Broken or Breached Contracts –
What are the consequences?
Once the Contract for purchase / sale of a house or other property is concluded, it is binding on both the Seller and the Purchaser.
If either side does not fulfil their part of the Contract they will be in Breach. Whoever is responsible will be liable to the other for losses incurred.
The duties on each side
- A Purchaser must have the funds available and ready, for payment to be made via their solicitors.
- A Seller must have signed the Disposition, and have this (and any other necessary documentation) ready to be delivered. They must be able to give the Purchaser vacant possession of the Property, by handing over the keys.
Losses can include: removal costs; storage costs; additional fees; and, if a Seller is relying on the sale to go through to fund a purchase, it could include any penalties they incur by being unable to complete that purchase.
What is a breach of contract?
A Breach of the Contract occurs either when the Purchaser does not provide the funds on the scheduled date or if the Seller does not provide vacant possession and the necessary documentation.
There may also be a ‘non-material’ breach and this is a breach where the transaction can still go ahead (in other words, payment is made in exchange for the documents and keys), but something arises for which the seller is responsible. This type of scenario often involves something in connection with the central heating or some other practical matter.
If there is a material Breach the transaction does not go ahead on the scheduled date and payment is not made.
If this happens, the penalty clause in the Contract will apply. The parties are given a further period to fulfil their part of the bargain but, if they do not do so within the timescale specified in the Contract, either side can completely walk away from the Contract. For example, the Seller would be entitled to re-sell the Property.
If a Purchaser has not been able to make payment of the purchase price, the Seller has the option of charging interest at a penalty rate or the actual losses incurred, which could be re-marketing costs – and also any shortfall if a future Offer is less than the original.
How can a contract be broken?
The Contract can only be broken without incurring a penalty if this is covered in one of the clauses in the Contract.
There are usually several possible reasons why a Contract could be broken.
Most of these depend on one of the reports or other documents not being satisfactory. For example, if the Offer was conditional on the Purchaser finalising their Mortgage and this provision was included in the Contract, the Contract could be broken – without the Purchaser incurring any penalty – if they cannot obtain a Mortgage.
It is not usually possible for either the Purchaser or the Seller to be able to break the Contract once it is Concluded because of a change of circumstances or because they have ‘changed their mind’.
How we can help?
We hope this explanation of broken and breached contracts in relation to conveyancing transactions is useful – but is anything unclear or lacking? Feel free to contact us and ask for clarification – at no charge!