How to Handle a Failed Settlement in New Zealand

Failed or delayed settlements are uncommon in Canterbury, but they do happen. If your buyer cannot settle on the agreed settlement date, understanding your rights and options helps you respond appropriately and protect your interests.

What Counts as a Failed or Delayed Settlement

Settlement failure occurs when the buyer does not pay the full purchase price on the agreed settlement date and time. The most common causes are: the buyer's bank declining to advance funds at the last minute; the buyer not having sufficient cleared funds available despite having finance approval; a dispute about the property's condition or chattels discovered at the pre-settlement inspection; or the buyer's own sale falling through, leaving them without the funds to complete. A delayed settlement is different from a failed one - sometimes a buyer simply needs an extra day or two to have funds cleared, which can be managed without significant consequences.

Your Rights Under the Agreement

Under the standard REINZ-ADLS Agreement for Sale and Purchase, if the buyer fails to settle on the due date and you are ready to settle, the buyer must pay you late settlement interest from the due date until actual settlement. The interest rate is typically the Reserve Bank overnight cash rate plus a margin specified in the agreement. You are also entitled to claim other reasonable costs caused by the delay, such as additional storage and temporary accommodation costs if you had already vacated.

When Can You Cancel

If a buyer fails to settle and continues to default after you have issued a notice requiring them to remedy their default, you may be able to cancel the agreement and retain the deposit. The specific cancellation rights and procedures are complex and time-sensitive. Do not attempt to manage a settlement failure or cancellation without your solicitor actively advising you at every step. The consequences of getting the procedure wrong can affect your rights to retain the deposit and pursue other remedies.

The Deposit

If the buyer defaults and you are entitled to cancel the agreement, you are generally entitled to retain the deposit as compensation. The deposit is typically held in trust by the real estate agency and released to you after cancellation is confirmed. If the buyer disputes the cancellation, the deposit may remain in trust pending resolution. This is another reason why having experienced solicitors managing the process correctly from the moment a settlement problem emerges is critical.

Information from the Real Estate Authority, the New Zealand Law Society, and Aspiring Law. For general information only - always obtain urgent independent legal advice if your settlement fails.