Remedies for delayed completion - Rescission of the contract

Learning Outcomes

This article outlines rescission as a remedy for delayed completion in land contracts, including:

• Meaning and legal effect of rescission in land contracts
• Distinction between contractual rescission under the Standard Conditions of Sale/Standard Commercial Property Conditions and equitable rescission
• Availability of rescission for delayed completion and the requirement that the serving party is ready, willing, and able to complete
• Role, content, and effect of a valid notice to complete
• Rescission for misrepresentation (fraudulent, negligent, innocent), contractual limits to “material” cases, and damages in lieu
• Bars to rescission—affirmation, delay/laches, impossibility of substantial restitutio in integrum, and intervening third‑party rights—and their operation in property transactions
• Practical and procedural steps to effect rescission, deposit consequences, interest at the contract rate for delay, and cancellation of protective entries at HM Land Registry
• Rescission in contrast with termination, damages, and specific performance, and selection of an appropriate remedy in typical SQE1‑style scenarios

SQE1 Syllabus

For SQE1, you are required to understand rescission in land contracts, including its application to delayed completion, with a focus on the following syllabus points:

• The concept, effect, and consequences of rescission in land contracts.
• Grounds for rescission: misrepresentation, mistake, and failure to complete after notice to complete (contractual rescission under SCS/SCPC).
• Time not of the essence for completion unless and until a valid notice to complete is served; the “ready, willing, and able” requirement; the ten working day period and its effect.
• Contractual consequences on rescission under SCS/SCPC (return/forfeiture of deposit, interest at the contract rate, resale and recovery of shortfall, cancellation of registrations).
• Misrepresentation: types, remedies, exclusions/limitations in SCS/SCPC, and statutory control (Misrepresentation Act 1967; Consumer Rights Act 2015 for trader–consumer contracts).
• Bars to rescission: affirmation, delay, impossibility of restitution, and prejudice to third parties (including the impact of registered dispositions).
• Procedure and practicalities for effecting rescission in conveyancing practice.

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. What is the effect of rescission of a contract for the sale of land?
2. Under the Standard Conditions of Sale, what must happen before a party can rescind for delayed completion?
3. Name two bars that may prevent a party from rescinding a contract for misrepresentation.
4. How does rescission differ from termination and specific performance as remedies for breach of contract?

Introduction

Delays in completing property transactions can cause significant legal and financial consequences. One potential remedy is rescission of the contract, which cancels the agreement and aims to restore both parties to their original positions. For SQE1, it is essential to know when rescission is available, the contractual machinery that makes time of the essence via a notice to complete, and how equitable rescission for misrepresentation or mistake interacts with contractual remedies like damages and specific performance. Understanding the deposit’s fate, the contract rate for late completion, and the procedure to bring a contract to an end in practice is equally important.

Rescission: Meaning and Effect

Rescission is an equitable remedy that sets aside a contract, treating it as if it never existed. The parties are returned, as far as possible, to their pre‑contractual positions. In property transactions, rescission may arise in two principal ways:

• Contractual rescission under the Standard Conditions of Sale (SCS) or the Standard Commercial Property Conditions (SCPC) (for example, where a party fails to complete following the expiry of a valid notice to complete, or where a licence to assign cannot be obtained in a lease assignment).
• Equitable rescission (for example, where the contract was induced by misrepresentation or a fundamental mistake).

While the practical outcome in both is that the contract is undone, the route to rescission (contractual versus equitable) affects availability, bars, and ancillary relief (such as damages in lieu).

Key Term: rescission
Rescission is the cancellation of a contract, restoring the parties to their original positions as if the contract had never been made.

