The vast majority of cases involving the failure by one party to complete a contract for the sale and purchase of property arise due to the buyer's default. This is usually because the buyer has been unable to raise the necessary funding for the purchase. It is rare for a seller to exchange contracts and then wilfully fail to complete a sale. Most sellers want to sell.
But there are certain circumstances, such as where a significantly higher offer is received for the property, or the seller experiences an unexpected change in personal circumstances, that may lead to the seller indicating an intention not to perform the contract.
What are the buyer's options in these circumstances? How should they protect their position, assuming they wish to keep the contract alive rather than terminating it, taking back their deposit and pursuing the seller for damages for their losses?
Preliminary steps
Where the contract incorporates the Standard Conditions of Sale that form part of almost all residential sale contracts, the concept of a "notice to complete" will apply. This means that at any time on or after the contractual completion date, a party who is "ready willing and able to complete" can give the other a notice to complete. The effect of the notice is that it makes time "of the essence", requiring the other party to complete the transaction within ten working days.
In addition to serving a notice to complete at the correct time, a sensible step to take at this stage is for the buyer to register a unilateral notice at the Land Registry, which will give any potential alternative purchaser a warning that there is an existing contracting purchaser with an interest in the property.
This is particularly important if it is perceived that the reason for a failure to complete is because the seller has received a higher offer for the property after exchange of contracts and is possibly dealing with that third party. The existence of the notice will prevent any transfer of the property from being registered at the land registry, unless the buyer's consent is given or the seller successfully applies for the notice to be removed from the register. The buyer will be given the opportunity to object to its removal if an application is made.
Specific performance
If it becomes clear that the seller is not going to voluntarily complete a contract, the buyer can apply to court for specific performance at the expiry of the period of the notice to complete. Specific performance is an equitable remedy, which means that its award is discretionary, and as such, it is not available as of right. The court will normally assess whether or not damages would be an adequate remedy if specific performance were not to be granted.
Having said that, contracts for the sale of an interest in land are generally specifically enforceable, on the basis that property is viewed as a unique asset. This means that damages are not usually adequate for a buyer.
There are a number of circumstances in which specific performance will not be awarded. These are as follows:
- as stated above, where damages would adequately compensate for the loss sustained by the breach
- one of the contracting parties lacks full contractual capacity
- the contract contains a vitiating element (eg mistake, fraud or illegality)
- a third party has acquired an interest for value in the property
- the seller cannot give good title
- the award would cause exceptional hardship to the defaulting party
- there has been undue delay.
Factors which could possibly persuade a court to refuse a grant of specific performance include exceptional hardship and delay. These tend to be very case specific, but one example where a court refused specific performance was where a four year delay had occurred (for which neither party was responsible), and in the interim, the seller's circumstances had changed significantly due to her husband's bankruptcy and her own disability.
Financial difficulties alone do not provide a defence, so a buyer will not be denied specific performance just because a seller may find it difficult to buy an alternative property with the proceeds of sale in a rising market. The exceptional hardship threshold is considered to be a high one. Nevertheless, buyers should be aware that there are some available defences to a seller.
What happens if a seller fails to comply with an order for specific performance?
There may be practical obstacles in enforcing against a particularly determined seller who may simply refuse to give up a property despite a court order being in place. If an order is made but the seller fails to comply with it, the buyer may apply for further enforcement action to be taken by the court. An order for specific performance should contain a penal notice warning the seller that they will be held in contempt of court and imprisoned or fined and their assets may be seized if they do not comply with the order.
Advising a seller
When acting for a buyer on a property purchase, it is a given that careful advice will be provided regarding failure to complete the purchase in accordance with the contract. When acting for a seller, the prospect of default is perhaps more easily overlooked, particularly in a relatively weak market where it is easy to assume that the seller will be eager to have the contract successfully completed.
However, personal circumstances can change. For that reason, sellers should be clearly advised that changing their mind once a binding contract is in place is likely to result in both a hefty legal bill and, in all likelihood, a court order requiring the transfer of the property to the buyer in accordance with the original contract.
