What can a seller do if a buyer fails to complete a purchase?

What is a Notice to Complete?

A Notice to Complete is essentially a formal document used in real estate transactions.

It's a legal tool that comes into play when either the buyer or the seller is not ready to finalise the transaction by the agreed-upon date.

Think of it as a gentle nudge or a more assertive push, depending on the circumstances, to ensure that the deal closes on time.

How does it work?

The process is straightforward. If one party (let's say the buyer) is not ready to complete the purchase by the set date, the seller can issue a Notice to Complete.

This notice is a formal declaration that the seller is ready and willing to conclude the deal and is waiting on the buyer to fulfil their obligations.

The legal implications

Issuing a Notice to Complete isn't just a friendly reminder. It has legal weight and is typically issued by the seller's legal representative.

For commercial transactions, the standard conditions, which are often included by default, stipulate that the buyer must finalise the purchase within ten working days of receiving this notice. This action makes the completion time critical.

In residential transactions, the seller may gain the right to increase the deposit to 10% of the property's price. So, if the initial deposit is 5%, the buyer would be required to add an additional 5% upon receipt of the notice. If the buyer still does not complete the purchase, the seller has the right to terminate the contract and retain the deposit and any accumulated interest.

As a seller, it's crucial to grasp the scenarios where a buyer can rightfully claim a deposit refund. This understanding not only streamlines the transaction process but also optimises your position in property dealings.

Invalid notice

A buyer could argue the invalidity of the notice to complete, perhaps due to incorrect drafting or service, or if the seller wasn't genuinely ready to finalise the sale.

Recent legal standards differentiate between immediate readiness and being prepared subject to minor administrative details.

An invalid notice means the contract's termination by the seller was incorrect, entitling the buyer to their deposit back.

Legal recourse

Under section 49(2) of the Law of Property Act 1925, a buyer can seek the court's intervention for the deposit's return.

This law is immutable, meaning you can't contract out of it. Although cases are sparse, the prevailing thought is that there must be extraordinary circumstances to override the standard contract expectation that a defaulting buyer loses the deposit. This holds true even if the seller resells at a higher price.

For buyers, it's essential to understand the conditions under which your deposit can be reclaimed, either due to invalid notice to complete or through court intervention.

Sellers, on the other hand, should be cautious when issuing a notice to complete, understanding the potential risks involved.

Deposits exceeding 10% are at risk of being viewed as a penalty by the court, necessitating full reimbursement to the buyer. Even a payment by instalments is treated as payment of a larger deposit and will not get round the penalty point.

When a property sale falls through, sellers have several options to manage the situation effectively. Understanding these options can help sellers navigate the process with more confidence and clarity.

Before taking any action, consult with a solicitor specialising in property law. They can provide tailored advice based on your situation and ensure that any steps you take are legally sound.

1. Forfeiting the deposit and seeking damages

• Claiming the deposit: sellers can retain the buyer's deposit as compensation for the failed transaction
• Suing for additional damages: sellers have the right to sue for further losses, such as the difference in sale price if the property is subsequently sold for less and any additional costs incurred
• Avoiding double recovery: it's important to note that the deposit amount is considered when calculating total damages, ensuring the seller doesn't recover the loss twice

2. Issuing a Notice to Complete

• Importance of timely action: if the seller decides to rescind the contract and keep the deposit, issuing a timely notice to complete is crucial
• Avoiding waivers: post-notice delays or ongoing negotiations with the buyer can be interpreted as a waiver of the notice, potentially complicating the situation

3. Rescinding the contract

• Alternative to legal action: instead of pursuing legal remedies, a seller might choose to rescind the contract
• Engaging in negotiations: after rescinding, sellers can enter into 'without prejudice' discussions with the buyer to find a mutually agreeable solution

4. Seeking specific performance

• Court orders for completion: in cases where the buyer has sufficient funds, sellers can apply for a court order compelling the buyer to complete the purchase
• Damages for delay: buyers may also be liable for damages if their delay in completing the purchase causes financial loss to the seller

5. Considering the economic context

• Likelihood of forfeited deposits: given the current economic climate, where buyers often default due to lack of funds, forfeiting deposits is more common than pursuing specific performance

Either way, it is important to consider the situation carefully before deciding how to proceed when a buyer does not complete. The temptation is to act quickly but it could backfire and let the buyer off the hook.

In the present climate, a buyer may even be prepared to risk losing their deposit to get out of the purchase as the deposit may be a smaller sum to lose than the reduction in value of the property since exchange due to the falling market.