Learning Outcomes
After studying this article, you should be able to explain the common contractual remedies for delayed completion of freehold property transactions, identify the operation and implications of contractual compensation, notice to complete, and rescission provisions, and apply these concepts to SQE2 exam scenarios.
SQE2 Syllabus
For SQE2, you are required to understand remedies for delayed completion in the context of freehold real estate transactions. You must be able to identify contractual solutions, calculate compensation for late completion, and explain when and how to serve a notice to complete and pursue rescission.
As you work through this article, focus your revision on:
- the main contractual remedies available if completion is delayed in a freehold conveyance
- how contractual compensation is calculated and paid
- circumstances and implications of serving a notice to complete
- the process and consequences of rescission after a notice to complete
- the effect of these remedies on parties' contractual rights and obligations.
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.
- What contractual remedy is immediately available to a seller if a buyer does not complete a freehold purchase on the agreed date?
- How is compensation for delayed completion typically calculated under standard conditions of sale?
- What is the effect of serving a notice to complete if the completion date has passed?
- After a notice to complete has expired without completion, what right may become available to the non-defaulting party?
Introduction
In freehold property transactions, delayed completion is a common risk. Standard conditions of sale prescribe precise contractual remedies if either party fails to complete on time. For the SQE2 exam, it is essential to understand not just the legal but practical impact and operation of these contractual remedies. This ensures you can advise clients or apply the rules clearly in exam scenarios.
Remedies for Delayed Completion
Contractual Compensation
When completion is not effected on the contractual date, the non-defaulting party is generally entitled to claim contractual compensation at a specified rate (the contract rate). This applies automatically under standard conditions.
Key Term: contract rate
The rate of interest specified in the contract, used to calculate daily compensation for delay. It may be set in the contract or a default rate applies.
- The compensation is calculated daily on the purchase price (less any deposit already paid if the buyer is in default).
- Payment is due on actual completion.
- Compensation is intended as a penalty to incentivize completion and to compensate for financial loss during the period of delay.
Key Term: contractual compensation
The financial remedy for delayed completion of a contract, calculated using the contract rate and ordinarily payable upon completion; it is not automatic if completion never occurs.
Worked Example 1.1
Amir contracts to buy freehold land from Imogen for £700,000, completion set for April 10. The buyer fails to complete until April 15. The contract rate is 4.5%. How much compensation is due?
Answer:
Delay is 5 days. Compensation = £700,000 × 4.5% ÷ 365 × 5 ≈ £431.51.
Notice to Complete
If completion is not effected by the contractual time, either party who is ready, able, and willing to complete can serve a notice to complete. The notice makes time "of the essence", requiring the defaulting party to complete within a set period (usually ten working days from service of the notice).
Key Term: notice to complete
A formal notice served by the non-defaulting party requiring completion within a set period (typically ten working days), after the agreed completion date has passed.Key Term: ready, able, and willing
The state of preparedness required for a party to validly serve a notice to complete; the serving party must have fulfilled all their obligations and be capable of completing immediately.Key Term: rescission (contractual, for failure to complete)
The termination of the contract following expiry of a notice to complete, entitling the non-defaulting party to recover or retain the deposit and pursue damages.
Worked Example 1.2
Queenie sells freehold land to Derek. Completion is set for 20 September. Derek fails to complete. On 21 September Queenie serves a notice to complete. Ten working days pass with no completion. What remedy does Queenie have?
Answer:
After expiry of the notice, Queenie may rescind the contract, forfeit the deposit, and may also claim damages in excess of the deposit for any additional loss.
Operation of Rescission
If the defaulting party does not complete within the period specified by a valid notice to complete:
- The non-defaulting party may choose to rescind the contract.
- Rescission is not automatic but must be elected by the non-defaulting party—usually by written notice.
- Upon rescission:
- If the buyer is in default, the deposit is forfeited to the seller.
- The seller may resell the property.
- The seller can also seek common law damages for any further losses, subject to deduction for forfeited deposit.
Exam Warning
Be careful: contractual compensation is not awarded if the contract is rescinded before completion occurs. In that situation, the deposit and additional damages are the available remedies.
Remedies Available to Buyer
If the seller defaults and fails to complete after a valid notice to complete:
- The buyer may rescind the contract and reclaim the deposit (with interest).
- The buyer may pursue damages for breach of contract.
Practical Considerations
- Once a notice to complete is served, time is of the essence—failure to complete by the end of the notice period is treated as a repudiatory breach.
- The party seeking to serve notice to complete must ensure they have clear evidence of being ready, able, and willing to complete; otherwise, the notice may be invalid.
- Accurate calculation of the compensation period is important: the first day of default is counted, but the day completion actually takes place is not.
Worked Example 1.3
On Friday, both parties are ready to complete but funds are received by the seller after the 2pm cut-off, so completion rolls to Monday. How is delay calculated?
Answer:
Compensation is charged for Friday as delay occurred that day; Saturday and Sunday (non-working days) are included if the contract so stipulates and will depend on contract-specific provisions.
Key Point Checklist
This article has covered the following key knowledge points:
- The principal contractual remedies for delayed completion are compensation (contract rate), notice to complete, and rescission.
- Compensation for delay is calculated at the contract rate on the balance outstanding, pro rata for the days of delay.
- Service of a notice to complete is necessary to make time of the essence if completion is not forthcoming; either party can serve if ready.
- Following expiry of a notice to complete, the non-defaulting party can rescind the contract, forfeit or recover the deposit, and pursue further damages.
- The party serving a notice to complete must themselves be ready, able, and willing to complete.
- Rescission does not occur automatically; the non-defaulting party must elect to rescind.
- Remedies for delayed completion are strictly governed by the contract terms and standard conditions; precise process must be followed for the remedy to be available.
Key Terms and Concepts
- contract rate
- contractual compensation
- notice to complete
- ready, able, and willing
- rescission (contractual, for failure to complete)