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Ready to complete or not ready to complete?

A recent case has held that a seller was ready, willing and able to complete despite not being able to provide immediate vacant possession and itself being in repudiatory breach.

Facts

The facts of Cantt Pak Limited (seller) v Pak Southern China Property Investment Limited (buyer) are complex. But basically, the seller agreed to sell Hillbit House in Manchester to the buyer for £1.2m. The contract required a 10% deposit and completion on 30 June 2016. The parties later extended the completion date to 1 December 2016.

Hillbit House comprised 3.34 acres of industrial land and commercial buildings. There were five entities occupying it, ranging from a quilt-filling business to a scrap metal merchant, paying varying levels of rent. There were several large pieces of equipment at the property, including industrial boilers and haulage containers.

The contract required vacant possession “on completion”, but the parties disagreed as to whether this meant the seller had to confirm the site was vacant at some date beforehand in order to be able to complete. There were also differing views as to whether the buyer had the funds to complete. Because of these issues, the extended completion date passed without the sale being completed.

The seller gave Notice to Complete (NTC) to the buyer on 8 December 2016. This required the buyer to complete the sale within 10 working days and made time of the essence. Completion did not take place by the deadline and the seller served notice of rescission (cancellation) of the contract on the buyer.

Proceedings were later issued, in which the buyer argued that the NTC had been invalid because, at the time it was served, the seller was not ready, willing and able to complete due to the property still being occupied. The buyer said that it would have taken the seller longer to clear the site than the ten working days allowed by the NTC and, no steps to clear the site had been taken at all.

The seller said that it could give vacant possession “on completion” and so was ready, willing and able to complete. This was because all the occupants were licensees with informal licences terminable upon very short notice and they had all agreed to vacate within a couple of days if asked to do so.

The dispute, therefore, turned on whether the seller was ready, willing and able to complete at the time it served the NTC, despite the site not being vacant.

The decision: was the NTC valid?

The judge found that on any view, the buyer was ambivalent about the need for vacant possession. Indeed, at times, the buyer was found to have encouraged the seller to believe that the occupiers might well be able to stay for a period after completion.

However, there was an abundance of evidence to show that, since the contract was entered into, the seller had been preparing the ground for the occupiers to vacate at short notice. The judge was satisfied that they would have vacated within two to five days if the seller had asked them to. Witness and expert evidence showed that the large items of equipment could also be removed in good time.

Therefore, the seller was in a position to give vacant possession on or before expiry of the NTC and so was ready, willing and able to complete at the time it gave the NTC. The sale could have proceeded had the buyer been in funds. Instead, as the buyer had not managed to obtain funding, it was not able to complete and was looking for a way to delay completion.

Was the notice of rescission effective?

The next question was whether the seller was entitled to rescind the contract, despite it not having taken steps to get vacant possession and thereby arguably being in repudiatory breach of the contract itself. A repudiatory breach is a breach that is sufficiently serious to allow termination of a contract.

The judge confirmed previous caselaw, that, when faced with a repudiatory breach by party B, party A is not obliged to complete, but had two options, either:

  • accept the repudiatory breach and treat himself as discharged from the contract, bringing it to an end and keeping the deposit; or
  • disregard the breach and allow the contract to continue.

Just because a party was in breach itself did not stop it from taking action for the other party’s separate breach.

So, just as the seller had these options due to the buyer’s failure to complete for lack of funds, the buyer also had these options due to the seller not giving vacant possession. The difference is that the seller had chosen to accept the repudiatory breach and end the contact whereas the buyer had chosen to allow the contract to continue.

The judge therefore found that the seller was entitled rescind the contract after the NTC deadline expired.

Conclusion

Despite the site not being vacant at either service or expiry of the NTC, the NTC was valid. When the buyer failed to complete, the seller was entitled to serve a notice of rescission. It followed that the seller had successfully rescinded the contract, which meant it could keep the deposit and was free to sell the site to someone else.

This case confirms the need for all parties to a contract to be crystal clear on what it is they are agreeing to do and when. It also provides comfort to those selling property with an ongoing rental stream that, provided they are confident they can get vacant possession quickly, they need not discontinue that rental stream so as to put themselves in a position to complete if it is clear that the buyer cannot complete.

Disclaimer

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.

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