Remedies for delayed completion - Contractual compensation

Learning Outcomes

This article outlines the remedies available when completion is delayed in transactions incorporating the Standard Conditions of Sale (SCs) or Standard Commercial Property Conditions (SCPCs). It explains how contractual compensation operates, who pays it under each set of conditions, and how to calculate it using the contract rate and the correct base figure. It examines the deeming rule when completion monies arrive after 2pm, the effect of serving a notice to complete, and the deposit top-up requirement under the SCPCs. It distinguishes contractual compensation from common law damages, analyzes the rule against double recovery, and reviews additional losses such as storage, alternative accommodation, and bridging finance. It presents typical conveyancing scenarios to illustrate these principles and highlight calculation and procedural pitfalls.

SQE1 Syllabus

For SQE1, you are required to understand the remedies available for delayed completion in property transactions, particularly the operation of contractual compensation and related procedures, with a focus on the following syllabus points:

• 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 (including defaults and variation)
• 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
• The “2pm” completion deeming rule and its impact on compensation
• Differences between SCs and SCPCs (including relative fault vs buyer-only liability)

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.

• Under the Standard Conditions of Sale, who is liable to pay contractual compensation if completion is delayed?
• How is contractual compensation for delayed completion calculated?
• What is the effect of serving a notice to complete after a delay in completion?
• 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. Time is ordinarily not of the essence of the completion date, so delay gives rise to compensation and damages but not to automatic termination. If the delay persists, a notice to complete may be served to make time of the essence and trigger rescission rights if completion still does not take place within the notice period.

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.

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.

Key Term: working day
As defined in the standard conditions, a day on which the relevant banks are open for business; weekends and certain public holidays are excluded when counting working days for notices and timetables.

Key Term: time of the essence
A contractual state where strict compliance with time limits is required; failure to perform on time constitutes a repudiatory breach entitling the innocent party to rescind.

Contractual Compensation for Delayed Completion

When completion does not occur by the agreed date and time, the contract does not automatically terminate. Instead, the SCs and SCPCs provide for contractual compensation to be paid by the party responsible for the delay. Compensation operates as a mechanism to address financial consequences of late completion and incentivise performance.

When Does Contractual Compensation Apply?

Contractual compensation becomes payable when completion is delayed beyond the agreed date and time (usually 2pm). Under both the SCs and SCPCs, if completion monies are received after 2pm on the contractual completion date, completion is deemed to occur on the next working day for the purposes of calculating compensation. This deeming rule can significantly increase the days counted for compensation if funds arrive shortly after 2pm.

Under the SCs, either party may be liable for compensation, depending on who is most at fault for the delay. Fault is assessed by reference to the overall timetable of pre-completion steps and any late performance causing knock-on delay. Under the SCPCs, only the buyer is liable to pay compensation where completion is delayed by buyer default; there is no reciprocal contractual entitlement for the buyer to recover compensation if the seller is at fault under the SCPCs (the buyer must rely on common law damages in that case).

There is an important carve-out to the 2pm deeming provision: where the sale is with vacant possession and the seller has not vacated by 2pm, deemed late completion does not operate against the buyer for that day. Always check the conditions incorporated and any special conditions that vary the 2pm cut-off.

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. Under the SCs, if both parties have contributed to delay, only the excess period attributable to the party with the greater fault is compensated (see below). Under the SCPCs, the buyer pays compensation for the full period of buyer’s default causing delayed completion.

The contract rate will either be specified expressly on the face of the contract or default to the Law Society’s interest rate (published weekly, typically set at 4% above the base lending rate of Barclays Bank plc). Parties often prefer a variable rate linked to base rate rather than a fixed rate to avoid over- or under-compensation if market rates shift between exchange and 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.

Treatment of Relative Fault under the SCs

Under SC 7.2, the party “most at fault” pays compensation only for the excess period of their fault over the other party’s contribution, and only up to the actual period of delayed completion. The assessment of fault can include delays in earlier procedural steps (such as late delivery of evidence of title, requisitions, or draft transfer) which then cause a knock-on delay in completion. The definition of a working day applies to pre-completion timetables, but once the contractual completion date passes, every day counts for compensation purposes.

Worked Example 1.2

The seller is late in supplying title evidence by 3 working days; the buyer is late in delivering requisitions by 5 working days and late in providing the draft transfer by 2 working days. Ultimately, completion itself is delayed by 2 calendar days because the seller failed to vacate on the agreed date.

Question: Who pays compensation under the SCs, and for how many days?

Answer:
Total seller default: 3 days (title evidence) + 2 days (vacant possession causing late completion) = 5 days.
Total buyer default: 5 days (requisitions) + 2 days (draft transfer) = 7 days.
Buyer’s fault exceeds seller’s by 2 days. However, actual completion was delayed by 2 days.
Under SC 7.2, the buyer pays compensation for the excess fault, but only up to the actual delay: 2 days.

Counting Days and the 2pm Rule

If completion monies arrive after 2pm on the contractual completion date, for compensation purposes completion is treated as the next working day. This applies under both SCs and SCPCs, unless the seller has failed to vacate by 2pm on a sale with vacant possession. Weekends and bank holidays are counted as days of delay after the completion date; the “working day” concept is relevant to pre-completion timetables and notice periods, not to daily accrual of compensation after the completion date.

Worked Example 1.3

Completion is scheduled for Friday. The buyer’s funds arrive at 2:10pm. The transaction is with vacant possession, and the seller vacated by noon. Monday is a bank holiday.

Question: How many days of compensation accrue?

