In the run up to the budget on 11 March, many buyers (particularly those from overseas) were keen to exchange contracts on their purchases in case any changes were made to taxation, (particularly SDLT) that may have impacted on them. It feels very odd to reflect that this was a little over 3 weeks ago. The impact of coronavirus is now affecting those buying and selling property in the UK, at whatever stage in the process they may be, in a number of significant ways, and bringing new challenges for their lawyers.
Guidance has been issued by the Government and also by the Law Society regarding existing conveyancing transactions, as well as for those who are at the very early stages of the sales process. The overarching Government message for those conducting these transactions is that they should be "prioritising the health of individuals and the public." So what does this mean for buyers and sellers in practice?
Below, we have broken down the issues as they affect buyers and sellers at different stages of a conveyancing transaction, and have put forward some possible solutions to consider. The first of these groups comprises buyers and sellers who are at the initial marketing or "viewing" stage. The second is those at the early stages of the conveyancing process, with agreed terms for the transaction and lawyers instructed but where contracts have not yet been exchanged. The third group is those who have already exchanged contracts with a fixed completion date within the next few weeks and months.
Initial stages
The Government advice which was issued on 26 March is that estate agents should not continue to permit viewings of properties that are on the market. For those looking to sell, it has said "there should be no visitors to your home" for viewings and valuations although, in this digital age, virtual viewings may be available online and these are already widely used. Mortgage valuations will in most cases be able to be prepared on a desktop/remote basis, although not in all cases. However, as physical viewings are not permitted under the current restrictions, this means a virtual freeze on the first step of the buying and selling process in all but a handful of cases.
Sellers can perhaps use this time to liaise with their lawyers get all their paperwork in order so as to facilitate a sale to proceed more swiftly once the restrictions are lifted. Buyers can still talk to estate agents who are operating remotely, and also do their homework in terms of drawing up a wish list of available properties. Sellers may not allow estate agents access to their properties for the purposes of giving valuation advice, or for preparing floor plans or property particulars. It is worth noting that there are no restrictions on sellers accepting an offer (which may come from someone who viewed the property some time ago).
Pre-contract stages
Those buyers and sellers involved in a chain of transactions will want to establish the position of the others in the chain. The current circumstances may cause some buyers and sellers to pause for thought in view of the uncertainties around the market and their own financial positions, which may have changed in recent weeks. However, the Government advice has been clear that there is no need to withdraw from transactions but contracts should not be exchanged at this stage, unless the purchase in question is of an unoccupied property. This may provide opportunities for investors.
The parties can expect some delay to the transaction, particularly if it is in the early stages. Some issues experienced to date include:
- problems in obtaining local authority search results where local authority offices are closed or understaffed
- signed documents being stuck in the post
- mortgage offers being delayed by lenders who are operating with reduced staff numbers
- mortgage valuations being delayed due to surveyors being unable to access properties due to social distancing rules, and
- uncertainty around the availability of removal companies.
In these circumstances, the Government guidance directs that lawyers should advise their clients not to exchange contracts unless they have made "explicit provisions for the risks presented by the virus."
This is not expanded upon, but is being interpreted as requiring a "coronavirus clause" to be inserted into the contract which sets the contractual completion date by reference to a fixed period following the lifting of the current restrictions on movement. Clients should also be asked to consider the merits of arranging a deep clean of the property prior to their move.
Existing contracts
The advice is to try and defer the completion date, which will require a formal variation of the contract. The Law Society recommends a two stage process where the move is delayed until the end of the current "stay at home" period and the requirements about physical distancing have been relaxed, but with an ability to extend that timeframe if the Government restrictions are extended. This may be difficult to achieve in practice where there is a chain of transactions, which will require all the relevant parties involved to sign up to the same varied terms.
Additionally, there may be issues with mortgage lenders where the mortgage offer expires relatively shortly after the proposed completion date, which will mean going back to the lender to get the period of the mortgage extended. The Government is working with lenders to get the period of all mortgage offers extended by 3 months.
Where parties are unwilling to agree an extension to the completion date, questions have been raised as to whether there might be a potential argument that the coronavirus outbreak has somehow frustrated the contract or that the concept of force majeure has come into play. It is very unlikely that either of these concepts can be relied upon in a property transaction, notwithstanding the current unprecedented circumstances.
Sellers and buyers will therefore be bound by their existing contract (in the absence of an agreed variation) which may make organising removals and providing vacant possession in accordance with the contract challenging for the seller at this stage. There is, however, no outright ban on moves as such. These can go ahead if it is critical to do so and provided the removal companies observe social distancing. However, the strong recommendation is to try and defer any move.
The immediate future
There is a sense that the conveyancing world will settle down in the coming weeks and adapt to the requirements for flexibility around completion dates and that lenders will adjust their procedures to accommodate this new reality.
We are likely to see for some time to come less rigid arrangements for timing of the completion of sales and purchases, and these can be documented with relative ease. It will, however, mean that buyers and sellers will not have the certainty of a particular fixed completion date when they exchange contracts; this may only come much further down the line.