Grounds for Rescission

Rescission may be available in property transactions for several reasons:

• Misrepresentation: Where a party has entered into the contract due to a false statement of fact made by the other party. Under SCS/SCPC, rescission for misrepresentation is generally limited to material cases (and always for fraud/recklessness), with damages available in other cases. In equity, the Misrepresentation Act 1967 supports rescission and, for negligent misrepresentation, damages under s 2(1) (with the court able to award damages in lieu under s 2(2)).
• Serious Breach: At common law, rescission for breach is usually available only where there is a repudiatory breach. Because completion dates are not ordinarily of the essence in conveyancing, a failure to complete by the contractual date will not immediately justify rescission. The innocent party must first serve a valid notice to complete to make time of the essence (see below).
• Failure to Complete After Notice: Where a party fails to complete after service and expiry of a notice to complete under the SCS/SCPC, the other party has a contractual right to rescind with specified consequences. This is the standard route to rescission for delayed completion.
• Mistake: Where both parties are mistaken about a fundamental fact (for example, the subject matter of the sale). Equitable rescission may be available, subject to bars and the possibility that damages in lieu may be more appropriate where reinstating the status quo is impracticable.

Key Term: misrepresentation
A false statement of fact that induces another party to enter into a contract.

Limitations and Bars to Rescission

Rescission is not always available, even where grounds exist. Common bars include:

• Affirmation: If the innocent party, after discovering the problem, chooses to continue with the contract (for example, by insisting on completion, negotiating revised terms, or acting inconsistently with an intention to avoid the contract), rescission is lost.
• Delay: In equity, undue delay can bar rescission (laches), particularly where the other party has changed their position in reliance on the contract or where there is prejudice caused by the delay.
• Impossibility of Restitution: If substantial restoration of the parties to their pre‑contract positions is no longer possible (for example, where the property has been transferred to a bona fide purchaser for value), rescission will be refused. Equitable adjustments may sometimes be made, but rescission remains a discretionary remedy.
• Third‑Party Rights: If rescission would prejudice the rights of a third party who acquired an interest in good faith and for value (including registered dispositions in favour of third parties), rescission will normally be barred.

Key Term: affirmation
The act of confirming or continuing with a contract after discovering a ground for rescission, thereby losing the right to rescind.

Key Term: notice to complete
A formal notice served by one party requiring the other to complete the contract within a specified period (usually ten working days), making time of the essence.

Rescission and Delayed Completion

Under the SCS and SCPC, time is not of the essence for completion unless a valid notice to complete has been served. This allocation reflects the reality of chains and lender drawdowns. The usual sequence is:

• One party is in default of the contractual completion date. The other is not automatically entitled to rescind.
• The innocent party may serve a notice to complete making time of the essence. The notice must allow the specified period (commonly ten working days) and may be served only if the serving party is ready, willing, and able to complete at the time of service. If they are not, the notice will be invalid.
• During the notice period, the defaulting party may still complete, but will generally be liable to pay compensation/interest at the contract rate (SCS/SCPC) for the period of delay.
• If the defaulting party fails to complete within the notice period, the innocent party may rescind under the contractual provisions (SCS 7.4/7.5; SCPC 10.5/10.6) and pursue the consequences set out below.

Consequences differ depending on who defaults:

• If the seller is in default and the buyer rescinds following a valid notice to complete, the buyer may recover the deposit with accrued interest and claim damages (SCS/SCPC provide for the return of documents and cancellation of any registration of the contract, typically at the buyer’s cost for such cancellation).
• If the buyer is in default and the seller rescinds following a valid notice to complete, the seller may forfeit the deposit, resell, and recover any shortfall and costs of resale and any losses flowing from the breach (subject to standard remoteness principles). The stakeholder becomes obliged to release the deposit to the seller on rescission in these circumstances.

The notice to complete also interacts with late completion compensation. While the notice runs, the defaulting party will usually be liable for interest at the contract rate (typically the Law Society’s rate or otherwise specified) and for certain costs caused by the delay (subject to the detail in the relevant conditions).

Readiness and ability to complete are critical. A party serving a notice must be in a position to complete throughout the notice period (for example, with mortgage funds available, executed transfer in hand, and completion undertakings properly in place). If not, the notice risks being ineffective, depriving the innocent party of the right to rescind.

Worked Example 1.1

A buyer is ready to complete, but the seller fails to do so. The buyer serves a notice to complete. Ten working days pass, and the seller still does not complete. What can the buyer do?

