Key Practice Areas
Retentions at Settlements
Monday, March 25, 2019
Retentions are often used where an issue arises before settlement that was not within the contemplation of the parties when they entered into the contract.
An example would be where a building inspection is carried out and either remedial building works need to be carried out to remedy certain defects or inspection certificates for building works were not obtained from a certifier or were not lodged with the Council and such matters cannot be attended to until after settlement.
Where a retention is proposed, it is important to be clear on the terms of the retention. These will include (but are not limited to) the following:
- It is important to ensure that the amount retained will be sufficient to cover the cost of whatever the seller is required to do so that if the seller fails to do so, the buyer has sufficient funds to arrange for a third party to attend to the items concerned.
- It must be clear where the retention monies are to be held. Normally, these will be in the seller’s solicitors’ trust account or the buyer’s solicitors’ trust account. There also needs to be a direction to the holder of the retention monies to disburse the retention in accordance with the terms of the retention.
- It must be clearly stated what the seller is required to do. For example, if building works are required then the extent of the works must be clearly stated. If inspection certificates are required then it must be clearly stated what certificates are required, that these must be provided to the Council and that they must satisfy Council requirements.
- There must be a clear time period within which the seller must attend to the items.
It must be clearly stated what happens to the retention monies in the event that the seller fully complies with the terms of the retention, partially complies or fails to comply.
Whilst, the concept of having a retention might seem like a straightforward idea, it is most important that the terms are clearly set out and agreed upon by the parties before settlement in order to avoid later arguments over what each party’s obligations are.
This update is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.