A notice to complete clause commonly forms part of contracts for the sale and purchase of a business. The provision comes into effect when the parties fail to complete the contract by the agreed date for settlement (the completion date). For example, a buyer might have insufficient funds to pay the balance required on settlement. After issuing a notice to complete clause, severe contractual and commercial consequences may arise. It is, therefore, essential to review and understand the contents of such clause before entering into the contract. This article explains how a notice to complete works including the steps to send one and challenge one.
What is a Notice to Complete?
A notice to complete is a notice that the sender (issuing party) issues to the receiver (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.
A notice to complete clause makes the completion deadline an essential term of the contract. Therefore, if the receiver is unable to complete the contract within the set timeframe, there may be serious consequences.
When to Send a Notice to Complete
A sender can send a notice to complete after the completion date, provided they were ready, willing and able to complete their side of the contract. Therefore, the sender must be in a position to carry out anything they both agreed to under the contract. The sender may choose to send the notice to complete immediately after the completion date (such as the next day) or at a later date. Sending a notice to complete forces the receiver to act quickly to prepare for settlement. However, it may also damage the relationship between the parties.
How to Send a Notice to Complete
How to send a notice depends on the notice provisions of the contract. The sender can send the notice to complete to the receiver in person, by fax or by post. A sender may 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 the sender sent it. Such provisions are particularly relevant when a sender posts 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, the sender should use an alternative method. For example, if the sender sends the notice via email they should also send it via hard copy mail.
Who to Send a Notice to Complete to
If the other side has a legal representative, a sender can send them a notice to complete. It is common to issue the notice to both the other party and their lawyer. Ideally, the sender should obtain acknowledgement from the other side’s lawyer that they accept the notice on behalf of their client, especially if the contract does not specify whether a lawyer can accept the notice.
The contract may state that the receiver has to pay the sender’s legal fees for needing to issue a notice to complete. Further, it may include a provision concerning penalty interest. For example, the contract may require the buyer of a business to pay a penalty interest to a seller for delaying completion. Penalty interest typically accrues on a daily basis. These costs are payable on the actual date of settlement of the contract.
Settling Earlier Than the Required Time
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, a seller of a business 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
Sometimes, a receiver does not complete the contract by the required time after the sender has sent the notice. In such a situation, the sender may issue a notice of termination to the receiver. This means the sender is terminating the contract as a result of the receiver’s breach.
Alternatively, the sender can elect to keep the contract going rather than terminate the contract. It may be commercially beneficial for the sender to give the receiver more time to settle. For example, doing so allows a seller of a business to avoid the costs and time involved in finding another buyer and re-selling or taking the receiver to court.
If the sender chooses to terminate the contract, they may consider a number of options under the contract. If the sender is the seller of a business under the contract, the sender’s standard options are to:
- keep or recover the deposit (up to 10% of the purchase price);
- hold any other money paid by the buyer under the contract as security for anything recoverable under the contract for a specified period;
- place the business back on the market to sell; and/or
- 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. The seller may consider placing the business on the market to prevent their loss from increasing after terminating the contract.
If the sender is a buyer of a business under the contract, they may:
- recover the deposit and any other money paid under the contract; or
- sue the seller to recover damages for breach of contract.
Challenging a Notice To Complete
A receiver can challenge a notice to complete in certain circumstances, including where the sender:
- was 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.
A notice to complete provides a receiver with a deadline to complete a contract. Understanding the basics of how a notice to complete operates is important. It is also essential to understand the risks and consequences of failing to meet the deadline in a notice to complete. For example, if you are a buyer, you risk losing the deposit you paid and being sued by the seller.
If you need assistance with understanding or enforcing the terms of a notice to complete, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
Was this article helpful?
We appreciate your feedback – your submission has been successfully received.