As Brexit negotiations begin, how will leaving the EU affect the UK property market? Will we see buyers attempting to escape from contracts they no longer want to complete? DTM Legal’s property team can advise you on the legal options available to sellers in such circumstances.
Problems might be expected in cases involving a lengthy gap between exchange and completion, during which the economics of the transaction change, or a mortgage offer lapses and is not renewed. For instance off plan flat sales, or contracts conditional on the grant of planning consent. If the purchaser is reluctant to complete on the completion date, what are the options available for the seller and what are the pitfalls to avoid?
Most property transactions take place under Standard Conditions with Standard Conditions of Sale 5th Edition for residential contracts and the Standard Commercial Property Conditions 2nd Edition for commercial contracts which state that the time for compliance of the contract is not “of the essence” unless a 10 day notice to complete has been served.
Absent a notice to complete, the innocent party can terminate the contract only if the contract-breaker’s delay deprives the innocent party of substantially the whole benefit of the contract. This though is seldom the case with real estate as the bargain can still be performed despite the delay.
This is important if the seller is unready to complete on the completion date, for instance because the construction period has overrun. Unless the buyer serves a valid notice to complete on the seller, the seller’s own delay will usually entitle the buyer to treat the contract as discharged. That said, the buyer has to be ready to complete and with the risk of a lapsed mortgage offer, the buyer may be unable to bring the contract to an end and will remain bound and have to complete when the seller is ready.
If the buyer remains in default at the end of the notice period, then the seller can retain the deposit and sue the buyer for damages if the purchase price is greater than the market value of the property. The seller could in the alternative elect to sue the buyer for specific performance if the buyer has the funds to complete.
Care has to be taken if the seller is in subsisting breach of contract at the date it serves its notice, the effect may be to signify that the seller has “renounced” its obligations under the contract entitling the buyer to terminate the contract and recover his deposit.
Service of a notice to complete makes time of the essence of completion for both parties.
For more information, please contact Anna Duffy, head of property on 0151 2301219 or email email@example.com. Alternatively, please use the contact form below.