Failure to settle $1.16m Manurewa house deal cops $429,000 court penalty

The property on Manurewa’s Pallant St. Photo / Dean Purcell

A man who contracted to buy a $1.16 million Auckland house has been ordered to pay $429,000 for failing to settle the purchase.

Trustees of the Sonny and Anna Whakaruru Family Trust sued would-be buyer Jay Bath for not settling his written offer to buy their Manurewa residential property, even though he signed a contract to do so at $1.16m.

Associate Judge Rachel Sussock heard the case in the High Court at Auckland in June and issued her decision this month.

Legal action was brought by trustees Anna Kataraina Whakaruru and Sonny Marupo Whakaruru seeking summary judgment for losses from Bath’s breach of agreement.

Bath has been ordered to pay damages of $320,500, which was the net loss on the resale of the place, penalty interest of $72,000, costs and expenses for the resale of $36,000 and Auckland Council rates of $1200, which the trust had to pay until it could list, then resell, the property after his contract breach.

He didn’t challenge his liability.

But he opposed summary judgment, arguing vendors failed to act reasonably to mitigate their losses when he didn’t settle. They chose to sell the house for around 30 per cent less than his offer, he argued.

In September 2021 the vendors and Bath struck an unconditional deal on the property on Manurewa’s Pallant St.

The sale was for $1.16m and Bath paid a 5 per cent deposit of $58,000, signing the Auckland District Law Society standard contract. Settlement was due on May 17 last year.

But by last April, he sought to lower the price, citing changes in lending criteria, decreases in property valuations and changes in his financial position. He needed money via a second-tier lender, which would take time so he only wanted to pay $900,000. He also wanted the deal pushed out by a further six months.

The vendors, represented in court by Jonathan Loh, rejected that. Their solicitors said if Bath was unable to complete the deal at the agreed $1.16m, they would sue him.

Bankruptcy proceedings were also referred to as a possible option if he couldn’t pay.

A month later, Bath again cited difficulties settling and once again asked for the extension but this time offered a third deal: buying not for $1.16m nor for $900,000 but for $1m.

37 Pallant St, Manurewa. Photo / Dean Purcell

The vendors again rejected that and sought an additional $30,000 to cover their holding costs for the delayed settlement.

Bath also rejected that and via his solicitor said he was not in a position financially to complete settlement and pay the additional deposits requested.

Arguments went back and forth about price and settlement dates.

Eventually the vendors issued a notice to settle by June 7, 2022. Because no money was forthcoming, they told Bath the deal was cancelled and they were keeping his $58,000 deposit.

The vendors also told him they were entitled to sue him for damages.

The vendors then re-listed with Ray White but said the property market was suffering a big decline. With interest rates and inflation increasing, there was potential for the loss on resale to increase. In addition, the letter from the vendor’s solicitor to Bath said there may be further costs, including $270/ month to store belongings pending the resale.

Pat Lapalapa from Ray White filed an affidavit supporting the vendor’s action against Bath. Lapalapa said given the urgency for resale, he told the vendors the best way to ensure the property would sell within a 90-day period was by auction.

He based this on statistics from Ray White’s Pulse application. These assessed the success rate of selling within a 90-day period as 19.2 per cent by way of negotiation or asking price, but auction, even if it did not sell under the hammer, had a 60.5 per cent success rate.

But the top bid at the auction the agent recommended was only $700,000. The agent indicated the market had deteriorated.

“It was also a time of uncertainty as the interest rates continued to climb. There was no way to be certain when the market would improve,” Lapalapa told the vendors.

Eventually, the vendors accepted a $781,500 offer with a 10 per cent deposit and its conditions were, in Lapalapa’s view, less likely to result in cancellation as they were standard finance and building report conditions, not a due diligence condition.

That sale went unconditional and was settled last September.

By December, the vendors had filed their action against Bath.

In court via his counsel, Bath argued the vendors should have agreed to his terms.

Bath offered to complete the purchase at the reduced purchase price of $1m with a six-month settlement period. He was willing and able to settle on those terms. He could draw on family and friends if he had to, including by nominating them as additional or substitute purchasers.

Bath said the amount would have been reasonable to the vendors at the time and was $218,500 more than they got when they eventually resold.

The judge didn’t agree.

“The defendant has not established that he has a reasonably arguable defence that the plaintiffs have failed to act reasonably to mitigate their loss,” Associate Judge Sussock said.

She ordered him to pay the $429,000 and said the vendors were entitled to costs because they had succeeded in their case.

No address was given in the court case, only the street name.

But Ray White marketed 37 Pallant St, Manurewa and a historic title search showed the Whakaruru name on that property previously.

Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.