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How Does a Notice to Complete Work?

When selling or purchasing a business, your contract will commonly contain a ‘notice to complete’ clause. If, for example, a buyer does not have enough funds to settle, or if the seller is not ready to hand over possession of the business, then you will fail to complete the contract by the agreed settlement date (the ‘completion date’). In this situation, the ‘notice to complete’ clause will apply, which may bring about severe contractual and commercial consequences. This article will guide you through:

  • what a notice to complete is;
  • how a notice to complete works (including who and when to send this notice as well as how you should send a notice to complete); and
  • the consequences of a notice to complete.

What is a ‘Notice to Complete’?

A notice to complete is a notice that the sender (known as an Issuing Party) issues to the receiver (the party who receives the notice). The notice requires the receiver to complete the contract within a reasonable timeframe following the provisions of the contract.

Typically, the timeframe is 14 days from the date that the notice is sent. However, it is possible to extend the deadline to 21 or 28 days.

The effect of the notice to complete clause is to make the completion deadline an essential term of the contract. The purpose of the essential term is to enforce severe consequences if the receiver is still unable to complete the contract within the 14-day timeframe.

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When to Send a Notice to Complete?

Before sending a notice, you will need to make sure that your contract includes a clause that lets you do so. 

You might send a notice after the scheduled completion date so long as you are ready, willing and able to complete your side of the contract. In other words, you must be in a position to fulfil your obligations under a contract. There is no rule on how soon you can send a notice to complete – you can send this notice out the day after the completion date or choose to send it out a bit later. 

For example, if you are selling a business, you would expect a buyer to make the appropriate payments by set deadlines. If your buyer fails to come up with the money by the scheduled completion date, you can issue the notice immediately after the scheduled completion date passes. 

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How to Send a Notice to Complete

How to send a notice depends on the notice provisions of the contract. As the sender, you can send the notice to complete to the receiver in person, by fax or by post. You may also send the notice via email if the contract allows so. It is crucial to review the notice clause in the contract before issuing a notice to complete. Doing so enables you to understand the permitted method of issuing notices as per the contract and the time of receipt of the notice.

For example, some contracts state that a notice takes effect on the date that the receiver receives it rather than the day you sent it. Such provisions are particularly relevant when you post the notice, as it may only be received after a couple of business days.

Due to the serious consequences of issuing a notice to complete, courts are strict in ensuring the sender complies with the issuing method specified in the contract.  If there is any doubt in issuing an initial notice to complete, you should use an alternative method. For example, if you send the notice via email, you should also send it via hard copy mail.

Who to Send a ‘Notice to Complete’ to?

Commonly, your business would send a ‘notice to complete’ to the other side and their legal representative. If you are sending a notice to a lawyer, you should confirm that the other side’s lawyer is authorised to accept the notice on behalf of their client. For example, if the contract does not specifically outline whether a lawyer can accept the notice, a court may question the validity of the notice. 

Costs

Your contract may outline costs such as:

  • the receiving party is to pay the sender’s legal fees for issuing the notice; and/or
  • interest.

For example, if you are selling a business and a buyer fails to pay for the purchase of the business by the date of settlement, your contract may enforce interest over the agreed-upon amount. This interest means the buyer will compensate you for the days completion was delayed. Typically, interest is calculated on a daily basis and payable when completion actually occurs. 

The receiver can complete the contract earlier than the deadline under the notice. However, they must provide the sender with reasonable notice. Reasonable notice is also relevant for penalty interest.

For example, you may need to reduce the penalty interest for a buyer. As penalty interest accrues daily, it may need to be based on the actual date of completion rather than the date in the notice to complete.

Consequences for Failing to Complete

When you are the sender, occasionally, the receiving party may not complete the contract by the required time after you send the notice. The consequences of failing to complete are that you:

  • issue a notice of termination, meaning your business is terminating the contract as a result of the receiver’s breach; or
  • continue with the contract.

Terminating the Contract

If you are a seller listed under the contract and choose to terminate the contract, you may consider a number of options under the contract. Your standard options are to:

  1. keep or recover the deposit (usually up to 10% of the purchase price);
  2. hold any other money paid by the buyer under the contract as security for anything recoverable under the contract for a specified period;
  3. place the business back on the market to sell; and/or
  4. sue the buyer to recover damages for breach of contract or any reasonable costs, expenses and deficiency upon the resale of the business.

Several factors can limit an award of damages for breach of contract. You may consider placing the business on the market to prevent your loss from increasing after terminating the contract.

As the sender, if you are also a buyer of a business under the contract, they may:

  1. recover the deposit and any other money paid under the contract; or
  2. sue the seller to recover damages for breach of contract.

Continuing With the Contract

As the sender, you may continue their contract if it is commercially beneficial for you to give the receiver more time to settle. 

In the example of you selling a business, you may have already completed various tasks (such as presenting financial and legal documents, meeting to provide insight on business plans and forecasts, providing details of any existing clientele or assets, forwarding any operating procedures, etc.). 

The significant time and cost of finding another buyer or taking the buyer to court may be far greater than continuing with the contract on a delayed timeline.

Challenging a ‘Notice To Complete’

A receiver can challenge a notice to complete in certain circumstances, including where you:

  • were not ready, willing and able to settle the contract on the completion date;
  • issued the notice to complete in a way that the contract did not explicitly prescribe; and
  • allowed the receiver an extension of time to complete the contract and agreed not to serve a notice to complete until after the extended date.

Key Takeaways

A ‘notice to complete’ provides a receiver with a deadline to complete a contract. It outlines the severe risks and consequences of failing to meet the deadline. For example, if you are a buyer, you risk losing the deposit you paid and being sued by the seller.

If you need assistance understanding or enforcing the terms of a ‘notice to complete’, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

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Dickson Wu

Dickson Wu

Senior Lawyer | View profile

Dickson is a Senior Lawyer in LegalVision’s employment team. He advises across all areas of employment law, including employment and independent contractor agreements, workplace policies, modern awards and enterprise agreements, termination of employment, sham contracting and employment disputes. He also assists with all aspects of work, health and safety compliance for businesses.

Qualifications: Bachelor of Laws, Bachelor of Commerce, University of New South Wales.

Read all articles by Dickson

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