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Apart from problems associated with sloppy conveyancing like ambiguity - failure to register the transaction timeously – other problems may arise. However most conveyancing transactions proceed smoothly to completion without any dispute between the seller and the buyer. This does not mean that problems cannot arise between exchange of contract and completion.
A clever attorney will know how to deal with any problems arising. In this age of fast business transactions, delay no doubt is the most common reason in practice for things going wrong – usually because the buyer cannot raise the finance in time. In this age of secured credit transactions, most buyers will have to borrow the finance from a leading institution and where there is inordinate delay, the seller may be unwilling to wait for the buyer to sort out his financial circumstances.
Hence a diligent lawyer should always advise his client strongly against exchanging contracts without already having a firm mortgage offer. The critical point in time in any conveyancing transaction is the point in time of the exchange of contract. See Eccles v. Bryant
Until the exchange of contract, it can be said that the parties are still negotiating and any party can withdraw prior to the exchange of contract. Other problems to watch out include defect in title. This is a serious possibility in any real property transaction. Where there is a defect in the seller’s title, the buyer is entitled to rescind or repudiate the transaction. The seller’s contractural obligation is to show good title free from irremovable encumbrances of which the buyer was not aware when making the contract.
Thus, if the title turns out to be defective or encumbered (i.e. where there is a mortgage which the seller cannot pay off and which exceeds the sale price or undisclosed restrictive covenants etc.) the buyer as previously mentioned can repudiate the contract forthwith. Repudiation in the above context means to withdraw from the contract. However, where there is undue delay, any of the parties can serve on the other party a completion notice. A completion notice states that the person serving it is ready, willing and able to complete.
Note that after repudiating the contract, the buyer can rescind in the sense of restoration of the status quo ante (i.e. back to the position he would have been in) and claim return of the deposit, plus wasted costs for investigating title. Alternatively, the buyer can claim damages for breach of contract. These are generally assessed on the principle of Hadley v. Batendale, which allows damages in the reasonable or actual contemplation of the parties at the time when the contract was made. In the absence of any specifically known circumstances, this means the difference between the contract price and the market value at the date of the breach. Therefore there is no point in seeking damages for loss of bargain unless the value of the property has increased in the meantime. Note further that specific performance is as unsuitable a remedy as serving a completion notice to make time of the essence.
As for delay, if for instance the seller is guilty of outright delay, e.g. his new house is not yet ready and he doesn’t want to move, the buyer’s remedies are somewhat different. In the first place, as time is not of essence, the contract does not automatically come to an end by the seller’s failure to move out on the contractual completion date. The buyer, however, is entitled to compensation based on interest calculated at the contract rate on the whole of the purchase money. Note that at common law, the buyer is also entitled to damages for any additional expenses to which he is put e.g. putting furniture into storage, temporary hotel accommodation. See Raineir v. Miles
However, the buyer can make time of the essence by serving a completion notice which must state with succinct clarity that he is ready, able and willing to complete. The notice requires completion to take place within two working days of giving the notice, excluding the day on which the notice is given. Time is then of the essence.
In the above circumstances if the seller fails to comply with the completion notice, the buyer can treat the contract as having been repudiated by the seller’s breach – i.e. choose to rescind the contract. He can then either seek rescission in the sense of the restoration of the status quo return of his deposit; plus wasted cost of investigation title or, seek damages for loss of bargain.
An alternative remedy is to commence an action for specific performance (i.e. request the court to order the seller to fulfill his obligation under the contract. Thus can be done at any time after it becomes clear that the seller will not be completing on the agreed date. It is not necessary first to serve a completion notice. However as completion notice is easier and cheaper to serve than commencing an action at court, it is normally the first course of action.
Also an alternative problem is for the buyer to be slow to complete:
Here – Seller becomes entitled immediately to interest at the contract rate on the outstanding balance until completion actually takes place and Seller can serve his own completion notice giving 10 days and making time of the essence, following which he can rescind as above. Here, however his is sitting on the deposit, which he is entitled to forfeit regardless of his loss. Alternatively, he can seek damages for loss of bargain. He must, however, in this case give credit for any deposit forfeited.
As the seller has the cushion of a deposit, it is not worth his while seeking damages for loss of bargain unless there has been a really substantial diminution of the value of the property since contracts were exchanged. Note also other problems like misrepresentation.
I have actually assisted a client who was a victim of misrepresentation in recovering substantial amount of funds representing her deposit. Surprisingly her attorneys refused/or were unwilling to assist her in recovering her funds from the seller’s attorney’s. Circumstances where misrepresentation can occur are legion. However, the position is trite beyond cavil that if a misrepresentation of fact has been made inducing the contract, the buyer has remedies under the Misrepresentation Act 1967.
However, note that if the representation was made innocently, the buyer’s entitlement is to seek rescission, and if made negligently to seek both rescission and damages. A representation is negligent unless the person making it can prove that he had reasonable grounds for believing in its truth.
Other problems include breach of qualified trusteeship. On exchange of contracts, the seller becomes a qualified trustee for the buyer; as beneficial interest passes to the buyer an exchange. This means that the seller must take reasonably prudent steps to look after the property on behalf of the buyer’s. Thus he must not damage the property himself or allow others to damage the property where he is in a position to prevent it. There is a plethora of judicial authorities on this point where the seller has been held liable where –
l A mysterious stranger removed loads of topsoil from the subject’s property
Where the seller removed an item in the property that substantially formed part of the property
l The seller re-lets the property between exchange of contract and completion without consulting the buyer, thus depriving of the chance of getting the property with full vacant possession
The seller resold at a higher price in breach of contract. Apart from the obvious liability in damages, he was also held to be trustee for the first buyer of the difference between the two prices. Note however that the seller cannot reasonably be held responsible for damage caused by vandals when the house is left empty.
Note also that problems can arise in respect of Insurance claims – e.g. questions may arise as to who has the right to claim on any insurance policy in respect of damage caused between exchange and completion, though it would seem as if the seller retains risk, and will transfer the property in the same physical state as it was at the date of the contract (apart from fair wear and tear). If in the meantime the property becomes insurable for its purpose the buyer can rescind the contract. There is however no obligation on the seller to insure the property. Note that subject to the above rule is that the risk passed to the purchaser on exchange and so the purchaser must insure.
Finally death may also be a problem in real property conveyancing. The death of either the seller or the buyer after the exchange of contract does not bring the contract to an end. In both cases it remains enforceable against the PRs of the deceased. However, there may be delay in proceeding, as the PRs will need time to obtain a grant of representation, without which no legal title can be passed. If the other party is not prepared to wait, he or she may choose to serve a completion notice, in which case the PRs are in a race against time.
The PRs of a deceased buyer may also have difficulty in raising any necessary mortgage finance. The ultimate responsibility for funding the balance of the purchase price is on the person entitled under the will or intestacy of the deceased buyer. |
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