Failed Completion in a Chain of Property Transactions

Exchange of contracts is the point in a conveyancing transaction when everybody becomes legally bound to proceed to completion. Failure to complete once exchange has taken place can lead to heavy penalties on the defaulting party. Conveyancers are well aware of this of course and as a result will ensure that everything is in place for completion before exchange so that their client does not end up in the position of having to default. Nonetheless, occasionally there will be circumstances beyond their control.

What happens then if there is a chain of transactions where each link is dependent on the next? What if one of the links in the chain breaks his or her contract? What is the effect on the rest of the chain?

How Can a Chain of Transactions Collapse After Exchange?

Imagine a chain of 5 properties where you are selling the property in the middle. Contracts exchange and then the buyer at the bottom of the chain lose their job. He tells his mortgage lender which withdraws the mortgage offer and consequently the buyer cannot afford to complete the purchase. He therefore breaks the contract. His seller, who is buying property number two, cannot now complete on that purchase as he was relying on the proceeds of the sale of property one.

The seller of property number two cannot now afford to buy property number three (your property) and breaks the contract he has with you, so that you cannot complete on your onward purchase and you have to break the contract with your seller.

Where Do You Stand In Terms of Compensation?

If you end up in a situation where you are forced to break a contract with your seller because your buyer has broken the contract with you then you’ll want to know who is responsible for any losses suffered by you and by your seller. You might think that since the situation is not your fault you are immune from being sued but you’d be wrong. A contract is personal, which means it is only binding on the parties to it. So regardless of your reason for doing so, if you break the contract with your seller then it is you that is sued for your seller’s losses.

These losses include not only those suffered directly by your seller but also indirectly as a result of the seller being sued by his seller. The good news is that you can then sue your buyer for the amount by which you are sued, but also your own losses.

Losses can include anything from furniture storage costs to hotel bills to new clothes (if the claimant’s clothes are packed up in a removal van) to the difference in price between what you contracted to pay for a property and what it eventually sells for if it eventually sells for less. Basically any expense that can reasonably and foreseeable; be attributed to you breaking the contract can form part of a claim. There are limits – if your seller stays in the Savoy for a week when a Travelodge was available then you would only be liable for the cost of a Travelodge. Similarly if all of the seller’s clothes were bought from discount stores and they buy designer clothes as replacements then these could not be claimed for.

The real problem occurs when you have the money to pay a claim by your seller but your buyer does not have the money to pay a claim by you. You may successfully sue but never receive the money you are owed and may therefore be left heavily out of pocket.

How Can You Avoid Breaking Your Contract?

If you’re lucky enough to have the cash to be able to complete on your purchase without completing on your sale then you should do so even if it means using money you would rather not use. Doing this could save you thousands. If you have another property which you can reportage you could consider this. Alternatively it may be possible to arrange a bridging loan. This is a short term loan and could get you out of trouble but it is risky – once the date for repayment passes the interest is astronomical therefore you would have to be confident you could re-sell your property and pay off the loan quickly.

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