In uncertain times it is hardly surprising that organisations may change their minds when they are already committed to buy or sell property. So what happens if for any reason a party decides not to go ahead?
Most commercial property contracts incorporate the Standard Commercial Property Conditions (SCPCs). These are an industry standard set of conditions that govern the sale/purchase of property including what happens if something changes between exchange and completion and the parties no longer want to, or cannot, go ahead. The parties are free to amend the SCPCs (or not incorporate them at all) but they provide a useful starting point for negotiations, and this article outlines the default position for the parties if the SCPCs (second edition) are incorporated in full.
Once the buyer and the seller have exchanged contracts, the seller is committed to sell and the buyer is committed to buy on the terms of the contract. It is at this point that the buyer will pay a deposit (usually 10% of the purchase price) to the seller. The contract will provide a date for completion (fixed or conditional) and the parties must complete on that date or face penalties. If the buyer fails to complete on the completion date, then the buyer must pay interest to the seller on the purchase price (less any deposit paid) until the date of actual completion.
A buyer will only be entitled to pull out of a contract where there has been ‘fault’ by the seller, such as where the seller has made a misleading statement that results in the buyer receiving a property that is materially different to what the seller offered. This would entitle the buyer to rescind the contract and get its deposit back. Obviously this does not help a buyer who decides that a purchase is no longer in its best interests.
If either party fails to complete on the contractual completion date, then the other party can serve a notice to complete on the defaulting party. This sets in motion a 10-day time period during which completion must happen. The consequence of failure to comply with a notice to complete depends on whether you are seller or buyer:
- Seller: If the seller fails to complete then the buyer may rescind the contract. If they do so, then the seller must repay the deposit.
- Buyer: If the buyer fails to complete then the seller may keep the deposit and any interest that has accrued on it and they can resell the property and claim damages from the buyer.
A standard property contract does not allow for a change of mind. The reason for this is that the exchange of contracts is designed to give everyone certainty that the sale/purchase will happen. A party can still pull out, but they will be subject to the sanctions above. It will, therefore, be a commercial decision as to whether the sanctions will outweigh the negative impact of completing.
Where there is uncertainty at the outset, for example where the transaction depends on planning permission being granted, or because of general uncertainty in the property market, then the parties can consider negotiating express terms in the contract to deal with this.
The moral of the story is to fully consider your reasons for selling or buying a property and whether those reasons will change in the near future. If you have any doubts, then engage with your surveyor and solicitor early on so that the deal agreed and the contract can be made to work best for your circumstances.