Off-plan buyers do not have to complete property purchase

30th April 2012 Commercial

A recent ruling in the High Court of Northern Ireland has some potentially important implications for matters of rescission (where a contract is treated at an end) in England and Wales.

Mr Justice Deeney ruled that two men do not have to complete the purchase of an off-plan apartment at a price they had agreed in 2007, due to a breach of trust which had left them "wholly in the dark" for months. They were found to be entitled to the return of their deposit (£23,750) with interest at 5% backdated from 19 April 2007.

The judge was critical of a series of letters from the developer's solicitors to the purchasers. The first letter simply advised the original completion date in the contract was being extended by five to six months, with the revised completion date to follow when known.

When the purchasers attempted to hold the developer to the original completion date in the contract, and then claimed the contract rescinded, two more letters asserted the rights of the developer to extend the completion date. However no case was ever advanced that the developer had a contractual right to do this within a particular clause (Clause 8) of the agreement: i.e. where delay had been caused by circumstances outside of the developer's control a reasonable extension of time will be allowed. The letters also provided no details about why the delay was necessary.

In court, the developer's defence argued Clause 8 meant the purchaser must allow the extension of time sought and had no discretion to refuse it; that there was no need for any notice, and it was not a condition or innominate term which went to the root of the contract.

The judge considered whether merely informing the purchasers of a delayed completion date could constitute a valid exercise of rights.

When the relevant information is provided to the purchaser they have options including; to consider the clause and the reasons requiring an extension of time, opportunity to seek further information - and, if minded to dispute the reasons for the delay, to refuse to complete and, if necessary, to defend their position in any subsequent court proceedings. Any clause permitting an extension of time would be mandatory on the purchaser only "if reasons for delay legitimately fall within that clause.

It is important to note the failure to take appropriate steps in similar circumstances in England and Wales could amount to a breach of contract, giving rise to a right on the part of the purchaser to rescind.

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Louise Wakely is a Senior Associate located in Manchesterin our Commercial Litigation department

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