With a lockdown now in place, there is increasing concern with regard to the potential impact on residential conveyancing in the months ahead. As legal principles such as force majeure and frustration are unlikely to apply to residential transactions, the market must look to alternative solutions to protect both sellers and purchasers.
With the state of play changing on an almost daily basis, the true impact on the residential market remains largely unknown. However, a number of initial issues have been raised, including the risk of possible disruption to parts of the banking systems (such as CHAPS), the complications of having to complete on original signed documents when offices are closed and the inability to access properties to carry out necessary mortgage valuations and surveys.
As the days have rolled on, this has led to estate agents closing, prohibiting viewings and new guidance from the Government, suggesting that most transactions should not go ahead, even when contracts have been exchanged.
Furthermore, with most of the country’s biggest house builders now in lockdown it seems likely that this global pandemic will also thwart the short-term plans to provide more new build homes.
For those purchasers who have already exchanged contracts with house builders, it is possible that developers may now refuse to complete the build or delay it, resulting in first time buyers being stuck in rental accommodation for longer than anticipated and incurring additional expense as a result. Use of long-stop dates in newbuild contracts has been common since the last property crash, but without knowledge as to how long we will be in lockdown, it is difficult to see the final impact this will have on completions.
As we move into this unprecedented period of change it is vital that all parties have a thorough understanding of who stands to bear the risk in the various situations that may emerge. As a rule, if exchange has already taken place and either party is then unable to complete, this is classed as a breach of the contract.
Under these circumstances, the party that can complete will then serve a 10-working day notice period, during which time interest accrues on the purchase price against the party that has caused the delay. At this point, the defaulting person also becomes liable for any expenses incurred by the other party at this time due to the failed completion.
The Law Society, in conjunction with others, has issued advice to suggest lawyers approach these difficulties with common sense and to vary contracts to allow for delay, wherever possible.
Looking ahead to the next few months, it is inevitable that the majority of transactions will be affected by the implications of COVID-19 and while there is no ‘one size fits all’ solution to this situation, there are a number of options available to lessen the risk.
If a common sense approach is not taken then, unfortunately, should completion not take place following the exchange of contracts due to ill health or the wider implications of COVID-19, the parties who are unable to complete will still be in default. This lack of flexibility within the law makes it very difficult to ’do the right thing’ in difficult times.
Yet one option in this situation is for the non-defaulting party to take a ‘good faith’ view (requiring parties to not take advantage or make an issue of minor errors, as long as the errors don’t obstruct the object of the contract). However, if the transaction forms part of a larger chain, where more than one buyer and seller is involved this may not be a viable option and a delay would be sensible.
On the other hand, in scenarios where contracts are yet to be exchanged, it may be advisable for parties to agree to the inclusion of a clause which allows for a delay should COVID-19 make completion impossible in the short term. It is important to consider other potential knock-on impacts of delays, such as the expiry of mortgage offers or searches becoming out of date, in order to ensure that the buyer is still able to complete.
In such uncertain times it is vital that all parties act with courtesy and fairness where possible. By reviewing each position on a case-by-case basis, keeping long-term considerations in mind and acting sensibly, it should be possible to sustain housing chains to enable people to complete when it is safe to do so.
By Louise Drew, head of real estate, law firm, Shakespeare Martineau.