Those who enter into contracts to acquire property without having adequate finance in place beforehand do so at considerable risk. In the High Court case of Oakley & Ors v Harper McKay Developments Limited (Case Number: HC-2016-001207), a property developer forfeited its six-figure deposit after failing to complete the £2,225,000 purchase of an office block by the date agreed.
The developer wished to convert the offices into flats. Although it did not have any firm offer of finance in place, it contracted to complete the purchase by a particular date. After the developer encountered various difficulties, the vendors agreed to extend that deadline by one month. However, after that date came and went, they rescinded the contract and retained the developer’s 10 per cent deposit.
In ruling on the matter, the Court rejected the developer’s argument that the vendors had failed in their contractual duty to transfer to it, free of charge, all copyrights and other rights in plans and reports that had previously been prepared by chartered surveyors in respect of the property. On a true construction of the contract, the Court found that that obligation would only have arisen on completion.
The developer’s plea that the vendors had also breached the sale contract by failing to afford them reasonable access to the property for the purpose of commencing the conversion works also fell on stony ground. Even had there been such a failure, it had not caused or contributed to the collapse of the deal. In those circumstances, the Court found that the vendors had been ready, willing and able to complete the sale and granted declarations to the effect that they were entitled to rescind the contract.
The resounding message in this case is that it is never safe to proceed with exchange of contracts until your finance is confirmed i.e. that it will be available and the date that it will be available. Once you exchange contracts, you commit to complete your purchase on an agreed date (unless of course there is an agreement between the parties to extend that date). If the vendor is not willing to agree to extend the date for completion, and the buyer does not comply with its obligations under the contract, the buyer must pay compensation to the vendor under the terms of the contract. This could be both costly and stressful for all parties concerned.
To discuss a purchase or sale of commercial property, please feel free to contact Shilpa Unarkat on 0808 166 8860 for advice.
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