Answer:
The buyer may rescind the contract, recover the deposit with interest, and claim damages for any loss suffered.

Misrepresentation and Rescission

If a contract is induced by misrepresentation, the innocent party may rescind. The type of misrepresentation (fraudulent, negligent, or innocent) affects the remedies available and the burden of proof:

• Fraudulent: Made knowingly, without belief in its truth, or recklessly. Rescission is available, and damages in the tort of deceit are potentially more generous.
• Negligent (Misrepresentation Act 1967, s 2(1)): Where the representor cannot prove reasonable grounds for belief in the truth of the statement at the time of contracting. Rescission and damages are available; the burden is effectively reversed.
• Innocent: Where the representor had reasonable grounds for belief. Rescission is available, but the court may award damages in lieu (s 2(2) MA 1967) if rescission would be disproportionate or impractical.

Under both SCS and SCPC, contractual provisions address misrepresentation and misdescription. Typically, damages are available where the difference is “material,” and rescission may be limited to fraud/recklessness or to cases where the buyer would otherwise have to accept something substantially different in quality, quantity, or tenure. Clauses limiting or excluding liability for misrepresentation must satisfy statutory controls. For business‑to‑business sales, s 3 of the Misrepresentation Act 1967 subjects such terms to the reasonableness test under the Unfair Contract Terms Act 1977. For trader–consumer sales, the fairness test under the Consumer Rights Act 2015 applies; unfair terms will not bind the consumer.

An innocent party must avoid affirming the contract after discovering the misrepresentation. Continuing with the transaction without reservation, demanding completion, or accepting further benefits can amount to affirmation and bar rescission. Delay can also bar rescission, especially where the other party’s position has changed.

Worked Example 1.2

A seller tells the buyer that the property has planning permission for an extension. The buyer discovers before completion that this is untrue, and the seller had no reasonable grounds for the statement. What remedy is available to the buyer?

Answer:
The buyer may rescind the contract for negligent misrepresentation and may also claim damages.

Worked Example 1.3

The buyer misses the contractual completion date because their mortgage funds are not available. The seller serves a notice to complete, allowing ten working days. The buyer still cannot complete. What may the seller do, and what happens to the deposit?

Answer:
The seller may rescind the contract after the notice period expires and forfeit the deposit. The seller may also resell and claim any shortfall and reasonable costs arising from the buyer’s breach, subject to normal rules on remoteness and mitigation.

Worked Example 1.4

A buyer learns that the seller’s pre‑contract replies understated historic flooding on part of the garden. The buyer nevertheless negotiates a modest price reduction and insists on completing. After completion, the buyer seeks to rescind for misrepresentation and recover full losses.

Answer:
Rescission is likely barred by affirmation. By choosing to complete after knowledge of the misrepresentation (and agreeing revised terms), the buyer affirmed the contract. Damages may remain available, but rescission will generally be lost.

Worked Example 1.5

A buyer relies on a false statement in the particulars about a right of way. Before completion, the servient owner grants that right of way to a third party, who registers the easement. Can the buyer rescind?

Answer:
Rescission may be barred if third‑party rights have intervened such that restitutio in integrum is not practicable or would unfairly prejudice the third party. The court may refuse rescission and instead award damages (including, where appropriate, damages in lieu of rescission under s 2(2) MA 1967).

Procedure for Rescission

To rescind, the innocent party must act promptly and communicate their intention clearly. In practice, the route depends on the ground:

• Failure to complete after notice: Ensure the serving party is ready, willing, and able on service; serve a compliant notice to complete allowing the required period; maintain readiness during the notice; and, if the notice expires without completion, send a clear notice of rescission and implement the contractual consequences (deposit release/return, interest, damages). Ensure any protective entries (for example, a notice of the contract on the register) are cancelled and return or recover any title documents as required.
• Misrepresentation/mistake: Notify the other party promptly of the election to rescind and take reasonable steps to restore the parties to their pre‑contract positions. If the other party disputes rescission, an application to the court for a declaration that the contract is rescinded, together with ancillary relief (for example, repayment of the deposit and cancellation of entries), may be required.

