You’ve secured the buyer and matters have proceeded to solicitors. Contracts are exchanged and you breathe a sigh of relief believing that the sale is now confirmed. But what happens if the buyer refuses to complete and pay the balance of the purchase price? This is exactly what happened in the sale of Laughton Manor, as Lynsey Newman explains...
Briefly, Mr and Mrs Griffiths agreed to purchase Laughton Manor for £3.6 million in 2011. On the exchange of contracts the couple paid £150,000 of the 10% deposit and subsequently arranged for a survey which revealed evidence of damp and rot. Wanting a home in pristine condition and believing that the sellers, Mr and Mrs Hardy, must have been aware of the problems, they refused to complete the purchase of the property and requested the return of their deposit claiming that the sellers conduct allowed them to end the contract. Mr and Mrs Hardy disputed this, alleging that the buyers conduct in failing to complete the purchase allowed them to terminate the contract and claimed the balance of the 10% deposit in the sum of £210,000. Mr and Mrs Griffiths appealed the decision, but lost their legal fight at the Court of Appeal in April this year.
The argument therefore centred on what Mr and Mrs Hardy knew and said of the damp and rot problems. In a reply to Mr and Mrs Griffiths solicitor regarding any issues of damp or rot, Mr and Mrs Hardy answered that they weren’t aware of any problems but “as you will appreciate this is an old property and therefore this reply cannot be taken as a warranty as to condition”.
As with most legal problems, the starting point is to consider the terms of the contract. However, with the contract for the purchase of a property parties often follow a standard contract. The relevant terms of the Standard Conditions of Sale provide that:
- The buyer accepts the property in its physical state at the date of the contract. This means that the responsibility for discovering defects rests with the buyer.
- If the buyer refused to complete the purchase, the seller (after service of a notice to complete) can end the contract, retaining the deposit and re-selling the property. The seller is not precluded from bringing a claim for any further losses (for example if unable to sell the property at the same price or suffered claims by other parties in the chain). Alternatively the seller could bring a claim seeking an order that the buyer purchases the property. The seller could also seek damages for any further losses.
- If any plan or statement in the contract (or negotiations leading to it) was misleading or inaccurate due to an error or omission by the seller, the buyer has various options. If there is a material difference between the description or the value of the property the buyer is entitled to damages. If the error or omission in the contract was due to fraud, or would result in a property substantially different from that the buyer agreed to purchase, the contract can be terminated and the deposit claimed back.
Additional terms can be agreed and are referred to as special conditions. In this case there was a commonly seen, special condition which meant that the buyer was unable to rely on any statement other than from the seller’s solicitors in writing before the date of the contract.
The Court found that:
- The buyer was not entitled to terminate the contract as there was no evidence that the seller had been fraudulent or reckless in their response to the question regarding the knowledge of damp and rot.
- That the buyer was unable to rely on any other statements (only the written statements through the seller’s solicitor). This was a fair and reasonable clause being negotiated by parties of equal bargaining power and allowed for any questions to be put to the seller’s conveyancers.
- Given the above, the buyers were not entitled to terminate the contract and therefore by failing to complete the purchase the sellers were entitled to terminate the contract and not only retain the deposit but seek payment of the balance of the 10%.
This case serves as a timely reminder that the long established concept of “buyer beware” continues and that the penalty for failing to comply with a contract can be costly. Not only did Mr and Mrs Griffiths lose their deposit but they would have had substantial legal costs to pay also. In a case of this size where it would appear that the buyers have the funds to meet the sums being claimed, this may prove an adequate remedy. However, sellers may consider whether they are prepared to accept part of a deposit and therefore the potential need to have to bring a claim for the balance. They should also carefully consider their responses to enquires and the terms of the contract to ensure that there is a clear distinction between the responsibilities of the parties for giving and finding information about the property.
Sellers should still be careful about their responses to queries. In the case of Greenridge Luton One Ltd & Another v Kempton Investments Ltd the court found for the buyers where the sellers responded to a question regarding service charges stating that the dispute was “mainly historical issues” and the tenant “had recently raised further enquiries”. In this case the Court found that there was an ongoing service charge dispute and therefore the seller had been fraudulent.
Finally a word of caution for investors. The Consumer Protection from Unfair Trading Regulations 2008 prohibits a trader from engaging in any commercial practice that is considered unfair when dealing with a consumer. From 2014 the definition was amended to include “immovable property” and it’s considered that this could therefore affect those whose business is the selling or letting of property by imposing on them a greater burden to ensure that they are acting in a manner in accordance with honest market practice and good faith.
Lynsey Newman is Head of Property Litigation and a Partner at SA Law
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