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Covid19 – impact on New Build Sales

New Build Flat

We have been talking to many of our clients about the possible impact of coronavirus (COVID-19) on conveyancing transactions, specifically regarding new build sales. The most immediate concerns are of course, about contracts that have been entered into and the possibility of either party being unable to complete.

You may have concerns about possible delays to the build programme as construction work grounds to a halt. You will need to review the long stop dates in your contracts. You may have a force majeure clause that enables you to extend your long stop date under certain circumstances, and COVID-19 may well be such a circumstance. We do flag however, that any steps to extend the long stop date should be operated in line with the Consumer Code.

There are many possible reasons that a buyer might be unable to complete; practical as well as legal reasons. In order to assess the legal reasons you will need to consider the steps that have to be taken by buyers and their lawyers between exchange and completion and what might go wrong. For example, a buyer might be unwell or in isolation and unable to sign a document in front of witnesses as required. This may prevent the buyer’s lawyer from being able to drawdown mortgage funds. We do not yet know what view mortgage lenders are taking but in reality they are unlikely to “take a view” on improperly executed documents. The buyer’s lawyers may struggle to obtain land registry search results and there may be failure or disruption to the banking system although at the current time these functions are being effectively provided electronically. These might mean that the legal deadline or mechanics on the contract are difficult for the buyer to comply with.

You might also find yourself unable to complete or to comply with your contractual obligations. It may be impossible for you to arrange for keys to be handed over to the buyer. Whilst the handing over of keys might not be a specific requirement under the terms of your contracts nor appear to affect completion because it does not affect the transfer of ownership you may nevertheless find you are in breach of contract for not having given vacant possession – a fundamental requirement of your contracts.

It is therefore imperative that alternative means of handing over keys is found to make sure you do comply with your contractual obligations. Many of our clients are immediately investing in lock boxes. You may have a concierge on site who can assist although this may not be practical in the current circumstances.

The legal process of completion is dictated by a Law Society Code. Part of that involves us, as the Seller’s solicitor, undertaking, amongst other things, to notify your estate agent or other keyholder that completion has taken place, and authorise them to make keys available to the buyer immediately. We would be put in a very difficult position if we knew that in fact the keys may not be available.

Ultimately If completion does not take place on the relevant contractual completion date due to COVID-19, the party whose total period of default is greater will be in default. The contract provisions relating to default will apply. This of course does not mean they have to be enforced. The non-defaulting party may choose to take a ‘good faith’ view in these particularly unusual circumstances. Many of our clients are contacting buyers now to establish if they will be able to complete and reassuring them that enforcement action will not be taken where delays arise as a direct result of the virus.

Looking forward, whilst we expect sales to be quieter for the time being, there will undoubtedly be some activity. We may be able to propose a drafting solution that might provide greater flexibility for both parties to delay completion or mitigate the effects of COVID-19 related delay. For example do you want to provide for a flexible completion date – one that can be agreed between the parties depending upon their actual ability to

complete? Or simply a date that can be postponed in certain circumstances. The challenge will be identifying what would be acceptable reasons for a delay. Would you expect buyers to provide proof that there was a valid reason? You will clearly need to balance the need to be reasonable and maintain good PR with need to keep business running as normally as possible and therefore it is not unreasonable to ask for proof. Simply providing that completion could be delayed due to the direct effects of Covid-19 is likely to be too broad. Furthermore whilst a lack of removal companies might make moving in challenging, if everything else is in place, this is not necessarily a reason not to complete.

The Law Society has just published some guidance and suggest that “Exchanging contracts on a ‘business as usual’ basis may be preferable to using new provisions, but you’ll (lawyers) need to make this assessment.” We are being encourage to focus on your best interests “and the public interest using pragmatism and common sense”.

We will continue to keep this under review. Please do consider your completion programme for the next 3-6 months and the impact on long stop dates and discuss with us so we can help you make plans.

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