Remedies in Conveyancing Where the Other Party Appears Reluctant to Complete the Transaction
Supposing you are a lawyer acting for a party in a conveyancing transaction but the other party to the contract is showing a marked reluctance to complete the sale. This could be due to any number of reason e.g. buyer has changed his or her mind about buying the property or the seller has found a buyer willing to pay a lot more. What can you do as the lawyer advising the innocent party do to force completion to occur?
1. Forcing completion on an unwilling party
(a) Specific performance – this is an order granted by the court and is used against the seller where the seller is refusing to execute the deed of purchase. The court has the power to order a third party to execute the deed on his behalf.
A writ for specific performance can be applied for as soon as the day fixed for completion has passed whether or not time is of the essence and whether or not a notice to complete has been served.
It is not as useful against an impecunious buyer of course as the court cannot force a sale where the buyer has no money.
Specific performance is a discretionary remedy. However it is virtually available as of right where land is concerned because of the unique nature of any property. An applicant denied the decree may be awarded damages in lieu. Supreme Court Act, 1981 s. 50
(b) Completion notice – this is a notice served after the date set for completion has passed without completion occurring. Provided a party is still ready and able to complete then that party can serve a notice to complete on the other. The notice makes time of the essence meaning that if there is further non compliance then the innocent party can withdraw completely from the contract (such remedy being expressly stipulated at standard condition (S.C.) 7.4 of the 5th edition of the Law Society’s standard conditions 2011). When can the notice be served? Under the standard conditions of sale completion is either 20 clear days after exchange of contracts or such other date as the contract stipulates. The open contract position if time is not of the essence and there is no stipulated completion date is that notice must not be served until there has been unreasonable delay. If time was of the essence then the innocent party can withdraw from the contract immediately. However deciding if time is of the essence or what is unreasonable delay is a question of fact and thus subject to uncertainty so the open contract position should be avoided. A further advantage of the standard conditions is that they stipulate that if the purchaser has not paid a deposit on receipt of a notice to complete he must pay 10% forthwith so this gives a wider remedy as well as certainty about when the notice can be served. A notice to complete is usually used by a seller against a buyer where specific performance is not appropriate. The threat of being sued for damages for non compliance with a notice to complete will often persuade a reluctant purchaser to proceed.
2. Remedies for delayed completion
(a) If time is of the essence then withdraw.
(b)Compensation for delay
(i) The open contract position is that any delay is a breach of contract (though not necessarily one giving a right to innocent party to retire from contract). The injured party is entitled to damages, e.g. cost of finding temporary accommodation. In calculating loss the rule is that the injured party is entitled to be put in the same position they would have been in had completion occurred on time. Thus the seller would have earned interest on the purchase price and the buyer who has been deprived occupation can charge mesne profit.
(ii) Open contract rule
– if delay is buyer’s fault then no mesne rent is applicable
– if delay is seller’s fault and rent exceeds any interest then the buyer does not have to pay interest
(iii) Usually however compensation for delay is covered by a term in the contract. Under S.C. recognition is given to the fact that the party has been unable to complete due to a delay by the other at some earlier stage of the transaction. Under the S.C.7.2 you look at the transaction stages as a whole to determine who caused the delay and how long it was and then the party most at fault pays interest at the contract rate on the balance of the purchase price either for the period of default or the delay between contractual completion and actual completion if shorter. Provision is made to set off the contractual damages from any common law damages if such claim is made or to take rent instead where the buyer is in occupation.
(iv) Rate of interest
– S.C. 1.1.l (e) stipulates that unless otherwise agreed it is the Law Society’s rate from time to time in force
– special condition can alter this
(v) Notice to complete – see above.
Note also however that S.C.7.4 deals with remedies available to the seller due to the Buyers failure to comply with a notice. These include forfeiting the buyers deposit with interest; reselling the property; and damages.
S.C. 7.5 deals with the buyers remedies when the seller is the one who cannot comply with a notice. The buyer can rescind and recover his deposit plus interest and still retains the right to sue for damages.
3. Grounds for withdrawing from the contract
Instead of forcing completion the innocent party may want to withdraw altogether. What are the grounds available?
(a) Rescinding the contract because of a defect in its formation, e.g. undue influence. This means the parties have to be returned to their pre-contract position. So buyer gets his deposit back and the seller gets back the property. Accompanied by a claim for restitution and indemnity i.e. reimbursement of expenses such as aborted legal costs.
(b) Rescission for misrepresentation. If the misrepresentation was not fraudulent, the court can refuse to allow rescission and award damages in lieu. (Misrepresentation Act 1967 s.2 (2)). The open contract position is that rescission for misrepresentation can be accompanied by a claim for damages if the misrepresentation was fraudulent or negligent. Rescission is still available even after completion unless a third party has acquired rights or there has been reliance and it is now impossible to restore the parties to the pre contract position.
S.C. 7.1 modifies the open contract position. Only get rescission if misrepresentation. Has to be fraud, recklessness or get a property differing substantially before can rescind. Otherwise just get damages and only if there is a material difference in the value, description or contents.
s.3 Misrepresentation Act 1967 makes any exclusion clause subject to a reasonableness test.
(c) Rescinding under a contractual right e.g. S.C.7 failing to comply with a notice to complete or a special condition.
(d) Choosing to treat the contract as discharged because of the other party’s breach of contract. This is only possible if the breach is a serious one,
e.g. -a major misdescription
-failure to show good title
-existence of an undisclosed incumbrance
-any delay if time is of the essence -non-compliance with completion notice.
This may be accompanied by a claim for damages for breach of contract.
4. Damages for breach of contract
Damages are calculated under the rule in Hadley v. Baxendale i.e. the plaintiff can recover loss which arises naturally from the breach or was a loss that may reasonable be supposed to have been in the contemplation of the parties at the time of the contract as the probable result of the breach.
(a) If completion never takes place, because of a serious breach of contract, damages could be
For the buyer (B)
• loss of bargain i.e the difference between the contract price and the higher market value at the date of breach
• Conveyancing costs & other expenditure in buying a new property
• Alternative accommodation in the meantime
• possibly, loss of profit e.g where P knew B could develop property
• if no loss of bargain, then wasted conveyancing costs.
For the seller (S)
• loss of bargain i.e.difference between the price that would have been paid and any lower price actually achieved on resale
• if no loss of bargain then the costs of the aborted conveyancing transaction
b) If completion does take place there might still be a breach of contract entitling a party to damages, so that e.g. buyer could claim a reduced purchase price if he discovers an undisclosed incumbrance or a misdescription before completion.
An action for damages for breach of contract cannot generally be brought after completion. However, buyer can sue on an express provision in the contract entitling him to compensation for misdescription, even after completion. For example S.C 7.3 and don’t forget the right to rescind under the Misrepresentation Act.
5. Forfeiture of deposit
If non-completion is due to seller’s default, buyer is entitled to return of the deposit and if it was paid to seller or seller’s agent, has a lien over the land for its recovery. If it is due to buyer’s default, seller can forfeit the deposit, irrespective of whether he actually suffers loss subject to the court’s discretion to order the return of the deposit under L.P.A. 1925 s.49(2). But if seller claims damages, the forfeited deposit is taken into account.
6. An undisclosed incumbrance that only comes to light after completion
(a) Unregistered title only. Compensation can be obtained from the Chief Land Registrar if buyer is adversely affected by a pre-root land charge.
(b) An action may lie under the covenants for title.