E-Alert: The concept of abandonment in contracts for the sale of land

Recently we have written articles to guide our readers through the impacts of COVID-19 and that has brought to the forefront of many thoughtful minds the principles of frustration, force majeure and where the pandemic sits in our legal system, when considering contractual rights and obligations. But there is another principle, which, to put it simply, shouldn't be abandoned from thought ...

When a person enters into a contract to sell their property, both the buyer and seller have obligations to see the contract through to completion. A vast majority of residential house and land contracts will provide a buyer with the opportunity to obtain finance and, if they are unable to obtain finance, the ability to terminate the contract. But what happens if the buyer neither affirms nor terminates the contract? And what if the seller takes no steps to enforce or terminate the contract, perhaps acting on the assumption of mutual abandonment?

The question is can parties abandon a contract without facing any legal consequences? Abandonment

Abandonment is a question of fact based on the behaviour of the parties.

A declaration of non-performance can be an express refusal to perform or can be inferred from conduct if that conduct leads a reasonable person to determine that the party has no intention to meet its obligations. The innocent party may treat itself as being discharged from further performance and seek damages for loss, or keep the contract on foot and recover damages for the particular breach.1

If the innocent party wishes to enforce their rights to compel performance on the delaying party, what can they do?

First, they must ascertain whether time is of the essence of the contract.

In Queensland, time is of the essence in all land contracts and is expressly included in the REIQ standard contract of sale. However, land contracts in other states differ from Queensland; New South Wales, for example, is the opposite.

If time is of the essence, then a party must perform its obligations on time and even a short delay can trigger a common law right to terminate for breach. The innocent party may seek specific performance of the defaulting party's obligations.

If time is not of the essence then a notice needs to be served on the other party requiring completion within a reasonable time. If that notice is ignored then the innocent party will have certain rights under the contract for breach. The delay may also be seen as a repudiation of the contract, which we consider in more detail below.

For example, where a sale of land contract is...