June 12, 2012

How watertight is a post – completion contract?

Commercial property sales and purchases can often include a post-completion contractual obligation for the seller. But do they fully protect the seller as you might expect?

Case study

A purchaser bought a warehouse and outbuildings for £140,000. The water and electricity to the property was, prior to the purchase, supplied from the seller’s nearby farm. The seller and the buyer agreed that within 6 months of the sale completing the seller would install, at his expense, new metered supplies of water and electricity to the property.

Six months passed and the services had not been installed. The buyer wrote firstly requiring them to be installed within 7 days and when that had no effect, he then advised that if the services were not installed by a particular date he (the buyer) would rescind the contract and sue for the return of the purchase price, damages and costs. No services were installed and the buyer sued.

The Court’s view

The Court ordered the seller to pay the buyer £190,000 which was the equivalent to the return of the purchase price, mortgage fees and interest and professional fees. On appeal, that was reversed, so he could only claim the losses he had suffered as a result of not having the services installed in time. These were likely to include the cost of installing the services and the cost of alternative accommodation and other losses for the period the services were not available.

Why is this important for you?

For a court to order that a contract be rescinded and for the parties to be returned to the position they would have been in had there not been a contract, there must be evidence of fraud, misrepresentation or lack of consent. This is hard to achieve. To put yourself in the best position, these points need to be thought though at contract stage.

What you need to do

You should agree at the Heads of Terms stage how you wish a breach of contract to be resolved in the event that one of the parties does not perform their contractual obligations.

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