What do you need to know if you are in the middle of or thinking about buying and selling property in these difficult times?
The decision to buy/sell
There is an increased risk of transactions not proceeding even after exchange of contracts. This could be a risk worth taking if there is only one Buyer and one Seller involved but if there is a chain all parties could suffer due to the inability of one party to complete.
What is your position legally if you have already exchanged?
Unsurprisingly, contracts, particularly those for residential property, do not contain clauses specifically tailored to pandemics. This means that usual contractual provisions will apply. Essentially, once contracts are exchanged the parties are bound to complete on the completion date. Based on existing case law, arguments around frustration of the contract or force majeure will not be sufficient to absolve either party of their obligations.
If either party fails to complete and contracts are strictly enforced what penalties might be suffered?
Where it is the buyer who fails to complete, they could lose their deposit. Additionally, if the market drops and the seller must sell for a lower price, the seller may have a claim against the buyer for the difference in price. Where it is the seller who cannot complete, they might be required to return the deposit and/or pay damages to a buyer such as wasted removal costs, finance costs and costs of alternative accommodation. Either party could be responsible for interest payments.
What should you do if you can't complete?
Very few people would wish to end up in court and the Law Society has stressed its desire that all parties act reasonably in these challenging times. Where completion dates are missed there is no need to enforce contractual provisions to the letter. Where completion is still due, contracts can be amended by agreement.
If parties consider that the current situation is likely to affect their ability to complete, the best thing will be to mention this now and try to agree some alternative provisions with the other side. Of course, where there is a chain, it is likely that all parties will need to agree the same provisions. One would hope that the principle of "do as you would be done by" would apply, and parties will be flexible, although there is of course no guarantee.
Our advice would be to try to stick to the terms of any current contract yourself but be flexible if another party is in difficulty. If you require certainty the sooner completion can take place the better. It might be worth contacting the agent to see what can be agreed.
New sale/purchase contracts
If exchanging contracts now, there may be concerns that either party will be unable to complete on the agreed date for completion either because they are actually ill with the virus or because they are in isolation. Alternatively, it could be physically impossible to move out because the removal company is unable to attend. In the absence of tried and tested wording for these circumstances, there are dangers in amending contracts to allow either party to rescind where this is the case. For example, a party could, fraudulently, claim self-isolation to terminate the contract for financial reasons – e.g. an upturn in the market making it lucrative to re-list the property.
It is difficult to achieve certainty in uncertain times. We would suggest that parties opt for simultaneous or almost simultaneous exchange and completion or instead, enter into a contract with a long period of time before completion in the hope that the immediate upheaval has passed. Both have their risks. The virus situation changes from day to day and the longer the gap between exchange and completion the higher the risk of either a COVID-19 event making completion more difficult or one party being disadvantaged due to fluctuations in the market. A third option is simply to prepare to exchange and then wait until a later date before actually doing so, accepting the risk that neither party will be bound in the interim.
Everyone is affected differently by the virus or the threat of it which means that there will be no "one size fits all" contractual solution. Consider what you expect to happen if you or the other party are affected by the virus. You might simply be prepared to delay completion. Alternatively, you might want the ability to rescind the contract. By agreeing with the other party what you expect and giving clear instructions to your lawyer you will help maintain good relations between the parties and achieve a sensible result
Practical guidance for COVID-19
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