The impact of COVID-19 is likely to disrupt home reservations and sales currently in process, with either developers or buyers unable to perform their contractual obligations to complete sales if sales offices, solicitors offices and developments themselves are closed due to social distancing measures.
The government has issued some guidance for the public and the industry in relation to home buying and selling. Read the guidance here.
Following the prime minister’s general announcement on social distancing on Monday 23 March, a government spokesperson said on 25 March: “Home buyers and renters should, as far as possible, delay moving to a new house while emergency measures are in place to fight coronavirus. If moving is unavoidable for contractual reasons and the parties are unable to reach an agreement to delay, people must follow advice on social distancing to minimise the spread of the virus. Anyone with symptoms, self-isolating or shielding from the virus, should follow medical advice and not move house for the time being.”
Advice from the Law Society:
What to do if you are looking to complete on exchanged contracts for sales
The key issue at every stage is to point out as many of the likely risks as you can to a potential purchaser. We advice you to assess the purchasers’ appetite for risk, set out the options and likely consequences for each option and establish whether your purchaser wants to proceed and, if they do, how they want to do this. It’s important to:
- explain all risks
- confirm advice in writing, and the purchaser acknowledges having had the advice in writing
The contract may need to set out how completion might happen in the circumstances to satisfy the requirements of Public Health England.
The transaction will be governed by the provisions in the contract unless the parties agree otherwise. If completion does not take place after contracts have been exchanged due to COVID-19, the parties not completing will be in default. The contract provisions relating to default will probably apply unless the non-defaulting party takes a ‘good faith’ view. Notices to complete, penalty interest and deposit loss may all come into play.
If the transaction forms part of a chain of transactions, it may not be possible to take such a view without incurring a penalty.
There’s no specific ‘force majeure’ provision in the Standard Conditions of Sale and it may be that it would be difficult to imply one.
A contract is frustrated if it’s incapable of being performed due to an unforeseen event (or events) which is not the fault of either party. It may be that the contract might be frustrated by isolation or restrictions on movement and activity, but it’ll depend on the circumstances of the individual case and, ultimately, the attitude of the courts.
It’s difficult to envisage what might happen to a contract if it’s frustrated. Some commentators have suggested that the provisions relating to rescission might apply. It may be that contracts will not be frustrated. So many factors are involved in making the determinations and the court has, in recent times, shown a marked reluctance to make such a finding.
The expectations, assumptions and responsibilities of the parties must be taken into consideration. That a contract would be held to be frustrated in the current circumstance is not something that can be treated as a presumption. Each situation is likely to have different implications and a different outcome. There’s no certain and fixed answer.
Variation to contracts after exchange
If contracts have been exchanged but completion has not taken place, and the parties want to vary the contract, care must be taken not to create a new contract unintentionally.
Creation of a new contract may impact on insurance. Risk passes on exchange – will insurers need to be notified that technically a new contract has been formed?
Even changing the date of completion may create a new contract rather than varying an existing one. You’ll need to review the standard and special conditions if a new contract may be formed on the revised date.
Increased risk of fraud
The unusual circumstances are providing an increased opportunity for fraud. Everyone will need to be on the alert and take extra care to do their best to make sure that their security systems are not breached.
Electronic signatures and witnessing
Even though the government on 3 March 2020 supported the view of the Law Commission about the validity of electronic signatures for deeds, HM Land Registry have their own requirements. In terms of electronic signatures, the Law Society’s view is that these:
- can be used to sign contracts to sell/buy unless the contract is being executed as a deed
- cannot be used for deeds
- probably cannot be used where a signature needs to be witnessed unless the witness was present when the electronic signature was affixed – in which case a wet ink signature could have been used
- cannot be used where a wet ink signature is required, for example, for documents for HM Land Registry and some lenders