One of the first questions asked when someone is buying or selling a property is: at what point can I back out of this transaction? The short answer is that when contracts are exchanged during conveyancing, both sides commit to the deal.
However, there are cases where either buyer or seller decides, after their solicitor has exchanged contracts with their counterpart, to pull out of the transaction. And it is what happens then that should be a warning to anyone unsure if they really want to go through with that house sale or purchase.
In a recent case, a couple from London were awarded damages of £800,000 to be paid by the man who had agreed to buy their Mill Hill home for £5 million but changed his mind six weeks AFTER contracts had been exchanged.
Purchaser ignored Notice to Complete
Meanwhile, the couple had already agreed to buy a new property in Cambridge for £2.9m, funded with the proceeds of their London house sale, and contracts were exchanged on that deal on the same day as their sale contracts were agreed.
With the buyer pulling out, that left the sellers scrabbling to finance their purchase, which they managed to achieve through a bridging loan. Their solicitor served the buyer with a Notice to Complete by the contracted date, but this was never done.
Their London home was eventually sold for a reduced price of £4.2m almost two years later.
The couple took the buyer to court seeking damages for the difference between the original sale price and the eventual sale price, along with the costs of marketing the property again. They also demanded that the buyer reimburse them for the cost of the bridging finance they had to secure to buy their new place.
Sellers awarded thousands in damages
In his High Court judgment, Judge Keyser QC agreed that the sellers were entitled to damages for breach of contract, but he limited the extent of those damages. He did agree that the couple were entitled to the difference between the original and eventual sale price of £800,000; awarded them legal fees and estate agent fees; and the costs of interest payments to the bank for the bridging finance but only for 10 months.
The case, which dragged on for almost three years and has cost both sides thousands of pounds, demonstrates the considerable fallout when a buyer fails to honour their side of the deal and complete the purchase of a property.
If you're selling your home and are concerned that the potential purchaser is getting cold feet, it's essential to talk to your solicitor regularly to ensure there is good communication with the other side's solicitor. If you're a buyer and you've made an offer but are unconvinced that this property is right for you, talk to your solicitor before you agree to exchange contracts because the consequences could be dire.