It is well known that both parties in a property transaction spend a lot of time and costs in the lead up to a sale or purchase. In most cases, until contracts have been exchanged, either party can back out without incurring financial damages from the other unless the transaction is past the point of exchanging contacts.
What is not often understood is that even an agreed completion date is not the end of the story. Unless the contract says otherwise, failure by one side to complete on the agreed date doesn’t allow the other to terminate the contract, only to claim damages. This is because, which some might find surprising, the completion date is not a fundamental term of the contract.
Clearly, however, if you are the ‘innocent’ party and you want the other party to complete, you may need to do something to force them to do so. This is where the notice to complete comes in.
The notice to complete provisions in a property contract is not often relied upon, but in these circumstances, they become important provisions.
What is a notice to complete?
A notice to complete is a formal notice served on a party that failed to complete the transaction on the date agreed in the contract.
The notice specifies a further date for completion (usually the contact will require that this is at least 10 working days away) and notifies the recipient that time is of the essence of that date.
Notice is served on the defaulting party or (if the contract allows) their conveyancer.
So, why is the notice to complete so important?
Once notice is served, and time becomes ‘of the essence’, failure by the defaulting party to complete on the date in the notice will be a fundamental breach of the contract and will entitle the innocent party to terminate it.
If that happens, the innocent party (if a seller) will be able to keep the deposit the buyer has paid, in addition to being able to pursue any other damages over and above that value, it can prove. If the innocent party is buying the property, the seller must return the deposit with accrued interest, and, again, the buyer can pursue any other damages it may have suffered.
Of course, most people would not sign a contract unless they were sure they could complete, but there may be occasions when they might be tempted to do so. The consequences of failing to complete after receiving a notice to complete, however, are significant (particularly for a buyer) and should persuade most to decide against it.
If you find yourself in a dispute over property or a transaction has gone wrong, our commercial disputes team are on hand to advise you.