A bothersome buyer – what to do and not to do?


Author: Siobhan Doherty


Introduction

Delays in property transactions following an exchange of contracts are not uncommon and, arguably, can be more problematic than delays encountered pre-exchange (when neither the seller nor the buyer is yet contractually bound to the deal). Delays can arise for a variety of reasons. Some delays, such as, documents not having been signed on time can be overcome with relative ease. But, unfortunately, some can not.

This article examines what a seller can do if its buyer isn’t ready to complete on time and the merits and consequences of serving a notice to complete.

What are the implications of a buyer not being ready to complete on the contractual completion date?

It goes without saying that a buyer’s failure to complete the contract on the contractual completion date will have commercial implications for the seller, such as having to pay interest on an mortgage, or holding up other transactions which may be contingent on the sale proceeds.

From a legal perspective, a buyer’s failure to complete will amount to a breach of contract and will entitle the seller to bring a claim for damages. However, unless stated otherwise in the sale contract, time will not be of the essence and the seller cannot simply terminate the sale contract. This effectively leaves the seller in a position where it cannot “get out” of the contract, leaving it with no choice but to wait until the buyer is ready to complete. A notice to complete helps rectify this position.

What is a notice to complete?

A notice to complete is a formal notice (which can be given by either party) which is served when completion has not occurred on the contractual completion date. If a notice to complete is served by a seller it makes time of the essence under the sale contract and requires the buyer to complete.

When can a notice to compete be served?

Assuming that the sale contract is made incorporating the Standard Commercial Property Conditions (SCPC), a notice to complete can be served by a seller at any time on or after the completion date if it is ready, able and willing to complete. What does this mean, you might ask? A seller will be treated as ready, willing and able to complete if:

  • it would be, but for the default of the buyer; and
  • here there is a mortgage over the property, the amount to be paid at completion enables the property to be sold free of the mortgage.

In practical terms, this means:

  • any contractual obligations which need to be performed by a seller must have been fully complied with. So, for example, any conditions precedent such as obtaining vacant possession, carrying out works etc. must have been carried out and completed;
  • any completion documents (e.g. transfer deed, capital allowances election, assignment deeds) must be correctly signed and returned in readiness for completion;
  • any VAT invoices must have been prepared and ready to be provided;
  • if the seller is an offshore company any legal opinions required on completion must be capable of being procured at any time;
  • any service and maintenance contract must be terminated/capable of being terminated if the contract requires this.

What are the consequences of serving a notice to complete?

The main consequences of serving a notice to complete are:

  • time is made of the essence and gives a buyer ten working days (excluding the day on which the notice is given) to complete;
  • if the buyer did not pay a 10% deposit on exchange it must immediately pay any additional amount due;
  • of particular importance, a notice to complete cannot be unilaterally withdrawn by the seller once served. It will, once served, bind both parties. This means that the seller must be ready to complete and if, for whatever reason, the seller is unable to complete on the date that the notice requires, the buyer will have the right to rescind the contract.

What to think about before serving a notice to complete?

Service of a notice to complete may be an attractive option to a seller as, no doubt, it will be eager to get the sale proceeds but before serving notice the seller should pause and consider things such as:

  • whether it is willing to agree an extension of time to the contractual completion date, perhaps in return for an extension fee;
  • if it does serve a notice but the buyer then doesn’t complete, how long it will take to resell the property and what are the cost implications of this. The seller should assess whether it is better to wait for a short period rather than have to start the sale process all over again.

What happens if the buyer doesn’t complete after a notice to complete is served?

If a buyer does not comply with the notice to complete (i.e. it does not complete within ten working days), a seller has a choice. It can affirm the contract and sue for specific performance (an unlikely choice) or it can rescind the contract. Rescission doesn’t take place automatically so steps need to be taken to do this.

If the seller does rescind it is entitled to:

  • forfeit and keep any deposit and accrued interest. (However, a word of caution here: the court may exercise its discretion and, if it thinks fit, order the repayment of any deposit. Although the court will not exercise its discretion lightly, it’s worth noting that the seller’s retention of deposit is not an absolute right);
  • resell the property;
  • claim damages if it can show that it has suffered a loss.

Siobhan Doherty, Associate, Fladgate LLP (sdoherty@fladgate.com)

View by date:


View by author: