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Residential Property specialist What happens if conveyancing completion is delayed?
A conveyancing chain can involve any number of parties – at least two, but possibly six or seven, or even more. And exchange of contracts only happens once everyone in the chain is ready to commit to proceeding. Exchange begins at the bottom of the chain, typically somebody without a related sale, such as a first-time buyer. Once they exchange, the process repeats successively up the chain, buyer to seller. The person at the top of the chain usually has a sale but no related purchase. Once exchange has happened, certain binding terms come into effect, including a date fixed for completion. But what happens if conveyancing completion is delayed?
Reasons for delayed completion
The first thing to stress is that delayed completion is very unusual. That’s because of the potentially grave financial consequences for a party unable to complete (see below). Nevertheless, it can and does happen. With multiple interlinked parties in the chain, each relies entirely on those above and below them to proceed. So, just one party can throw a spanner in the works for the entire chain. This might be because:
- funds were not received in time from a mortgage lender.
- a party was unable to action something connected with their sale or purchase within a timescale previously envisaged.
- a tenant refuses to move out of one of the properties in the chain, preventing the seller from providing vacant possession.
- an administrative error means that a removal van fails to turn up, preventing the seller from emptying the property and providing vacant possession.
Breach of contract
Whatever the reason, if you are unable to complete on the agreed date, you are in breach of contract with the parties immediately above and below you in the chain. The knock-on effect is that if either or both of those parties are, in turn, unable to proceed with their related sale or purchase (which is likely), they are also in breach of contract with their own buyer or seller. And on it goes along the chain.
What can be claimed and from whom?
You are only in breach of contract with somebody you have contracted with, i.e. your seller and buyer. However, if your failure to complete results in your seller (say, Mr A) being unable to complete their own purchase, Mr A is then in breach of contract with their seller (say, Ms B). Ms B’s right of redress (i.e. compensation) for her losses is (contractually) with Mr A. But as Mr A only finds himself in that position due to your default, he can pursue you:
- for his own reasonable losses, and
- for those losses demanded of him by Ms B.
Most conveyancing transactions use standard contractual terms and conditions. Under the standard contract, a seller can claim interest on the purchase price, less the deposit, at the rate specified in the contract until completion takes place. Using the example above, if the interest payable by you to Mr A is greater than the total of:
- his actual financial losses (eg hotel accommodation and storage costs); plus
- any claim against him by Ms B,
he can only claim the interest.
If the interest is less than the total of those items, he can claim the balance of those other items over and above the interest figure.
What is a notice to complete?
Interestingly, a party’s failure to complete does not create an automatic right for the other party to terminate the contract and walk away. Instead, the conditions of the standard contract allow the non-defaulting party to terminate the contract only where:
- the other party has failed to complete on the specified date; and
- “time is of the essence”.
The standard conditions make clear that time is only of the essence following the service of a “notice to complete”.
Before serving a notice to complete, the serving party must be ready, willing and able to complete. The notice provides a new completion date, often 10 working days beginning the day after service. Complying with that date now becomes a condition of the contract, and time is therefore of the essence. If either party fails to complete by the new date, the other is entitled to terminate the contract.
Practical considerations
However, before rushing to serve a notice to complete and/or pursue a claim for interest and losses, it’s advisable to take stock of the situation. Assess the reason for the default – and how quickly it can be rectified – and enter a constructive dialogue with the other parties to see whether a swift resolution is possible. After all, most delays are short, perhaps due to a delay in receiving funds from a mortgage lender. Accordingly, it’s highly likely that all parties still wish to complete as soon as possible.
Your position in the chain may affect your decision on how you proceed. The higher up the chain you are, the less any potential claim against you will be. A non-defaulting party at the top of the chain, without the risk of a claim against them, has the luxury of deciding whether or not to pursue a claim at all. Of course, it’s entirely different if you are a defaulting party at the bottom of the chain. In that case, you will likely wish to agree a swift settlement with the person immediately above you.
Ultimately, considering your objectives, your conveyancing solicitor will provide you with legal and practical guidance on the best way forward.