What are the risks if you exchange contracts now?

There are a number of factors that could potentially affect your ability to complete.  These include:

  • You/a member of your family or another person in the chain becoming ill and unable to move due to being hospitalised or in quarantine
  • It may be difficult to arrange removals or removal companies may have to cancel arrangements at the last minute if they do not have sufficient staff available to move you or a party in your chain. 
  • If you or a person in your chain becomes ill it may be necessary to arrange for the property to be deep cleaned before anybody is able to move into it
  • If you or a member of your chain’s employment circumstances change, this may affect your/their ability to secure mortgage funding
How do I reduce this risk?

In order to reduce your risk you may want to consider:

  • Exchanging and completing on the same day – this way if you or anyone in your chain are unable to complete, there is no contractual penalty
  • Splitting the chain – if you are in a chain, you could exchange and complete on your sale on one day, moving into temporary accommodation and exchanging and completing on your purchase on another day.  If you do not exchange on your sale and purchase at the same time and your purchase subsequently does not exchange, there is a risk that having completed the sale of your house you may have to stay in temporary accommodation longer than envisaged
  • Exchanging with a long stop completion date – agreeing a completion date in a number of weeks/months’ time, which can be brought forward at the agreement of all parties. This is really only practical for very short chains

If completion cannot go ahead for any reason there could be a level of understanding and flexibility that involves these issues, amongst all involved.  If not, the contractual provisions will stand.

What is the contractual position if completion does not take place on the contractual completion date?

The remedies available will depend upon the specific conditions of the contract negotiated for your transaction.  The standard remedies available in most cases will be as follows:

If you are the buyer and you cannot complete:

  • You will be liable to pay interest on the outstanding balance (the purchase price less any deposit paid on exchange) for every day that you are unable to complete.  Interest will continue to accrue until you are in a position to complete
  • Your seller will be entitled (at their discretion) to serve a notice to complete upon you, which would give you 10 working days from service of the notice, in which to complete. Please note, once notice has been served, regardless of whichever party serves it, both parties must be able to complete on the new completion date, if you are ready, but your seller is then not, they will be in default and you will have the remedies below available to them
  • If you have not been able to complete within 10 working days, your seller would be entitled to end the contract and retain the deposit you paid on exchange (and would have the ability to claim against you for any difference to make the deposit up to 10% of the purchase price, if a full 10% deposit was not paid on exchange).  Your seller would also have a claim for daily interest up to that point
  • Your seller may be able to sue you for damages relating to the sale (which could include removal costs, temporary accommodation costs etc.) and loss on any subsequent re-sale of the property to a third party if the market value of the property has decreased
  • Your seller would then be able to sell the property to another party

If you are the seller and you cannot complete:

  • Your buyer will be entitled (at their discretion) to serve a notice to complete upon you, which would give you 10 working days from service of the notice, in which to complete
  • Your buyer would also be entitled to apply to register a unilateral notice against the title to your property advising anybody dealing with your property that you had entered into a sale agreement
  • Your buyer can request the return of their deposit paid on exchange
  • Your buyer would have the ability to apply to Court for an order for specific performance, ordering you to sell the property, this can be extremely costly as you could be responsible for the legal and other fees associated with this  

If you are the buyer and your seller/someone in the chain cannot complete:

  • You will be entitled (at your discretion) to serve a notice to complete upon your seller, which would give them 10 working days from service of the notice in which to complete
  • You will be entitled to apply to register a unilateral notice against the title to the property you are buying advising anybody dealing with the property that you had entered into a sale agreement
  • You will have the option to apply to Court for an order for specific performance, ordering you to sell the property. Any Court applications can be costly and time consuming
  • You can request the return of your deposit.  Sometimes it can be difficult, for example if you are purchasing a new build property and the deposit has been released to the developer

If you are the seller and your buyer/someone in the chain cannot complete:

  • Your buyer will be liable to pay interest for every day that they cannot complete
  • You will be entitled (at your discretion) to serve a notice to complete upon your buyer, which would give them 10 working days from service of the notice, in which to complete. Please note, once notice has been served, regardless of whichever party serves it, both parties must be able to complete on the new completion date.  If your buyer is then ready, but you are not, you will be in default and your buyer will have the remedies above available to them
  • If you have not been able to complete within 10 working days, you would be entitled to end the contract and retain the deposit your buyer paid on exchange (and you would have the ability to claim against you for any difference to make the deposit up to 10% of the purchase price, if a full 10% deposit was not paid on exchange).  You would also have a claim for daily interest up to that point
  • You may also be able to sue your buyer for damages relating to the sale (which could include removal costs, temporary accommodation costs etc.) and loss on any subsequent re-sale of the property to a third party if the market value of the property has decreased
  • You would then be able to sell the property to another party

If you are in a chain:

  • If your transaction is in a chain and there are a number of people unable to move because you or a member of your chain is unable to complete, the costs can potentially be significant.  Even if you are not the defaulting party, the member of the chain that you have a contract with will seek to enforce the contract against you, you will then need to take subsequent action against the next party in the chain, and so on

This note is for general information and guidance and is not legal advice. Should any of these issues arise, we will discuss with you in the context of the particular circumstances of your transaction. 

For more information please contact the TSP Residential Property team on 01206 574431 or by email at info@tsplegal.com.