Remedies for delayed completion - Rescission of the contract

Learning Outcomes

After reading this article, you will be able to explain the concept of rescission as a remedy for delayed completion in property transactions, identify the legal grounds and limitations for rescission, describe the notice to complete procedure, and distinguish rescission from other contractual remedies. You will also be able to apply these principles to SQE1-style scenarios and advise clients on the practical and procedural aspects of rescission.

SQE1 Syllabus

For SQE1, you are required to understand the legal and practical aspects of rescission as a remedy for delayed completion in property transactions. Focus your revision on:

  • The concept and effect of rescission in contract law and property transactions
  • The grounds on which rescission may be available, including misrepresentation and breach
  • The limitations and bars to rescission (affirmation, delay, impossibility, third-party rights)
  • The notice to complete procedure under the Standard Conditions of Sale and its link to rescission
  • The distinction between rescission, termination, damages, and specific performance
  • The procedural steps required to effect rescission

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, you must know when rescission is available, the legal requirements for its use, and how it interacts with other remedies such as damages and specific performance.

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.

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.
  • Serious Breach: Where a breach deprives the innocent party of substantially the whole benefit of the contract.
  • Failure to Complete After Notice: Where a party fails to complete after service and expiry of a notice to complete under the Standard Conditions of Sale.
  • Mistake: Where both parties are mistaken about a fundamental fact.

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.
  • Delay: If the party seeking rescission waits too long to act.
  • Impossibility of Restitution: If it is no longer possible to restore the parties to their original positions.
  • Third-Party Rights: If rescission would prejudice the rights of a third party who acquired an interest in good faith.

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 Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC), time is not of the essence for completion unless a notice to complete has been served. If a party fails to complete after a valid notice to complete, the other party may rescind the contract and seek further remedies.

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.

  • Fraudulent: The misrepresentation was made knowingly or recklessly.
  • Negligent: The statement was made carelessly or without reasonable grounds.
  • Innocent: The statement was made with reasonable belief in its truth.

Rescission is available for all types, but damages may also be awarded for fraudulent or negligent misrepresentation.

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.

Procedure for Rescission

To rescind, the innocent party must act promptly and communicate their intention clearly. If rescission is disputed, the court may be asked to declare the contract rescinded and make orders for restitution.

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.

Distinguishing Rescission from Other Remedies

  • Rescission: Cancels the contract and unwinds the transaction.
  • Termination: Ends the contract for future performance but does not undo what has already happened.
  • Damages: Compensates for loss suffered due to breach or misrepresentation.
  • Specific Performance: Orders a party to perform their contractual obligations.

Revision Tip

For SQE1, be able to explain when rescission is available, how it is barred, and how it differs from termination and damages.

Summary

  • Rescission cancels a contract and restores the parties to their original positions.
  • Grounds include misrepresentation, serious breach, and failure to complete after notice.
  • Bars to rescission include affirmation, delay, impossibility, and third-party rights.
  • Under SCS/SCPC, a notice to complete is required before rescission for delayed completion.
  • Rescission is distinct from termination, damages, and specific performance.

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, serious breach, and failure to complete after notice.
  • Rescission may be barred by affirmation, delay, impossibility, or third-party rights.
  • A notice to complete is required before rescission for delayed completion under SCS/SCPC.
  • Misrepresentation can justify rescission and, in some cases, damages.
  • Rescission is different from termination, damages, and specific performance.

Key Terms and Concepts

  • rescission
  • misrepresentation
  • affirmation
  • notice to complete
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