In the current property market deals are taking longer to agree, exchange and complete which is a source of frustration for all parties involved. Completion can be delayed because buyers struggle to get their funding (either from banks or investors) lined up in time for completion. This leads to the contractual completion date passing without completion having taken place and a decision for the seller as to whether or not to serve a notice to complete on the buyer.
On exchange of contracts for the purchase of a property it is market practice that the buyer pays a 10% deposit to the seller which the seller’s solicitor usually holds as stakeholder. This means that the deposit must be retained by the seller’s solicitor pending completion. The contract will either have a fixed date for completion or completion will be conditional on a trigger event taking place, such as obtaining satisfactory planning permission or completion of works.
It is important to note that while the completion date is a contractual term of the contract and is legally binding on all parties, if the parties do not complete on the completion date the contract does not automatically terminate. This is because at common law and under the Standard Commercial Property Conditions (or Standard Conditions of Sale for residential transactions) (Standard Conditions) time is not of the essence in the contract unless specifically specified to be so and so the contractual completion date is not a fundamental term which if breached would entitle the innocent party to terminate the contract.
To make time of the essence a notice to complete must be served on the defaulting party giving ten working days’ notice (as per the Standard Conditions) to complete. A contract could amend the Standard Conditions to allow for a shorter notice period; this is often done where the property is being sub-sold (also known as flipping).
The party serving the notice to complete must ensure that the notice is validly served as if, for example, the seller serves an invalid notice to complete and therefore wrongly terminates this act will itself constitute a fundamental breach and the buyer will be entitled to terminate and get its deposit back. In order to validly serve a notice to complete the party serving the notice must be “ready, willing and able” to complete. The notice to complete makes it a condition of the contract that completion takes place on or before the notice period expires.
Once the notice period expires and if the defaulting party still fails to complete the innocent party can rescind the contract and if the seller is the innocent party it can keep the deposit; if the buyer is the innocent party it can either demand the deposit back or seek an order for specific performance of the contract. The innocent party can also sue the other party in damages such as for its wasted costs.
Options for the Buyer
Based on a sale of a property for a premium and where a 10% deposit has been paid by the buyer to the seller, if a buyer receives a notice to complete from a seller, or if they anticipate not being in funds to complete on the contractual completion date, the buyer has various options to remedy the situation. The first option is to enter into a bridging loan. Bridging lenders are used to stepping-in at short notice to “bridge the gap” between completion and the buyer having their funds available. While bridging lenders can act quickly, the down side is that there are additional costs, such as the lenders arrangement fees, broker and legal fees as well as higher interest to pay as a result of the bridge lender taking on the short term risk.
If a buyer has friends, family or other “angel” investors who are willing to help out and cover the period until the buyer is able to source/obtain the funds, that is of course the ideal solution but rarely seen in practice. This is due to the high risk that the investor is taking with little time to carry out full due diligence.
A better solution is for the buyer to enter into negotiations with the seller and agree to extend the completion date, by way of a variation agreement, thereby giving the buyer more time to obtain the completion funds. The buyer is likely to need to ‘sweeten’ the offer by way of incentives to the seller. These incentives could include one (or more than one) of the following:
A very high risk option (and not one to be utilised without careful consideration and after obtaining legal advice) is that a buyer could choose to do is to sit back and wait and see if the seller rescinds the contract. If after the ten working day notice period expires the seller delays and does not rescind the contract, it could be considered a waiver of the notice to complete and then time no longer becomes of the essence in the contract. This was the High Court ruling in a 2015 case of Hakimzay Ltd v Robin Swailes  EWHC B14 (Ch).
A buyer should always try to have their funding agreed before exchange of contracts where possible and a seller should always ensure that they are in a position to complete. However, if a party is served with a notice to complete they should act swiftly to try to come to an agreement with the other side so as not to lose any deposit and the deal.