Simplifying the complications of a Covid-19 Contract of Sale
Covid-19 Contract of Sale: The need for conveyancers to follow the law and Government guidance following the outbreak of Covid-19 has never been greater, especially as we witness the Country travelling fast along the same graph line as Italy.
So, we all should know that despite the fact is it not law, just guidance, we must do all we can to dissuade clients from moving home unless the property to be purchased or sold is vacant, and clients are reminded of health requirements. In the absence of a legal prohibition, if a client instructs a conveyancer to proceed, apart from asking the client to sign a disclaimer, the conveyancer is under a duty to act on those instructions.
That’s the background out of which every practitioner seems to be working with a host of different and varying Covid-19 contractual clauses. In this article I wish to examine these, and to advance the question of whether as lawyers we have fallen into that common trap of looking to overly complicate what should be a simple solution.
Let go back to basics. The point of exchanging contracts is to introduce certainty by making sure both parties become legally obliged to complete the contract, and to impose in the event of a failure pretty significant financial sanctions. This is essentially the heart of each and every conveyancing transaction.
So, what has changed. Yes, we face unprecedented events and are looking to operate in very difficult times. However, if two parties decide, contrary to advice, to look to exchange contracts knowing full well of the risks of a delayed contract is it really necessary to add a long series of clauses to the contract to cover each and every eventuality? Furthermore, is it defeating the very essence of the contract to allow a party to look to rescind the contract if notice is served alleging a Covid-19 event has prevented that party from completing?
The typical long form special conditions provide that the completion date can be deferred without penalty for up to 30 days if the agreed completion date becomes difficult to honour because of a Covid-19 event. Such events include a failure to arrange searches, obtain land registry documents or removal services, and/or a delay arising in securing mortgage funds and or help to buy bonus. I can see the sense of this, though obtaining the same objective can and is capable of being achieved with less words and detail.
So far so good. The part of the clauses I struggle with are the provisions allowing a party in certain defined circumstances to rescind the contract. I have seen clauses where one or other party in the chain is able to pull out of the legal commitment if their mortgage offer or help to buy funding is withdrawn, or if one party can no longer afford to proceed. The existence of a pandemic makes the risks of these events higher, yet surely, they are the same risks that existed before the onset of this disease. I go back to the point I make above. If the parties enter the contract knowing these risks exist before they commit themselves, surely it is unfair to allow the parties to carry into the transaction a ‘get out of jail card’.
Surely the best option is to look to ensure, if possible, there is a simultaneous exchange and completion. If this is not possible then perhaps look to pass down the chain a simpler clause, and one that offers the same flexibility, but without the uncertainty caused by the inclusion of clause to allow rescission.
I have been using the following clause:
‘Completion shall take place on [fix date] unless the current restrictions on movement imposed under the Coronavirus Act 2020 and the Health Protection (Coronavirus) Regulations 2020 remain in place, or are subsequently reinstated before completion takes place, in which event the completion date will change to a date fixed 35 days (non-working) from and starting with the working day immediately following the lifting of the said restrictions unless an alternative completion date is agreed between the parties in the meantime’
This essentially allows the parties the freedom to move the completion date if the current lockdown is, as is likely, extended, or a new lockdown is ordered in the future.
The certainty is that completion will take place ( 35 days after the date the lockdown ends) with no provision for either party to pull out without penalty.
Clearly if one party has contracted Covid-19, the 35 days should provide more than enough flexibility to work around isolation periods. It also allows sufficient time to address the request of mortgage funds and help to buy bonuses. The clause allows the parties to fix a completion date to their suiting once the restrictions are removed. In the meantime, the parties have the certainty of a completion and the general protection of the contract.
We know that lenders are at Government direction looking to extend mortgage offers for three months so all being well the mortgage expiry date should not present a problem.
In very complicated times I submit as lawyers we need to try and keep things simple and to make sure the purpose of a contract exchange is fulfilled in full.
David Pett, MJP Conveyancing
Kindly shared by Solicitors News