Suppose you are a lawyer acting on behalf of one of the parties in a transfer transaction, but the other party to the contract shows a marked reluctance to complete the sale. This could be for a number of reasons, for example the buyer has changed their mind about buying the property or the seller has found a buyer willing to pay much more. What can you do as an attorney advising the innocent party to compel completion?
1. Force the completion of an unwilling part
(a) Specific Performance – This is an order issued by the court and is used against the seller when the seller refuses to execute the deed of purchase. The court has the power to order a third party to execute the deed on his behalf.
A deed for specific performance may be requested as soon as the day set for performance has elapsed, whether or not time is of the essence and a notice to complete has been served or not.
Of course, it is not as helpful against a penniless buyer since the court cannot force a sale when the buyer has no money.
Specific compliance is a discretionary remedy. However, it is virtually available by right as far as land is concerned due to the unique nature of any property. An applicant denied the decree may receive damages on the spot. Supreme Court Act, 1981 s. fifty
(b) Termination Notice: This is notice given after the date set for termination has passed without termination occurring. As long as one party is still ready and able to complete, then that party can send a notice to complete to the other party. The notice makes time of the essence, meaning that if there is a further breach, the innocent party can withdraw from the contract entirely (such remedy is expressly provided for in Standard Condition (SC) 7.4 of the 5th Edition of the Standard Conditions). of Law Society of 2011). When can notification be made? Under standard conditions, the completion of the sale is 20 business days after the exchange of contracts or any other date as stipulated in the contract. The open contract position if time is not of the essence and there is no stipulated completion date is that notice should not be given until there has been unreasonable delay. If time is of the essence, the innocent party may terminate the contract immediately. However, deciding whether time is of the essence or what is unreasonable delay is a matter of fact and therefore subject to uncertainty, so the open contract position should be avoided. Another advantage of the standard conditions is that they stipulate that if the buyer has not paid a deposit upon receiving a notice to complete, they must pay 10% immediately, so this provides a broader remedy, as well as certainty as to when can deliver notice. . A notice to complete is generally used by a seller against a buyer when specific performance is not appropriate. The threat of being sued for damages for failure to comply with a notice to complete will often persuade a reluctant buyer to proceed.
2. Remedies for delay in completion
(a) If time is of the essence, then walk away.
(b) Compensation for delay
(i) The open contract position is that any delay is a breach of contract (although not necessarily one that entitles the innocent party to terminate the contract). The injured party is entitled to compensation, for example, the cost of finding temporary accommodation. In calculating loss, the rule is that the injured party is entitled to be placed in the same position as they would have been if the termination had occurred on time. Thus, the seller would have accrued interest on the purchase price and the buyer who has been deprived of occupancy can collect a further benefit.
(ii) Open contract rule
– if the delay is the fault of the buyer, then no monthly rent applies
– if the delay is the fault of the seller and the rent exceeds any interest, then the buyer does not have to pay interest
(iii) Generally, however, compensation for delay is covered by a term in the contract. Under SC, the fact that the party has not been able to complete due to a delay by the other party at some earlier stage of the transaction is recognized. Under SC7.2, it looks at the stages of the transaction as a whole to determine who caused the delay and how long it lasted, and then the more at-fault party pays interest at the contract rate on the balance of the purchase price, either for the period of default or the delay between the completion of the contract and the actual completion, if less. Steps are taken to offset contract damages from any common law damages if such a claim is made or to take rent at your place where the buyer is in occupancy.
(iv) Interest rate
– SC 1.1.l (e) stipulates that, unless otherwise agreed, it is the current Law Society rate at any time
– a special condition can alter this
(v) Notice to complete – see above.
However, please also note that SC7.4 deals with the remedies available to the seller due to the failure of the Buyer to comply with a notice. These include losing the buyers deposit with interest; resell the property; and damage.
SC 7.5 deals with buyers’ remedies when the seller is unable to comply with a notice. The buyer can terminate and recover his deposit plus interest and still retains the right to sue for damages.
3. Reasons for withdrawal from the contract
Rather than force termination, the innocent party may want to back out entirely. What are the available plots?
(a) Termination of the contract due to a defect in its formation, for example, undue influence. This means that the parties must return to their pre-contract position. So the buyer gets his deposit back and the seller gets the property back. Accompanied by a claim for restitution and compensation, that is, the reimbursement of expenses such as legal costs aborted.
(b) Termination for False Statement. If the misrepresentation was not fraudulent, the court may refuse to allow rescission and award damages instead. (Misrepresentation Act 1967 s.2(2)). The open contract position is that termination for misrepresentation may be accompanied by a claim for damages if the misrepresentation was fraudulent or negligent. Termination is still available even after termination, unless a third party has acquired rights or there is trust and it is now impossible to restore the parties to the pre-contract position.
SC 7.1 modifies the open contract position. Only get rescission if there is misrepresentation. There must be intent, recklessness, or obtaining property that differs materially before it can be terminated. Otherwise, only get damages and only if there is a material difference in value, description, or content.
s.3 The Misrepresentation Act 1967 makes any exclusion clause subject to a reasonableness test.
(c) Termination under a contractual right, eg, SC7 for failure to comply with a notice to complete or special condition.
(d) Choose to treat the contract as terminated due to the breach of the contract by the other party. This is only possible if the infringement is serious,
for example, a major misdescription
-failure to display a good title
-existence of an undisclosed lien
-any delay if time is of the essence -failure to comply with the notice of completion.
This may be accompanied by a claim for damages for breach of contract.
4. Damages for breach of contract
Damages are calculated according to the rule of Hadley v. Baxendale, that is, the plaintiff may recover the loss that arises naturally from the breach or was a loss that could reasonably be supposed to have been contemplated by the parties at the time of the contract as a probable result of the breach.
(a) If termination never takes place, due to a serious breach of contract, damages could be
For the buyer (B)
• loss of deal, ie the difference between the contract price and the highest market value on the date of default
• Transfer costs and other expenses in the purchase of a new property
• Alternative accommodation in the meantime
• possibly lost profits, for example when P knew that B could develop a property
• if there is no trading loss, then transfer costs are wasted.
• loss of the bargaining difference between the price that would have been paid and any lower price actually achieved on resale
• if there is no loss of deal, then the costs of the canceled transfer transaction
b) If completion takes place, there could still be a breach of contract that entitles a party to damages, so that, for example, the buyer could claim a reduced purchase price if they discover an undisclosed lien or a wrong description before completion.
An action for damages for breach of contract generally cannot be brought after termination. However, the buyer may sue under an express provision in the contract that entitles him to compensation for misdescription, even after completion. For example, SC 7.3 and don’t forget the right to terminate under the Misrepresentation Act.
5. Loss of deposit
If the non-completion is due to the seller’s default, the buyer is entitled to a return of the deposit and, if paid to the seller or the seller’s agent, has a lien on the ground to recover it. If due to the buyer’s default, the seller may lose the deposit, regardless of whether it actually suffers a loss, subject to the discretion of the court to order the return of the deposit under LPA 1925 s.49(2). But if the seller claims damages, the lost deposit is taken into account.
6. An undisclosed lien that only comes to light after completion
(a) Unregistered title only. Compensation may be obtained from the Head of Land Registry if the buyer is adversely affected by a pre-root land charge.
(b) A share may be under title agreements.