A recent High Court decision (Cantt Pak Limited v Pak Southern China Property Investment Limited [2018] EWHC 2564 (Ch)) has fired a warning to buyers to ensure they’re in funds in the lead-up to completion, regardless of the seller’s perceived position.

Background

The claimant (seller) was the owner of 3.34 acres of land known as Hillbit House (“Property”). The seller entered into a contract for sale of the Property with the Defendant (buyer). The key provisions of the contract were as follows:

• The Standard Commercial Property Conditions (“SCPCs”) were incorporated into the contract

• Purchase price: £1.2 million

• 10% deposit payable on exchange of contracts

• Completion set for 30 June 2016

• The Property would be sold with vacant possession at completion.

It was agreed that completion would be delayed until 1 December 2016.

The buyer and the seller subsequently had a disagreement on how the transaction should proceed. The buyer wanted the seller to provide vacant possession before completion, to satisfy the buyer’s lender. The seller insisted on having confirmation funds in place before it took steps (and incurred costs) in obtaining vacant possession of the Property.

Pursuant to the contract, via incorporation of the SCPCs, the seller served a notice to complete on the buyer. The SCPCs provide that a notice to complete can be served at any time on or after the completion date, by a party who is ready, able and willing to complete. The server being “ready, willing and able” to complete is very important, because if a party serves a notice to complete when they are not ready, willing and able, this is a repudiatory breach of contract, for which the other parry may terminate the agreement.

When served by the seller, a valid notice to complete requires the buyer to complete within 10 working days of the notice. Time is of the essence following service of a notice to complete.

In this case, the seller served a notice to complete, but completion did not take place within 10 working days of it being served. Accordingly, the seller served a notice of rescission of the contract on the buyer, terminating the agreement under the SCPCs.

The dispute

The main issue in the case was whether the seller’s purported rescission (by way of the notice to complete and then notice of rescission) was an effective means to terminate the contract. The key considerations for the court were:

• Whether the notice to complete was valid

• Whether the seller was in repudiatory breach of the contract itself at the time of the notice to complete (and whether the seller could serve a notice to complete, in that case).

Validity of the seller’s notice to complete

The crux of the buyer’s argument was that the seller was not ready, willing and able to complete when it served the notice, and so the notice was invalid. The basis of the buyer’s argument was the fact that the seller had not provided vacant possession of the Property, as it was still populated with workers at the time of the notice.

The reality of the situation was that those who occupied the premises worked under the knowledge they may be required to vacate the Property on short notice, whilst any items of equipment could also be moved on demand. Fourteen witnesses attested to these facts.

As a result, the judge concluded that at the time the notice was served, the seller was able to give vacant possession on or before the completion date. As such, the notice to complete was valid and time was of the essence. The judge alluded to the fact the only thing preventing completion was the buyer’s own financial situation, not the fact that the Property was occupied.

Potential repudiatory breach by the seller

The court also considered whether the seller failing to take steps during the period after serving the notice to complete to remove both occupants and chattels from the Property amounted to a repudiatory breach of the contract.

The court concluded that the seller failing to obtain vacant possession of the Property did amount to a repudiatory breach. The judge noted the buyer had two options in this instance: to accept the breach and discharge himself from the contract, or to disregard the breach and continue with the contract.

As the buyer did not take any positive steps to bring the contract to an end, the contract was kept alive. As the contract was kept alive, the buyer then committed a repudiatory breach of contract itself, by failing to complete in accordance with the seller’s notice. As such, the judge found that the seller was duly entitled to accept this repudiation by the buyer and serve an effective notice of rescission.

Conclusion

Context and timing were key in this case. The buyer was not able to mask its own financial situation by claiming the seller was not ready, able and willing to complete and, in any event, the reality of the situation ensured the seller could provide vacant possession on demand. Meanwhile, the buyer could have avoided the entire situation, had they taken steps at the correct time to address the seller’s initial repudiatory breach (failing to provide vacant possession).

It’s important that parties are aware of their position and any potential breaches of contract throughout a transaction. If breaches are simply left, the party that isn’t in breach cannot necessarily “save” that breach for later, in case it decides to do something about it then.