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What happens if a buyer or seller drops out after exchanging contracts?

Posted on 01st May 2020 in Residential Property, Coronavirus Pandemic

Posted by

Nick Conner

Partner and Solicitor
What happens if a buyer or seller drops out after exchanging contracts?

Buying and selling your home can be both a complicated and lengthy process, with people often finding themselves in large property chains.

The longer the chain the more chance there is of someone pulling out before exchange, as your move will be dependant on many people and their personal factors. Usually, the shorter the chain, the safer your position is, so you should take steps to avoid a situation that may result in an individual pulling out of buying a house.


Why could someone pull out of buying a house?

Buying and selling property is dependent on many factors, but some of the most common reasons for a buyer to pull out of a house sale include;

  • The chain breaks
  • The buyer finds a new property
  • Their financial position changes
  • Issues found in the property searches or survey


Can someone pull out after contracts are exchanged?

Usually either party pulling out after exchange is extremely rare. At the point of exchange, both the buyer and seller are contractually committed to completing, so pulling out is a breach of contract and attracts financial penalties. If a buyer does pull out after exchanging contracts, you are within your rights to sue them for losses. 


Can completion be delayed?

Residential property contracts are governed by the Law Society’s standard conditions of sale. The standard conditions 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.


What is frustration of contract?

The parties to a contract may be relieved from completing it if 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.


Moving house


Can Covid effect completion?

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. However, the standard conditions of sale 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.

During lockdown the Government suggested the parties seek to agree a delay but did not offer any ‘get out’ in its guidance that would support a claim by either party, even if, for example, the seller or a member of its family in occupation had Covid at that point of completion.


Find out more

For further guidance on selling or buying your home contact a member of our skilled Residential Property Team.

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