Answer:
For compensation purposes, completion is deemed to occur on the next working day because funds arrived after 2pm. The next working day is Tuesday (Monday is a bank holiday).
Days of delay counted: Saturday, Sunday, and Monday are calendar days of delay; the deeming rule treats completion as Tuesday.
Compensation accrues for 4 days (Friday after 2pm to Tuesday morning is treated as Friday-to-Tuesday delay), calculated at the daily rate multiplied by 4.

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 (subject to the cap of the actual delayed completion period). Under the SCPCs, compensation is payable by the buyer for delay caused by buyer default for the full period of delay; if the seller is responsible for delay under SCPCs, the buyer has no contractual compensation right and must pursue damages at common law.

If a notice to complete is served and the contract is later rescinded for non-compliance, contractual compensation accrues up to the date of rescission. After rescission, the innocent party may pursue damages for any further loss suffered, with appropriate credit given for compensation already received.

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. A notice to complete can only be served after the contractual completion time on the contractual completion date (commonly after 2pm), not before.

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.

Being ready, able, and willing means having the capacity to perform: for a buyer, cleared funds and signed documentation; for a seller, having executed the transfer and being able to give possession in accordance with the contract (vacant possession if due). The notice period is measured in working days under the applicable standard conditions, excluding weekends and bank holidays.

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, under the SCPCs. This deposit top-up requirement on service does not appear in the SCs.
• Contractual compensation continues to accrue during the notice period at the contract rate on the correct base figure.
• If rescission follows non-compliance:
  • If the buyer was in default, the seller may forfeit the deposit and any accrued interest.
  • If the seller was in default, the deposit must be repaid to the buyer with interest.
  • In either case, the innocent party retains rights to claim damages in addition to contractual compensation received up to rescission, subject to the rule against double recovery.

Worked Example 1.4

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.

Worked Example 1.5

A buyer paid a 5% deposit under a contract incorporating the SCPCs. On day 2 after the contractual completion date, the seller serves a valid notice to complete. The buyer is still arranging mortgage funds.

Question: What must the buyer do immediately upon service of the notice, and what continues to accrue?

Answer:
The buyer must top up the deposit to 10% immediately upon service of the notice to complete. Contractual compensation continues to accrue at the contract rate on the balance of the price (less the deposit) until completion or 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, temporary accommodation, bridging finance, additional legal fees). Failure to complete on the contractual completion date is a breach of contract, typically treated as a breach of warranty rather than a repudiatory breach unless time has been made of the essence by notice (Rainieri v Miles [1981] AC 1050). Damages are assessed under Hadley v Baxendale: losses naturally flowing from the breach and foreseeable consequential loss can be claimed, provided causation and mitigation are satisfied.

Typical heads of loss include:

• Wasted conveyancing fees and additional legal costs relating to re-arranged completion
• Removal and storage costs incurred due to delayed completion
• Costs of short-term accommodation pending completion
• Bridging finance interest where a linked sale/purchase chain is disrupted
• Rebooking removal costs and administrative charges
• Loss on resale (if buyer defaults and seller resells at a loss), subject to credit for any profit on resale
• In suitable cases, loss of development profit or lost sub-sale margin if such plans were known to the other party at the time of contracting

There can be no double recovery: any contractual compensation received must be deducted from the damages claimed. If the buyer’s deposit is forfeited, credit must also be given in the damages claim for the amount forfeited. Mitigation is required: the claimant must act reasonably to limit loss, and may recover increased losses incurred during a reasonable mitigation attempt.

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

Worked Example 1.6

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.

Worked Example 1.7

Under the SCs, completion is delayed by 1 day because the seller failed to provide vacant possession on the agreed date, but earlier in the transaction the buyer delivered requisitions 4 working days late, causing a knock-on delay. The contract rate is 4.75%. The price is £300,000 with a 10% deposit.

Question: Who pays compensation and how would it be calculated?

Answer:
Assess relative fault. Seller’s late vacant possession: 1 day. Buyer’s earlier delays: 4 days. Buyer’s excess fault: 3 days. Actual completion delay: 1 day. Under SC 7.2, the buyer pays compensation limited to the actual period of delayed completion, i.e., 1 day.
Base figure: £270,000. Annual compensation: £270,000 × 0.0475 = £12,825. Daily rate: £12,825 ÷ 365 ≈ £35.13. Compensation payable: ≈ £35.13 for 1 day.

Worked Example 1.8

A buyer in a chain completes their purchase late due to mortgage funds arriving after 2pm, triggering deemed next working day completion. The seller incurs hotel costs of £450, storage charges of £300, and removal rebooking fees of £250. Contractual compensation received is £120. The buyer’s deposit was 10% and is not forfeited because completion eventually occurred.

Question: What damages can the seller recover, and what must be deducted?

Answer:
Damages can include hotel (£450), storage (£300), and rebooking (£250), totalling £1,000, provided they were reasonably incurred and causally linked to the delay.
Deduct £120 contractual compensation to avoid double recovery.
Recoverable damages: £880.

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, liability depends on relative fault; under the SCPCs, only the buyer is liable where buyer default causes delay.
• If completion monies arrive after 2pm, completion is deemed to occur on the next working day for compensation purposes.
• Working days are used for pre-completion timetables and notice periods; after the completion date, compensation accrues daily.
• A notice to complete makes time of the essence and sets a 10 working day deadline for completion.
• Under the SCPCs, a buyer who paid a reduced deposit must top up to 10% immediately upon service of a notice to complete.
• Failure to complete after a notice to complete allows the innocent party to rescind, forfeit or repay the deposit (as applicable), and claim damages.
• Common law damages may be claimed for additional loss, but double recovery is not permitted; contractual compensation and any forfeited deposit must be credited.

Key Terms and Concepts

• contractual compensation
• contract rate
• notice to complete
• double recovery
• working day
• time of the essence