Key points

  • Specific performance may not be awarded where it has become impossible to perform the contract
  • Accordingly, specific performance of a purchase contract may not be ordered against a buyer who does not have the funds to complete

A number of cases have come before the courts recently involving buyers who are unwilling or unable to complete off-plan purchase contracts, as a result of a fall in property prices. See, for example, McGahon v Crest Nicholson and Regency Flats Ltd v Boatport Ltd. The litigation often involves the buyer raising technical legal arguments as to why it is not contractually bound to complete. Although judgment has frequently been given in favour of the seller, the court does not usually go on to consider how that judgment will be enforced against the buyer.

Titanic Quarter Limited v Rowe is different from these other cases, because the buyer accepted that he was legally liable to complete the contract. The dispute centred on the remedy that the seller should have for the buyer's failure to complete.

Decision in Titanic Quarter Limited v Rowe

The seller sought specific performance. The buyer argued that this was not appropriate on the grounds that the contract had become impossible to perform.

Since contracts for the new flat were exchanged, the buyer had been made redundant, had sold his existing house for far less than it had been worth at the time he committed to buy the new property, and could no longer obtain a mortgage. The court noted that, ordinarily, hardship will not constitute a defence to a claim for specific performance. However, it ruled that it would be impossible for the buyer to purchase the flat in his current circumstances. On that basis it refused to order specific performance. The level of damages payable by the buyer for his failure to complete would be determined at a separate trial.

Things to consider

This case was decided in Northern Ireland, and is only a High Court decision. It cannot be said with certainty what an English court faced with similar facts would do. However, the decision will concern developers and sellers.

Such a dramatic change in circumstances may be more likely on the purchase of a new property off-plan than on the sale of an existing property, because of the length of time between exchange of contracts and completion. However, even in a case where exchange and completion are relatively close together, it is easy to imagine that, in a time of limited credit, a lending review carried out by a bank could suddenly mean that finance is withdrawn on little notice.

Yet, had the court awarded specific performance, it seems clear that the buyer would have been unable to comply, with the result that he would have been in contempt of court. Following this decision, the seller will retain its claim in damages against the buyer, although this may be of little practical value unless the buyer's numbers come up on the next lottery rollover. A hard call indeed.