Standard Commercial Property Conditions Sale 2nd Edition
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This article was first published in Estates Gazette on 27 February 2016 and is reproduced with permission. Naomi Campbell examines the role of notices to complete in property transactions and discusses how they should and should not be deployed against a party in breach of its contractual obligations. In most contractual disputes, where one party is in breach of its obligations under the contract, the “innocent” party will wish to claim damages for the loss it has suffered as a result of the “guilty” party’s breach. However, where the contract is for the sale and purchase of a property, the non-defaulting party may not be able to produce evidence of significant monetary losses and may prefer to pursue alternative remedies, such as specific performance.
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Alternatively, if the non-defaulting party cannot prove any loss, and does not wish to enforce the terms of the contract, it might ask its advisers whether it can terminate the contract as a whole and either re-sell the property (if it is the seller) or reinvest its finances in another venture (if it is the buyer). It is important to distinguish between rescission and termination of a contract for breach. While it is common to refer to a right to “rescind” a contract, rescission is a specific equitable remedy which may be available in cases of misrepresentation, duress or mistake. This article concentrates on the contractual right of a non-breaching party to terminate the contract as a result of the other party’s repudiatory breach, which is separate to, and distinct from, any rights to rescind the contract. When does a right to terminate arise? A right to terminate a contract is a contractual remedy, and may arise out of the express or implied terms of the contract or under common law.
Contracts for the sale and purchase of property will usually incorporate the Standard Conditions of Sale (for residential properties) or the Standard Commercial Property Conditions (for commercial properties) (together, “the Standard Conditions”). The latest versions in use are the fifth edition for the Standard Conditions of Sale (“SCS”) and the second edition for the Standard Commercial Property Conditions (“SCPC”). Both the SCS and the SCPC provide for a right to terminate the contract in certain specified circumstances (note that this is referred to in the Standard Conditions as a right to “rescind” the contract). The SCS and SCPC are not identical and parties must always check their contracts carefully to see whether some or all of the Standard Conditions have been incorporated and which, if any, have been varied as part of the contract. Failure to complete This article will focus on a failure to complete the transaction on the contractual completion date.
In most property transactions, the parties will exchange contracts and agree a specific completion date. If, on that completion date, Party A is “ready, willing and able” to complete, but Party B is not, then Party B is in breach of contract. A party is “ready, willing and able” to complete if it could complete but for the default of the other party and, in the case of a seller, if the amount to be paid on completion would allow it to transfer the property free of any mortgages (unless the contract provides that the property is to be sold subject to those mortgages) (see SCS and SCPC 1.1.3). Notices to complete A failure by Party B to complete on the contractual completion date does not give rise to an automatic right for Party A to terminate the contract. The SCS (6.1.1) and SCPC (8.1.1) both state that in relation to completion, “time is not of the essence of the contract unless a notice to complete has been served”. Where time is not of the essence in a contract, a failure to comply with an obligation by a specified date does not give rise to a right to terminate. To make time of the essence, if Party A is ready, willing and able to complete, then it should serve a notice to complete on Party B.