Key points

  • Events which occur after a property sale/purchase contract has been breached may be taken into account.
  • Therefore, where the property market had fallen, the buyer (as the party who failed to complete) was found liable to the sellers for the reduced value of the property

Background

When it comes to calculating an award of damages for breach of contract, the general rule is that damages will be assessed as at the date of the breach. However, when the breach relates to a contract for the sale/purchase of land, that general rule will usually be displaced. This is because there will not normally be an immediate replacement for the defaulting party - whether the seller or the buyer - nor an immediately available replacement property. That is to say, there is no immediately available alternative market as at the date of breach.

For example, if a seller agrees to sell a watch, and a buyer agrees to buy it, but then changes its mind, the seller would hopefully be able to sell it immediately (even on the same day) to an alternative buyer. The sale and purchase of land does not happen within this sort of time frame.

In Hooper v Oates [2013] EWCA Civ 91, the Court of Appeal had to consider what level of damages to award to the sellers of a property who - after the originally-contracted buyer had failed to complete - still could not sell their house, despite another 14 months of marketing and a reduction in the proposed sale price of £120,000.

The case concerned a freehold property in Northwich, Cheshire. The Hoopers put it on the market in June 2007 at £625,000. Mr Oates made an asking price offer soon after that, although contracts were subsequently exchanged (in February 2008) at £605,000. The sellers had already relocated to Dorset, and were therefore keen to sell: not only was the property now standing vacant, they were still paying for the £500,000 mortgage secured against it, which they wanted to pay off.

Mr Oates failed to complete on the contractual completion date of 30 June 2008. The sellers' solicitor served a notice to complete, stating a new completion date of 14 July 2008 and making time of the essence under the contract. This meant that, if the buyer did not complete the purchase on this second completion date, the sellers would be able to repudiate the contract. Mr Oates did indeed fail to complete on this second date, meaning that the contract was now treated as being at an end.

The Hoopers put the property back on the market at a reduced price of £485,000 which was later reduced to £450,000. No replacement buyer was found. In October 2009, the sellers rented the property out in order to have some kind of value from it. The tenants stayed for year or so, following which the property was placed back on the market again (by now, it was March 2011). After a few more months of unsuccessful marketing, the sellers gave up and moved back to Cheshire in order to live at the property for which they were still paying.

At an earlier trial, Mr Oates had been found to be liable to the sellers for breach of contract. He was ordered to pay over the balancing part of the deposit (only a reduced deposit had been taken at exchange of contracts) and told that damages would also be payable. The case before the Court of Appeal now was Mr Oates' appeal from the second trial relating to the amount of those damages. A valuation had been carried out at the Court's request in September 2010 which put the property at £495,000. It was agreed that the price of the property had not changed since then.

No arguments were raised as to mitigation, remoteness of damage or forseeability of loss. The only question was whether the damages should be assessed at the breach date of July 2008 or the later valuation date of September 2010.

The decision

The Court of Appeal noted the normal rule that damages will be assessed as at the date of the breach. However, it went on to say that this is not a rule to be "slavishly followed" and that there are exceptions to it.

Breach of a contract for the sale of land is one such exception, due to the fact that a failed land transaction cannot normally be immediately replaced with another party or property. Land transactions take time, and therefore it should be a later date that is taken as the date for assessing damages.

The sellers were therefore entitled to £110,000 in damages - being the difference between the contract price of £605,000 and the later valuation of £495,000. The sellers had already had the benefit of the 10% deposit (£60,500) which they were entitled to retain on Mr Oates' failure to complete on the contract. Therefore, they were awarded the balancing £49,500 plus their costs. Mr Oates had to pay the price for not adhering to his contractual promise.

Things to consider

If a party to a contract fails to complete (whether reluctantly or intentionally) they will usually find themselves liable to a claim in damages. If the contract relates to land, it is likely that there will be no immediately available substitute market. In which case, those damages will be calculated as at a later date rather than as at the date of the breach. This means that post-breach events will be able to be taken into account.

Hooper v Oates took place against the backdrop of a falling market. It is unlikely that there would be a "mirroring" piece of litigation in a rising market: the deposit alone will often suffice to cover the wasted costs of an innocent seller in such a situation.