The benefit of Covid-19 clauses in conveyancing contracts

By March 2020, with cases of Covid-19 increasing exponentially, law firms realised that they were facing substantial disruption to residential property transactions. Just a few examples of problems cited at the time included:

• difficulty obtaining witnesses for documents;
• demands for properties to be decontaminated;
• difficulty obtaining physical surveys and valuations;
• sellers refusing to vacate if they were self-isolating;
• disruption to the banking system;
• removal firms reluctant to enter properties.

Many of these issues have the potential to delay the agreed completion date, with serious ramifications for all parties in the chain. With that in mind, since March, many firms, including our own, have advised clients on the prudence of incorporating into the conveyancing contract a specific clause to protect both a party unable to complete for Covid-19 reasons and, importantly, the chain.

Force Majeure

A force majeure clause in a contract alters the obligations or liabilities of one or all parties should an extraordinary event or circumstance beyond their control, prevent them from fulfilling their contractual obligations. In many cases by incorporating into the conveyancing contract a clause stating that a party’s failure to complete for a Covid-19-related reason shall be treated as a force majeure event, the chain can be saved if such an event does materialise. In the event that completion is delayed, such a clause should require the parties to keep channels of communication open with a view to agreeing a new completion date as soon as reasonably practicable.

Of course, such ‘Covid clauses’ only work if they are adopted by all parties in the chain. Certainly, our experience throughout lockdown, and during the early weeks thereafter, was that most parties and their solicitors were happy to incorporate them. After all, Covid-19 is no respecter of individuals and every party potentially stands to be protected from losses and inconvenience as a result of events that are beyond their control.

Market forces

On 8th July 2020, the Chancellor announced a Stamp Duty holiday until 31st March 2021. As widely predicted, this single move succeeded in jump-starting the housing market, which is now booming. According to the Halifax House Price Index, in July, the average UK house price was 1.6% higher than in June, and 3.8% higher than in July 2019; its highest since the Index began 37 years ago. An even greater increase is expected when the figures are published for August.

With the market now buoyant, and demand in some areas greatly outstripping supply, it has been noticeable that some parties are now adopting what might be regarded as a rather short-sighted approach, rejecting Covid-19 clauses on the basis that they perceive them as ‘encouraging’, or certainly not penalising, delayed completion.

As an alternative, some parties are suggesting exchanging contracts and completing simultaneously. While this pretty much guarantees that completion will not be delayed following exchange of contracts as it happens on the same day, it achieves nothing in terms of avoiding delay arising from Covid-19. Further, more generally this practice is fraught with risk, not least because not having a binding contract until completion day means that the other party can pull out on the day you were expecting to move home, resulting in considerable inconvenience and expense. Good examples are wasted removal costs, home insurance and the cost of returning funds to your mortgage provider.