Hold the Champagne corks until your property contract turns from exchanged to completed. Exchange of contracts is usually celebrated by everyone involved in a property transaction. It's widely considered as the time when the professionals involved can sit back, safe in the knowledge the transaction is secure. But in a downward turning market, people's circumstances can change; the withdrawal of funding, redundancy, a related transaction falling through. The effect is singular. The purchaser wants or needs to withdraw. The parties involved inevitably ask, "What can be done?" Dealing with the Unexpected An obvious initial step is to draw the purchaser's attention to the serious repercussions of withdrawal. In the short term, the purchaser's failure to complete the purchase will in the majority of cases result in forfeiture of the deposit. Although theoretically the courts can order the Vendor to return the deposit if it is fitting to do so (S.49(2) of the Law of Property Act 1925), in practice, they will only do so in exceptional circumstances, because the purchaser alone is at fault. In the longer term, the vendor may also seek to recover other losses from the purchaser. These are discussed below, and the risk of exposure to such claims should also be brought to the purchaser's attention. Cutting the Vendor's Losses If the purchaser still cannot or will not proceed with the purchase, the Property should be remarketed immediately at its current market value. The rationale for this is that the courts will expect the vendor to take immediate steps to minimise their losses. Provided that the vendor minimises his losses, any loss of profit involved in reselling the property at a lower price will potentially be recoverable from the purchaser. Recovering the Vendor's Losses Is the purchaser financially worth pursuing? If not, the best advice (for now) is to go no further. If however the purchaser is a financially viable target, the vendor should actively seek recovery of their losses from the purchaser through the civil court system. Generally, a vendor has two possible remedies against a purchaser who won't complete. The court will decide which remedy is more appropriate in the circumstances. Firstly, the court can order that the sale proceed. However, the court will not do so if the property has already been resold, and are unlikely do so if the purchaser is financially incapable of proceeding. Alternatively, the court can order the purchaser to pay adequate compensation to the vendor. Generally, the court's approach to compensation is that it should put the vendor in as nearly as may be the same position as they would have been if the sale had gone ahead as planned. The effect of this approach is that the vendor can expect to be compensated for any losses that were reasonably foreseeable as a result of the purchaser's withdrawal. If the property has been resold, the compensation will likely include at least a proportion of the legal and other professional costs connected with the court proceedings and resale, some or all of the adverse difference between the two sale prices and any interest payable under any related contract (e.g. a related property purchase). If the property hasn't been resold, the question of compensation may be deferred until the property is sold, or reasoned estimates for these losses made with the help of expert guidance. With the reduced availability of credit in the current market, it is inevitable that a small percentage of transactions will fail. Nevertheless, potential problems can be minimised if the financial status of prospective purchasers is vetted at an early stage –well before the parties involved exchange contracts and release the champagne corks. If you would like to talk to one of specialists to discuss the above in greater detail, simply call 01245 228111 and ask to speak to one of our experts.
Hold the Champagne corks until your property contract turns from exchanged to completed.