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I have exchanged contracts on my sale/purchase, but the other party wants to call a halt because of Covid-19. What happens?

Posted on 01st May 2020 in Residential Property

Posted by

Nick Conner

Partner and Solicitor
I have exchanged contracts on my sale/purchase, but the other party wants to call a halt because of Covid-19. What happens?

Residential property contracts will be governed by the Law Society’s standard conditions of sale. These conditions do not include any provisions to expressly cover the event of a pandemic or epidemic, or otherwise the death or serious illness of a party.

Therefore under the terms of the contract, it is highly likely that both parties remain liable to complete the contract. We have explored some of the issues around this below.

 

Delay completion

The standard conditions do contain provisions addressing a situation where either party fails to complete on the agreed completion date. If a party desired, it could delay completion but in doing so, that party would be liable to pay a prescribed rate of interest to the other party for the period of delay. Also, once a party delays completion, the other party can serve notice requiring the contract to be completed within 10 working days of the notice being given. If completion still does not happen within that timeframe, the affected party will have a right to damages for any losses suffered. If it is the buyer that has failed to complete, the seller can keep the 10% deposit, and if the deposit paid on exchange was less than 10%, the seller can sue the buyer for the difference.

 

Frustration

The parties to a contract may be relieved from completing it where something happens after the date of exchange which makes it physically or commercially impossible to do so. Frustration has the effect of absolving both parties from any further compliance with the contract.  However it does not unwind what has already been done.  It is not easy to prove that a contract has been frustrated. The burden to demonstrate it is high and rests with the person making the argument, and the impossibility of proceeding must not be due to any fault of theirs. There is no certainty that a court would decide that Covid-19 had made completion impossible, and much may depend on the circumstances of the case rather than any blanket rule.

 

What guidance has the Government provided?

Where contracts have been exchanged, the Government suggests the parties seek to agree a delay at this present time. If both parties cannot reach agreement on a delay, those involved in the move should endeavour to adhere to the social distancing measures when completing. In short: the Government does not offer any ‘get out’ in its guidance that would support a claim by either party for frustration.

Even if, for example, the seller or a member of its family in occupation has Covid-19 at the point of completion, the Government guidance is only that such persons should follow medical guidance (which will mean not moving house for the time being) “if at all possible”.  If the buyer is happy to accept the risk and move into the house which the seller has been occupying, the seller must legally complete. Therefore it would not be “not at all possible” for the seller to follow medical guidance in that situation, subject of course to the seller’s own future accommodation plans.

 

What practical steps should I take?

If contracts have been exchanged and you have concerns about completing, speak with your solicitor to see if they can negotiate a delay with the other side. If that is not possible, then you will have to complete unless you have the financial stability to walk away from the contract and absorb being sued for the losses of the other party.

 

For further guidance on selling or buying a home during the Coronoavirus pandemic visit our support hub, or contact a member of our skilled Residential Property Team.

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