What happens if one Party can’t complete a sale?

Completion is the last and most important step in any property transaction.  It takes place on a pre agreed date, when the balance of the purchase price is paid, and the transfer documents will be signed and dated following exchange of contracts!  From this step the legal ownership of a property will be officially transferred from seller to buyer, and the seller must move out and the buyer can move in.

But what happens if on the date of completion one party is “ready, willing and able” to complete, but the other party is not? It will mean that the party that is not ready to complete will be in breach of contract.

This is clearly a situation that any buyer or seller will not want to find themselves in, and fortunately it’s very rare.  Nevertheless, it’s good to know what your options are so that if it does happen to you, you know your rights in the case that the other party fails to complete, or on the other party’s rights against you in the case that you cannot complete on the agreed date.

The Seller’s Perspective

The contract between the parties will contain certain clauses detailing what can be done in the event that one side is in breach.  Although there are a number of options available to you, the starting point should be to look at the contract (or get your solicitor to do so) to see what it provides for.

Here are some things to look out for is;

• What does the contract say in regards to the buyer failing to pay the final payment in full?
• Check for a clause which states that the balance money is to be paid only once the buyer is satisfied with the title of the property.
• Is there a clause that allows you to issue a legal notice to the buyer to cancel the agreement and seek damages?

There are a few remedies available to the seller, as mentioned, and as well as keeping the deposit for the property the seller can claim damages. However, in the calculation of these damages credit is given to the seller for the deposit they have kept to ensure they do not recover their losses twice.

Alternatively. the seller can apply to the court for specific performance which is an order compelling them to complete the transaction. The buyer will also be liable for losses suffered by the seller for any delay in completion.

The Notice to Complete.

A seller can serve a notice to complete to protect their interest. This notice makes “time of the essence”. The notice provides an extra 10 working days for completion to take place, the time limit is non-negotiable.  If completion is not affected within the given time scale, the seller has the right to rescind the contract, keep the 10% deposit and put the property back on the market.

Specific Performance.

Sometimes the seller maybe able to show that there is no good reason for the buyer completing and the seller can apply to the court to force the buyer to complete.  Whilst granting the order is entirely at the discretion of the Judge, the buyer would need to have a very good reason to prevent the order being made, such as showing that the seller had materially misled them on the terms of the sale.

Retention of the deposit.

The deposit should be paid in full at exchange, but sometimes a seller will accept a lower amount.  If so, then as soon as a notice to complete is served the full 10% becomes payable.  This can cause a problem for the buyer if 10% was not available on exchange of contracts. However, where the buyer defaults on completion the court does have discretion to return the deposit to the buyer in certain circumstances such as:-

1. a) where the notice to complete has been served incorrectly or is incomplete. However, a seller who serves a notice to complete is entitled to a sufficient period within which to set up the necessary administrative arrangements for completion, so they do not need to be immediately ready.
2. b) The buyer can also apply to the court for the repayment of the deposit, and it is not possible to contract out of this right. This is not very common, but obviously there needs to be ‘something more, or special or exceptional’ to justify overriding the ordinary contractual expectation that the seller can keep the deposit if the buyer defaults. The seller can even keep the deposit if they go on to sell the property to a third party at a higher price.

The Buyer’s Perspective

The same rules apply as to the seller, you should look over your agreement and look for any relevant clauses.

Again, some important ones to look out for include;

• Which clauses in the agreement deal with the seller backing out of the deal?
• Is there a clause that states the seller can cancel the deal if certain conditions are not met on his side?
• Does the agreement allow you to issue a legal notice to the seller for cancellation of the agreement and then to seek damages?

As mentioned, there are a few remedies for this kind of breach for both parties, but either may seek breach-of-contract monetary damages when the other party fails to complete. The party not in breach may also seek to compel the other party to complete the deal under specific performance.

Specific Performance.

The buyer may also be able to pursue specific performance, to force the seller to complete, however as mentioned above, the decision of whether or not to order specific performance is up to the sole discretion of the court.

Damages.

If you have suffered a financial loss due to the sellers failure to complete you can sue them for monetary damages.

The amount you can ask for depends on how much their breach has actually affected you.

If the seller acted in good faith throughout and you have not suffered any financial losses, then the seller will just be liable to return the deposit to you plus any reasonable expenses.

However, if the seller acted in bad faith then you may be able to claim further damages, but you should speak with your conveyancer to get the specifics of this.

Overall, it is a very good idea as the buyer or as the seller to make sure you are informed of these standard provisions in your contract, and to know what remedies are available to you in these undesirable situations.

As can be seen, there are several remedies available to you if you find yourself in the situation where the other party can no longer complete on the agreed date. These remedies should offer some relief to you in this unfortunate circumstance.

To summarise, both the seller and the buyer can get an order for specific performance against the defaulting party. The seller specifically can serve a notice to complete on the buyer and keep the deposit.  In addition, or as an alternative, the buyer can pursue damages!

All of these options should provide quite extensive protection to your interest in the event you find yourself stuck due to a failure to complete.  If you find yourself in this situation, the first thing you should do is talk to your solicitor who will be able to advise you on your options.

Disclaimer – our articles are designed to give you guidance and information.  There is no substitute for proper direct advice, particularly as everyone’s circumstances are different.  If anything in this article may affect you, please contact us for advice that is specific to your circumstances.