Remedies for delayed completion - Contractual compensation

Learning Outcomes

By the end of this article, you will be able to identify and explain the remedies available for delayed completion in property transactions, with a focus on contractual compensation. You will understand how compensation is calculated, when it applies, the effect of serving a notice to complete, and how contractual and common law remedies interact. You will also be able to apply these principles to SQE1-style scenarios and avoid common pitfalls.

SQE1 Syllabus

For SQE1, you are required to understand the remedies available when completion of a property transaction is delayed, particularly the operation of contractual compensation under the Standard Conditions of Sale and Standard Commercial Property Conditions. Focus your revision on:

• The meaning and effect of delayed completion in property transactions
• The calculation and payment of contractual compensation for delay
• The role and effect of the contract rate
• The procedure and consequences of serving a notice to complete
• The distinction between contractual compensation and common law damages
• The avoidance of double recovery for losses caused by delay

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Under the Standard Conditions of Sale, who is liable to pay contractual compensation if completion is delayed?
2. How is contractual compensation for delayed completion calculated?
3. What is the effect of serving a notice to complete after a delay in completion?
4. Can a party claim both contractual compensation and common law damages for the same period of delay?

Introduction

Delayed completion occurs when one or both parties fail to complete a property transaction on the agreed date. This can cause financial loss and uncertainty. The contract provides specific remedies to address such delays, most notably contractual compensation. Understanding how these remedies operate, and how they interact with common law damages, is essential for SQE1.

Contractual Compensation for Delayed Completion

When completion does not occur by the agreed date and time, the contract does not automatically terminate. Instead, the Standard Conditions of Sale (SCs) and Standard Commercial Property Conditions (SCPCs) provide for contractual compensation to be paid by the party most at fault for the delay.

Key Term: contractual compensation
A daily payment, calculated at the contract rate, payable by the defaulting party to compensate the other for delay in completion.

When Does Contractual Compensation Apply?

Contractual compensation becomes payable when completion is delayed beyond the agreed date and time (usually 2pm). Under the SCs, either party may be liable for compensation, depending on who is most at fault. Under the SCPCs, only the buyer is liable to pay compensation for delay.

Key Term: contract rate
The interest rate specified in the contract (or, if not specified, the Law Society’s interest rate), used to calculate compensation for delayed completion.

How Is Contractual Compensation Calculated?

The compensation is calculated as follows:

• Take the purchase price (less the deposit if the buyer is the paying party)
• Multiply by the contract rate (expressed as a decimal)
• Divide by 365 to get the daily rate
• Multiply by the number of days of delay

The compensation accrues daily from the contractual completion date until actual completion.

Worked Example 1.1

A buyer agrees to purchase a property for £600,000 and pays a 10% deposit (£60,000). The contract rate is 5%. Completion is delayed by 4 days due to the buyer’s fault.

Question: How much contractual compensation is payable?

Answer:
Compensation is calculated on £540,000 (£600,000 - £60,000).
Annual compensation: £540,000 × 0.05 = £27,000
Daily rate: £27,000 ÷ 365 ≈ £73.97
Total for 4 days: £73.97 × 4 = £295.88
The buyer must pay £295.88 in contractual compensation.

Payment and Duration

Compensation is payable on actual completion. If both parties are at fault, only the party with the greater period of default pays, and only for the excess period.

Exam Warning

If the contract incorporates the SCPCs, only the buyer can be required to pay contractual compensation for delay. Under the SCs, either party may be liable. Always check which set of conditions applies.

Notice to Complete and Making Time of the Essence

If the delay is not resolved quickly, either party who is ready, able, and willing to complete may serve a notice to complete. This makes time of the essence and sets a final deadline (usually 10 working days) for completion.

Key Term: notice to complete
A formal written notice served after the contractual completion date, requiring completion within 10 working days and making time of the essence.

Effect of Notice to Complete

• Time becomes of the essence: failure to complete within the notice period entitles the innocent party to rescind the contract.
• The buyer must immediately pay any shortfall to bring the deposit up to 10% if a reduced deposit was paid.
• Contractual compensation continues to accrue during the notice period.

Worked Example 1.2

A seller serves a notice to complete on the buyer after a 3-day delay. The buyer fails to complete within the 10 working day notice period.

Question: What remedies are available to the seller?

Answer:
The seller may rescind the contract, forfeit the deposit, claim damages, and resell the property. Contractual compensation is payable up to the date of rescission.

Common Law Damages and Double Recovery

In addition to contractual compensation, the innocent party may claim common law damages for losses caused by the delay (e.g., storage costs, bridging finance). However, there can be no double recovery: any contractual compensation received must be deducted from the damages claimed.

Key Term: double recovery
The principle that a party cannot recover the same loss twice under different remedies.

Worked Example 1.3

A seller suffers £2,000 in additional costs due to a 5-day delay. Contractual compensation paid by the buyer totals £400.

Question: How much can the seller claim in damages?

Answer:
The seller may claim up to £1,600 in damages (£2,000 - £400), to avoid double recovery.

Summary Table: Contractual Compensation vs. Damages

Key Point Checklist

This article has covered the following key knowledge points:

• Contractual compensation is the main remedy for delayed completion under the SCs and SCPCs.
• Compensation is calculated using the contract rate on the balance of the purchase price (less deposit if buyer is paying).
• Under the SCs, either party may be liable; under the SCPCs, only the buyer is liable.
• A notice to complete makes time of the essence and sets a final deadline for completion.
• Failure to complete after a notice to complete allows the innocent party to rescind and claim damages.
• Common law damages may be claimed for additional loss, but double recovery is not permitted.

Key Terms and Concepts

• contractual compensation
• contract rate
• notice to complete
• double recovery