Service of a formal notice to complete in a plot purchase should not be entered into lightly - there are cost implications and practical considerations.
Whether a notice to complete is the best course of action depends on the circumstances of each transaction.
Standard Conditions of Sale
In addition to a raft of special conditions, plot contracts used in new home plot sales incorporate the Law Society's standard conditions of sale. It is the standard conditions that set out the procedure that must be followed in the event that a plot buyer fails to complete.
At any point after the time for completion, a party who is ready, able and willing to complete may give the other a notice to complete. The notice requires the defaulting party to complete within ten working days of giving notice, not including the date of service of the notice. Time is of the essence.
If a plot buyer fails to comply with a notice to complete, the contract may be terminated and the seller may keep the deposit paid. At that point the seller is free to resell the property and to claim damages from the plot buyer. A claim for damages can arise where the developer can prove financial loss flowing from the buyer's failure to complete.
Such loss could include, for example, additional marketing costs or abortive legal fees or, of course, the developer having subsequently to re-sell the property at a reduced price from that at which the buyer was contracted to purchase.
However a developer must first give credit for the retention of any deposit monies against any financial loss which it suffers, otherwise the developer would benefit from double recovery. As such in a stable or rising property market, it is unlikely that a developer will be able to evidence any financial loss arising from the failure to complete in excess of the value of the deposit monies which can be retained.
Ready and willing to complete?
The seller is ready to complete if he is in a position to do so, but for the default of the other party. From a developer's perspective, the property must of course be ready for occupation but most importantly, the developer must be in a position to transfer legal title to the buyer. In other words, the developer cannot serve notice making time of the essence unless it is holding a signed transfer or signed lease.
When is it best to serve notice?
The standard conditions state that notice may be served at any time on or after completion. Provided the developer is ready and willing to complete, when to serve notice is a matter of judgement. If it is clear that the plot buyer does not intend to proceed, notice might best be served without further delay. On the other hand, if there is a justifiable reason for a few days' delay a developer may be prepared to wait.
Can I keep the buyer's deposit following termination of the contract?
The Law of Property Act 1925 states that 'the court may if it thinks fit, order the repayment of any deposit'. However, the court will not exercise its discretion lightly. A sophisticated investor plot buyer who is aware of the risks of failing to compete cannot rely on any sympathy from the court.
The right to retain a deposit is not absolute - there may be circumstances where the fairer course is for an order to be made for the refund of the deposit. However, any claim for the return of a deposit will only succeed where the plot buyer proves that there are exceptional circumstances. In all ordinary cases the plot buyer must provide the deposit on the understanding that the payment is non-refundable.
Is service of notice to complete the right decision to take?
Despite its name, a notice to complete is a prelude to termination not to completion. If notice is served and the contract is terminated, the plot must be resold. This takes time. If completion is the aim then a letter before claim followed, if necessary, by proceedings is more likely to secure the desired effect.
For example, take a situation where an investor plot buyer changes his mind and wants out, albeit at the risk of loss of his deposit. Rather than making time of the essence by serving notice and then going to the cost and trouble of reselling the property, might it be better to issue a letter before claim in a bid to prompt completion? Rarely considered by developers, this course of action may in fact be a better option than service of a notice to complete.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.