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There can be any number of parties involved in your conveyancing chain. There will, of course, be at least two, but it is not uncommon to find six or seven, or even more. Only once each and every party is ready to commit to proceed, will contracts be exchanged.
Exchange of contracts begins at the bottom of the chain (typically somebody without a related sale such as a first-time buyer) and proceeds successively upwards, buyer to seller. The person at the top of the chain will have a sale but no related purchase. Once exchange has taken place, certain binding terms come into effect, including a date fixed for completion.
So why might completion be delayed?
The first thing to stress is that it is very unusual for completion to be delayed beyond the contractually agreed date. That is because of the potentially grave financial consequences for a party who is unable to complete (see below). Nevertheless, it can and does happen. With multiple interlinked parties in the chain, each one relying upon the party above and below them in order to proceed, any one of them 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 will be 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 will themselves be in breach of contact with their own buyer or seller. And so it goes on along the chain.
What can be claimed and from whom?
You can only be in breach of contract with somebody you have entered into a contact with; ie your seller and buyer. However, if your failure to complete has resulted in your seller (say, Mr A) in turn being unable to complete on their own purchase, Mr A will be in breach of contract with their own seller (say, Ms B). Ms B’s right of redress (ie compensation) for her losses is (contractually) with Mr A. But as Mr A only finds himself in that position as a result of your default, he is entitled to pursue you, not only for his own reasonable losses, but also for those demanded of him by Ms B.
Most conveyancing transactions use standard contractual terms and conditions. Under the standard contract, a seller is entitled to 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 is entitled to claim the balance of those other items over and above the interest figure.
What is a notice to complete?
It may seem strange, but a party’s failure to complete on the agreed date does not give rise to an automatic right for the other party to terminate the contract and walk away without completing. Rather, 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 will not be of the essence until a “notice to complete” is served.
Before serving a notice to complete, it is crucial that the serving party is ready, willing and able to complete. The notice will provide a new completion date, often 10 working days beginning the day after the notice is served. 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 will be entitled to terminate the contract.
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 can be agreed. After all, most delays are short, perhaps due to a delay in receiving funds from a mortgage lender, and it’s highly likely that all parties will still wish to complete as soon as possible.
Your position in the chain may affect your decision on how to 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, will have the luxury of deciding whether or not to pursue a claim at all. Of course, it will be a different matter entirely 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, taking into account your objectives, your conveyancing solicitor will be available to provide you with both legal and practical guidance on the best way forward.