On registered titles, check whether any unilateral notice of the contract has been entered and arrange for cancellation following rescission. If a party has registered an agreed notice or a restriction based on the contract, appropriate applications for cancellation/withdrawal should be made. Stakeholders holding the deposit must follow the contract’s provisions on release/return.

Exam Warning

Rescission is not automatic. The party seeking rescission must act without undue delay and must not affirm the contract after discovering the ground for rescission. For delayed completion under SCS/SCPC, a party cannot rescind without first serving a valid notice to complete and remaining ready, willing, and able to complete throughout the notice period.

Distinguishing Rescission from Other Remedies

• Rescission: Cancels the contract and unwinds the transaction, restoring the parties (as far as possible) to their original positions. Under SCS/SCPC, it is a contractual remedy with specified consequences (deposit, interest, damages). In equity, it is discretionary and subject to bars.
• Termination: Ends the contract for future performance only; accrued rights (for example, damages claims) survive. Termination does not unwind completed steps unless accompanied by rescission.
• Damages: Compensate for loss caused by breach or misrepresentation. On delayed completion, the defaulting party commonly pays interest at the contract rate for the period of delay; additional consequential losses may be recoverable subject to remoteness and mitigation. Under s 2(1) of the Misrepresentation Act 1967, damages for negligent misrepresentation may be awarded in addition to (or instead of) rescission.
• Specific Performance: Orders a party to perform their contractual obligations. In land contracts, specific performance is common where damages are inadequate (land is unique), but may be refused where, for example, the claimant is not ready to complete, it would be oppressive, or there is misrepresentation or mistake making relief inappropriate.

Revision Tip

Be prepared to identify (1) whether time has been made of the essence by a valid notice to complete, (2) who is truly in default, (3) whether the serving party was ready, willing, and able to complete, and (4) the contractual consequences that follow under SCS/SCPC for the deposit, interest, resale, and damages.

Summary

• Rescission cancels a contract and aims to restore the parties to their original positions. It arises either under the contractual framework (SCS/SCPC) or in equity (for misrepresentation or mistake).
• Completion dates are not ordinarily of the essence. A valid notice to complete (typically allowing ten working days) is needed to make time of the essence; the serving party must be ready, willing, and able to complete when serving and during the notice period.
• On failure to complete after notice, SCS/SCPC provide contractual rescission: if the buyer defaults, the seller may rescind and forfeit the deposit, resell, and claim losses; if the seller defaults, the buyer may rescind, recover the deposit with interest, and recover losses.
• Misrepresentation can justify rescission and damages. Contractual clauses in SCS/SCPC can limit rescission to material cases, and statutory controls (Misrepresentation Act 1967; Consumer Rights Act 2015) regulate attempts to exclude liability.
• Rescission may be barred by affirmation, delay, impossibility of restitution, or intervening third‑party rights. Equitable rescission is discretionary; courts may award damages in lieu where rescission is impracticable.
• Rescission is distinct from termination, damages, and specific performance. Selecting the correct remedy requires attention to the contractual machinery and equitable considerations.

Key Point Checklist

This article has covered the following key knowledge points:

• Rescission is the cancellation of a contract, restoring parties to their original positions.
• Grounds for rescission include misrepresentation, mistake, and failure to complete after a valid notice to complete.
• Time is not of the essence for completion unless a notice to complete is served; the serving party must be ready, willing, and able to complete.
• On rescission for buyer default, the seller may forfeit the deposit and resell; on seller default, the buyer recovers the deposit with interest and may claim damages.
• Bars to rescission include affirmation, delay, impossibility of restitution, and prejudice to third‑party rights.
• Misrepresentation can justify rescission; contractual limitations are subject to statutory control, and damages in lieu may be awarded.
• Rescission differs from termination, damages, and specific performance; each has distinct consequences and pre‑conditions.
• Practical steps involve serving and expiring a valid notice to complete, communicating rescission, handling the deposit appropriately, and cancelling any register entries.

Key Terms and Concepts

• rescission
• misrepresentation
• affirmation
• notice to complete