The High Court recently decided in the case of Hakimzay Ltd v Swailes. This case concerned a sale of a residential property. Contracts were exchanged for completion on 3 April 2014. The Seller was under an obligation to procure vacant possession as the property was, at the time of exchange, subject to a residential tenancy.The completion date passed without vacant possession being obtained. Subsequently the buyer served a notice to complete in accordance with the contract which notice had an expiry date of 29 April 2014.
One effect of a notice to complete is to make time of the essence which means that if the seller fails to perform by the expiry date the buyer may terminate the contract. They are not obliged to though.The notice expired and still vacant possession was not available.
The buyer did not immediately take steps to terminate the contract as they would have been entitled so to do. The seller confirmed the following day that they anticipated being able to provide vacant possession on 1 May 2014 and completion could take place the day after.The seller requested completion take place on 2 May 2014 as vacant possession was indeed obtained. Perhaps unsurprisingly given the difficulties experienced the buyer wished to inspect the property to ensure it was vacant. Due to holidays they could not do this before 12 May 2014. After 2 May 2014 passed without completion and before 12 May 2014 the Seller’s solicitor purported to terminate the contract. They argued that time remained of the essence and that the buyer was now failing to complete. The seller also sought to forfeit the deposit.
The buyer challenged this through the courts seeking specific performance of the contract (i.e. completion of the sale to them) and compensation. The seller counterclaimed seeking a declaration that the buyer was in breach and the seller was entitled to terminate as time was of the essence and the buyer had not completed.
The court rejected the seller’s arguments. They stated that time was not of the essence in respect of the seller’s actions and merely confirming that vacant possession was available was not sufficient to entitle them to unilaterally amend the completion date. The effect of the buyer’s notice had been to fix a date by which the seller had to perform. The buyer then had the option to affirm the contract (i.e. by conduct agree it could continue) or to terminate. The court felt that buyer had either not yet made their choice or had affirmed the contract. If it was the first option then the seller offering late performance was not a solution as this was not an option open to them. If the second then it was a case that either the period for compliance with the notice could be extended by agreement (no agreement here) in which case time would remain of the essence or a revised date could be agreed (again no agreement here). The court felt that the buyer had affirmed the contract but no new date could be agreed.Therefore it was decided that for the seller to terminate the contract there would have had to be either a new notice to complete or an agreed revised date where time was to be of the essence. The seller could not seek to unilaterally rewrite the contract. Consequently the court ordered specific performance in favour of the buyer.
This case is an important reminder of the rules in respect of service of notices to complete. Where a buyer has served a notice that does not necessarily entitle the seller to seek to perform the contract by way of late performance after the notice has expired. Negotiation is key. More widely care needs to be taken by sellers where serving notice to complete that they do not invalidate their own notice by entering into negotiation where their intention is to terminate the contact.
For further advice or assistance on any Property Law matters contact our Property Law Experts Declan Hayes on firstname.lastname@example.org 01756 692 888, or James Dunn on email@example.com 01756 692 875