Summary
- A notice to complete is issued when a party fails to complete a contract by the agreed settlement date, giving the receiver a fixed timeframe — typically 14 days — to complete, and making that deadline an essential term of the contract.
- The notice must be issued strictly in accordance with the contract’s notice provisions, including the permitted method of delivery and the time of receipt, as courts apply strict standards to compliance with these requirements.
- If the receiver fails to complete within the notice period, the sender may terminate the contract, retain the deposit, and sue for damages, or alternatively choose to continue with the contract if that is commercially preferable.
- This article explains how a notice to complete works in business sale contracts for buyers and sellers operating in Australia.
- LegalVision, a commercial law firm specialising in advising clients on business sales and contract law, outlines when to issue a notice, how to serve it correctly, and the consequences of non-compliance.
Tips for Businesses
Review the notice provisions in your contract before issuing a notice to complete, and use the prescribed delivery method strictly. If in doubt, send the notice by multiple methods. Only issue a notice if you are ready, willing, and able to complete your own obligations, as failure to meet this requirement may invalidate the notice.
A notice to complete is a formal contractual notice requiring the receiving party to complete a contract within a set timeframe, typically 14 days. It converts the completion deadline into an essential term, triggering serious consequences for non-compliance. This article will guide you through what a notice to complete is, how it works, and its consequences.
When you are ready to sell your business and begin the next chapter, it is important to understand the moving parts that will impact a successful sale.
This How to Sell Your Business Guide covers all the essential topics you need to know about selling your business.
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.
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.
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:
- keep or recover the deposit (usually 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. 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:
- recover the deposit and any other money paid under the contract; or
- 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’, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced contract lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
The standard timeframe is 14 days from the date the notice is sent, though this can be extended to 21 or 28 days. The notice makes the completion deadline an essential term of the contract, triggering severe consequences if the receiver still fails to complete within that period.
Yes. A receiver can challenge a notice if the sender was not ready, willing, and able to settle on the original completion date, if the notice was issued in a way not prescribed by the contract, or if the sender had previously agreed to an extension before serving the notice.
A seller can terminate the contract and retain the deposit, hold other money paid as security, resell the business, and/or sue the buyer for damages. Alternatively, the seller may choose to continue with the contract if doing so is more commercially beneficial than pursuing termination.
Yes. You can only issue a notice to complete if you are ready, willing, and able to fulfil your own obligations under the contract. Issuing a notice when you are not in a position to complete your side may expose the notice to a legal challenge by the receiver.
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