Should I exchange contracts on my property transaction during the COVID-19 outbreak?

Should I exchange contracts on my property transaction during the COVID-19 outbreak?

The Covid-19 outbreak has the potential to disrupt property transactions that are nearing an exchange of contracts.

As a firm we are taking a “business as usual” approach with regard to such transactions. However, both buyers and sellers will be understandably anxious about the potential impact of the pandemic on their transactions and must be advised about potential consequences in the event of default.

Immediately prior to exchange there may be issues with delayed search results and/or surveys if physical inspections are curtailed.

In addition, a party may simply not wish to proceed due to uncertainty.

Following exchange both parties are contractually bound to complete and penalties will apply to the party in default as set out in the Law Society’s Standard Conditions of Sale which will apply to a majority of residential property transactions.  

 

The Law Society has issued guidance in respect of the exchange and completion of property transactions during the Covid-19 outbreak. In essence, the Law Society recommend that the parties resolve issues between themselves and allow the Standard Conditions to apply with regard to remedies and penalties in the event of default.

Default may happen in the event of illness, self-isolation or death of any of the parties.

In practice, most parties will continue to negotiate and co-operate during this period, so called “good faith” measures.  Where there are no real concerns about infection and if both buyer and seller are happy to continue, the transaction is likely to go ahead.

There may be some good faith measures that can be negotiated if all sides agree and deem appropriate, such as:

• Waiving default penalties in the contract to allow for a delay in completion;

• Delay in the vacation of the property if someone is unwell or in isolation; and

• Getting the property professionally deep-cleaned.

However, it is understandable that clients will be anxious at this time.  We are reporting to all of our seller and buyer clients and advising them in respect of the consequences of their transactions not completing including default consequences under the Standard Conditions such as:

• Penalty interest;

• Forfeiture of deposit;

• Additional legal costs;

• Special damages; and

• Specific performance.

In addition, in respect of our buyers, they must think very carefully about potential financial difficulties and whether they will still be able to proceed in the event of job loss or reduced hours.  This also applies to donors of gifts in the event that deposits are being gifted.

I understand the Law Society’s approach.  It does not necessarily believe that the drafting of special conditions in contracts is necessary.  This is probably because no special conditions are going to be able to deal with all of the aspects of this crisis when many of these are unknown.

Our technical team have, in any event, drafted our own special conditions which allow for delay or cancellation as a result of the Covid-19 outbreak. Such conditions will have to apply to all of the parties in a chain.  We are happy to share our drafting upon request.  

Other issues which could arise and require planning for include:

• Difficulties if a seller or tenant is unable to vacate the property because they are in isolation;

• Reluctance on the part of removal company employees to enter a property;

• Failure or disruption to parts of the banking system (such as CHAPS); and

• Difficulties in obtaining witnesses to the execution of deeds.

As ever, our priority is to focus on our client’s best interests and we will work closely with the solicitors on the other side to keep transactions on track as far as possible.

For further information, please contact Bill Dhariwal, Managing Director of Lawcomm Solicitors on DDI: 01489 864 117 or E: bill.dhariwal@lawcomm.co.uk

Technical input from Martyn Jones, Conveyancing Technical Team Leader, DDI: 01489 864 107 or E: martyn.jones@lawcomm.co.uk

This article is for general information only and does not constitute legal or professional advice.  Please note that the law may have changed since this article is published.