COVID-19: What happens if I cannot complete my conveyancing contract?
Following the recent government advice regarding moving home during the Covid-19 pandemic and the Government lockdown you will be aware that they are advising against moving home when there is a chain and the house that you are moving into is not vacant.
Moving home during Coronavirus
This guidance recommends that, where this is not possible, the parties to a particular chain work collaboratively to reach a suitable solution to the issue and we will be happy to assist you with this and draft / approve appropriate documentation to assist with this.
However, if a solution cannot be reached then we have set out below the contractual obligations and liabilities for failing to complete and other considerations.
Sale / purchase contracts
Once you have exchanged contracts for the sale and / or purchase of a property, both parties are contractually committed to the transaction – conveyancing contracts in England will generally be governed by the Standard Conditions of Sale (“the Standard Conditions”) which are issued by the Law Society in order to regulate conveyancing transactions. The current edition of the Standard Conditions is the fifth edition and therefore the details below are based on this version of the Standard Conditions. Previous versions of the Standard Conditions are broadly similar but you could check with your Solicitor which version is applicable to your contract.
Seller’s failure to complete
If the Seller has failed to complete the sale by the contract time (under the Standard Conditions this is 2.00pm – although this is often varied in the special conditions of the contract, so you need to check the Contract time with your Solicitor) then provided that the Buyer is ‘ready willing and able to complete’ they are able to serve notice to complete on the Seller.
The Notice to Complete is a formal notice which is sent to the Seller’s Solicitors by the Buyer’s Solicitors which confirms that the Seller is in breach of contract and that the Buyer gives them a 10 working day period (which begins the day after the notice is served) in which to rectify their breach otherwise the Buyer will be entitled to exercise the remedies available to them.
- If at any time during this 10 working day period the Seller is ‘ready willing and able to complete’ then the Buyer will be required to complete with the Seller.
- Compensation is due from the Seller to the Buyer, in practice this would be done by way of an allowance on completion. Compensation is calculated at the contract rate (usually 4% above base rate) on the amount of the purchase price for the period that the Seller is in default.
- If the Seller is not able to remedy their breach and they are not ready willing and able to complete by the end of the period of time given by the Notice to Complete, then the Buyer can (but is not obliged to) rescind the contract and if this is done:
- the deposit (paid on exchange) must be repaid to the Buyer with accrued interest
- the Buyer must return to the Seller any documentation that they have received from the Seller (at the Seller’s expense).
Buyer’s failure to complete
- If the Buyer has failed to complete the sale by the contract time (under the Standard Conditions this is 2.00pm – although this is often varied in the special conditions of the contract, so you need to check the Contract time with your Solicitor) then provided that the Seller is ‘ready willing and able to complete’ they are able to serve notice to complete on the Buyer.
- The Notice to Complete is a formal notice which is sent to the Buyer’s Solicitors by the Seller’s Solicitors which confirms that the Buyer is in breach of contract and that the Seller gives them a 10 working day period (which begins the day after the notice is served) in which to rectify their breach otherwise the Seller will be entitled to exercise the remedies available to them.
- If the Buyer has paid either no deposit or a deposit of less than 10% of the purchase price, then on receipt of the Notice to Complete the balance of the 10% deposit (which shall be the whole 10% deposit where no deposit had previously been paid) shall immediately become payable to the Seller.
- If at any time during this 10 working day period the Buyer is ‘ready willing and able to complete’ then the Seller will be required to complete with the Buyer.
- Compensation is due from the Buyer to the Seller; this would need to be paid on the completion date (in addition to the purchase price). Compensation is calculated at the contract rate (usually 4% above base rate) on the amount of the purchase price (less the deposit paid) for the period that the Buyer is in default.
- If the Buyer is not able to remedy their breach and they are not ready willing and able to complete by the end of the period of time given by the Notice to Complete, then the Seller can (but is not obliged to) rescind the contract and if this is done:
- the Buyer forfeits the deposit (paid on exchange) and this is kept by the Seller together with any accrued interest.
- the Seller can resell the property (and any contents included in the original contract) and claim damages from the Buyer. For example – additional legal fees, additional selling fees, the different between the purchase price under the original contract and the sum paid by the buyer on the resale (although the Seller would need to show that they have mitigated their loss).
- the Buyer must return to the Seller any documentation that they have received from the Seller (at the Buyer’s expense).
Additional points to note:
Compensation is only payable by a party in default, and where both parties are in default for a period of time, compensation will only be paid by the party in default for the longer period of time and they will only pay for the period that there were in default which exceeds the other parties period of default.o For example – if a Seller failed to complete but 3 days after the notice to complete was served, they were able to complete (and served a notice to this effect on the Buyer) but at this time the Buyer wasn’t ready to complete but they were 2 days later. Then the Seller would be liable for compensation for 1 day.
- Other Rights and Remedies – in addition to the remedies expressly set out in the Standard Conditions (and detailed above), in the event of a breach of contract by one party and them rescinding the contract they would also have all of the usual rights and remedies that any party would have against the other for breach of contract (although you would only be able to claim once for any particular item). We can refer you to our dispute resolution team to assist with any such claim that you may need to make.
- Frustration – there is a doctrine of frustration in English contract law which means that a contract may be discharged when something occurs after exchange of contracts which renders it physically or commercially impossible to fulfil the contract. Some examples of frustration in a contract (which have been tested in previous cases) include:
- Destruction by fire or other cause of the subject matter of the contract.
- A change in the law or circumstances can make performance of the contract illegal (in the case in question, war had broken out and therefore an export contract was capable of being be discharged by way of frustration).
- The cancellation of an expected event (in the cases in question, when King Edward VII’s coronation was postponed due to illness).
- Unexpected delay in performance of the contract due to an unexpected event or change in circumstances. To frustrate a contract, the delay must be abnormal so that it falls outside what the parties could contemplate at the time of contracting.
It may be that if there is a change in the law to shut down removal companies, estate agents and developers so as to make it impossible to complete a conveyancing transaction, then the contracts may be frustrated; thus allowing the parties to discharge their various obligations under the contract. At the time of writing this article none of these industries have been formally closed down and therefore it would not be advisable to seek to rely upon this principle as it can be difficult to establish. No doubt following this pandemic there will be some cases which will go through the Courts and which will test this theory but as things could still change further it is difficult to predict the final outcome and therefore the success of this relying upon frustrating to discharge a contract.
Return of the deposit – s49(2) of the Law of Property Act 1925 provides courts with a discretion to return a forfeited deposit to a Buyer in exceptional circumstances. In recent years the courts have exercised this discretion very restrictively and in a 2015 case the Court said “…the discretion should not be exercised in the absence of something special or exceptional to justify overriding the ordinary contractual expectations of the parties”. The return of a deposit in this manner can only be ordered by the Court and therefore would involve undertaking court proceedings (which could prove quite costly) and therefore this would not necessarily be advisable, at least until the effects of covid-19 and the Government lockdown (and any further measures that may be taken) have been tested with the Courts.
This is a general guide to the provisions of the Standard Conditions in the event of default by either a buyer or a seller to a conveyancing contract and should not be relied upon as specific legal advice.
If you require further guidance regarding your contract and the effect of any default, please contact Claire McSorley, Solicitor, in our Real Estate department or email your query to firstname.lastname@example.org call us on 01276 686222 or visit our website https://www.herrington-carmichael.com/contact/
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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