter to Seller's lawyer requesting changes to the lease.

    - 12 September: Buyer's lawyer emails and faxes letter requesting a response from Seller's lawyer regarding lease amendments.

    - 16 September: Buyer's lawyer sends letter to Seller's lawyer noting that there has been no response and that the parties have not agreed to the balance of Lease terms by midnight on 2 September (the extended "time of the essence" time frame) and the Buyer has failed to respond further or reasonably to the Buyers' requests for lease amendments, therefore the Contract is deemed to be at an end in accordance with the special conditions (#2).

    - 23 September: Seller's lawyer sends letter to Buyer's lawyer stating that "by the conduct of the parties, time had ceased to be of the essence of the contract", and "you are in no position to terminate the contract as time has ceased to be of the essence of the contract and in the absence of a direction from either party to remake time of the essence, you cannot rely on a failure of the parties to agree on the lease terms by midnight on 2 September or any other time." And he further states, that the letter of 16 September is a repudiation of the contract and therefore the Buyer's deposit is at risk.

    - The Buyer's lawyer is threatening to take this to the Supreme Court to get a Declaration order for costs and legal fees and full release of funds in trust.

    Questions:
    - Would you agree or disagree that time has ceased to be of the essence under Australian commercial law?
    - Has the Buyer repudiated the contract, or should he be entitled to a refund of the deposit?
    - Which party has a better chance if this goes to court?
     
  2. Worldly1

    Worldly1 Well-Known Member

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    Hi @GloveDontFit
    Are you the seller?
    (In either case, you've mentioned lawyers on either side, who I presume have advised on your questions? If not, your lawyer should be giving you that specific advice.)
     
  3. GloveDontFit

    GloveDontFit Member

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    Thanks Worldly1. I'm neither. I have been asked for an unqualified opinion. I have found it difficult to find specific material pertaining to time of the essence. Obviously the parties have differing opinions. Was curious to see if there would be differing opinions on this forum or if there was some concensus. I realise that opinions on this forum are still just opinions, but any opinion is appreciated. Is there anyone that would like to share theirs in regards to time being the essence? Thanks.
     
  4. Sarah J

    Sarah J Well-Known Member

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    I believe time is still of the essence. This was clear in the contract and clear by the subsequent correspondences of the parties. The subsequent extensions of time are just that, extensions of the deadline, it does not affect the parties' intention that time be of the essence. My understanding is that subsequent extensions to 2 September meant that after the 2 September, if parties do not agree on a further extension and where the remaining terms have not been drafted up, either party can terminate the contract and the rest of the second clause comes into effect.
     
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  5. Sarah J

    Sarah J Well-Known Member

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    However, this may depend on the conduct of the parties in subsequent correspondences. It may be that through their conduct, they have impliedly waived this "time of the essence" term. We do not have enough facts on this to definitively advise you.
     
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  6. GloveDontFit

    GloveDontFit Member

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    Thanks very much for your input in your two posts Sarah J.
    There were emails directly between the seller and the buyer, where the seller asked about and expressed dissatisfaction at the delays with the lease agreement, and the buyer blamed his lawyer and said he would follow it up with his lawyer to hurry things along. This to me suggests that both parties were conscious of "time" and that this conduct does not impliedly waive "time is of the essence of this contract".
     
  7. Sarah J

    Sarah J Well-Known Member

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    My opinion as well. However, you should look at the other clauses in the contract. If the contract is intended to the "entire contract" and any subsequent negotiations terminate/invalidate the contract or form a new contract, then the original "time is of the essence" clause would no longer be valid.
     
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