Stand up for your property rights: buying and selling
By Adam Gross, Memery Crystal LLP
The Standard Conditions of Sale (for residential) or Standard Commercial Property Conditions (for commercial) (together, the “Standard Conditions”) are usually included in contracts for the sale and purchase of property. Both contain the right to terminate where one party fails to complete on time. To exercise this right, time must first be made of the essence. Where time is not of the essence in agreements (whether expressly or implicitly), time is made of the essence by a party being ready, willing and able to complete and serving a notice to complete. Such a notice usually gives the other party ten working days (excluding the day the notice is given) to complete.
The question as to whether a party is ready, willing and able to complete can be complicated. It does not mean that you need to fulfil all of your contractual obligations: a party can serve a notice to complete provided that all “primary obligations” are fulfilled. If secondary obligations are not yet fulfilled, it does not matter. Unfortunately, the courts have offered little by way of guidance as to what distinguishes the difference between primary and secondary obligations. Our view, however, is that a primary obligation is one that goes to the root of the contract and/or is expressed as a condition which must be complied with before a sale can take place.
When a valid notice to complete has been served, the defaulting party has to complete by the deadline given by that notice. Failure to do so is a repudiatory breach and gives the non-defaulting party a right to terminate the agreement; and, under the Standard Conditions:
- A non-defaulting seller can keep the deposit accrued (such deposit being the full 10% in residential transactions);
- A non-defaulting buyer can recover payment of the deposit and interest.
In both cases the non-defaulting party also has a claim for damages for breach of contract including, for example, an amount equivalent to the drop in the property’s market value and abortive conveyancing costs. When a notice to complete has expired, the non-defaulting party has to decide whether to elect to terminate or extend the deadline of the notice. If it does not do this, it cannot later change its mind and look to rescind. This was a point missed by one of the parties in the recent case of Hakimzay Ltd v Swailes  EWHC B14 (Ch);  EGLR 1 in which the seller had not exercised its right to rescind straight-away and instead entered into discussions about interest and/or a reduction in the sale price. No extension dates were discussed or agreed. After nearly two months, the seller sought to rescind but the buyer argued that the seller had no right to do so and applied for an order 2
for specific performance to require completion to take place. The court found in the buyer’s favour. Specific performance is an alternative remedy to rescinding. It involves applying to court for an order to compel a party to complete. The court has a wide discretion whether to grant such an order, but usually orders a transaction to proceed.
Practical steps to consider
If the other contracting party is ‘peddling slow’, you should assess whether you have complied with your primary obligations under the agreement. If you have so complied, then you can put pressure on the other party to complete either by serving a notice to complete or taking action for specific performance. When additional time is agreed for completion to take place, be careful to document the agreement in writing, or if no such agreement is possible act quickly. Further, where time under a notice to complete has expired, you should ensure that your discussions about extensions of time or, indeed, any other provisions under the agreement are held on a without prejudice basis. That is to avoid any arguments being made against you that you have elected to affirm the contract and thereby losing the option to rescind.
Published: July 2016 l Photo: Colourbox.de - Claudio