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Sale and Purchase of Land - can I get out of this contract?
11 December 2008
A seller in 2007
In Chinnock v. Hocaoglu, the Court of Appeal ruled that
a Buyer could still proceed to enforce the contract to purchase a
property even though it had not strictly complied with the
timescale imposed in the contract.
The Contract provided for the sale for £120,000 plus the
seller's legal costs of £500 plus VAT and disbursements. The
contractual date for completion was the 12 February 2007. Following
notice to complete, completion was due on or before the 26 February
2007. On that date the buyer's solicitors sent the balance of the
purchase price plus some apportioned service charges but did not
include the sum of £500 plus VAT plus £12 disbursements.
The money did not arrive until 2:45pm and under the terms of the
contract it should have been paid by 1pm.
The seller refused to complete on the basis that (1) the
completion money had been delivered after the deadline of 1pm, and
(2) that it did not include the sum of £599.50 for the seller's
legal costs.
The buyer sued and the seller won at the first instance - the
Judge held that not paying the seller's legal costs along with the
remainder of the completion money entitled the Seller to rescind
the contract.
The Court of Appeal overruled the decision as the wording in the
contract was "the Purchaser will be responsible for the legal costs
incurred by the Vendor in relation to the sale of the above being
£500 plus VAT plus office entries of £12". There was nothing in the
contract which obliged the buyer to pay these as part of the
completion monies. The buyer did not dispute that they were
responsible for them and provided they were paid together with an
extra day's interest because the completion monies arrived after
1pm, the buyer was entitled to specific performance of the
contract.
A buyer in 2008
Alchemy Estates Limited v. Astor concerned a contract
for the sale of a leasehold house in Kensington, dated 15 January
2008 for a price of £1,265,525. The buyer paid a deposit of
£126,152.50.
The seller was entitled to purchase the freehold under the
Leasehold Reform Act 1967 provided they served the correct
enfranchisement notices on the Landlord. The sale was also
conditional on the landlord granting a Licence to Assign.
Completion due on the 13 March 2008. If three working days
before the completion date (or before a later date on which the
parties had agreed to complete the contract) no Licence to Assign
had been obtained, either party could rescind the contract by
notice to the other party.
The seller, having agreed the format of the enfranchisement
notice with the buyer, served the notice of the claim on the
landlord's solicitors. Unfortunately, neither the buyer's nor the
seller's solicitors applied for a Licence to Assign - each thought
the other was dealing with it and it only became apparent on the 6
March that it had not been dealt with.
Completion did not take place on the 13 March but by the 7 May
2008, the landlord's solicitors had issued an engrossment Licence
to Assign for signing by the buyer and seller. On the 19 May, the
buyer served notice of rescission stating that on the 19 May 2008,
the seller was not in a position to comply with the requirements
for the landlord's consent - i.e. that the Licence to Assign had
not been completed and therefore they had the right to rescind.
Unsurprisingly the notice was accompanied by an offer to buy at
reduced price of £1,072,296. On the 21 May 2008, the seller's
solicitors sent the buyer's solicitors the Licence to Assign
executed by the seller but on the 27 May, the seller's solicitors
returned the Licence to Assign, unsigned, saying that the matter
was not proceeding. On the 6 June 2008 the buyer's solicitors
requested the return of the deposit. The seller counterclaimed
maintaining there had been no effective rescission of the contract
and claiming specific performance.
The court ruled that the Buyer had no right to rescind because
between the 10 March and the 19 May it had not given any indication
that it did not intend to proceed. It had encouraged the seller to
take steps to obtain the landlord's consent to the assignment and
to serve the notice of enfranchisement at considerable expense to
the seller.
The Court ordered specific performance. As one of the reasons
the buyer gave for rescinding the contract and trying to buy at a
lower price was that funding arrangements had been called in for
review, it will be interesting to see whether or not the buyer
found the funds to complete the purchase.
Conclusion
These cases do reflect the changes in the market. Early in 2007,
a frustrated buyer considered it worthwhile to sue to enforce a
Contract to buy a freehold reversion for £120,000. By May 2008 a
buyer was struggling hard to get out of a commitment to buy a
property for £1,265,525 which by then he rated as only being worth
£1,072,296.
If there is any conditional element in a contract, it is always
worthwhile checking the small print to see if there are any get out
provisions should either party be regretting their earlier decision
to enter into a contract. However, the time limit for exercising
such rights is very limited.
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