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Coronavirus and Your Commercial Property Purchase

on Monday, 23 March 2020.

With UK Government advice changing on an almost hourly basis, it is incredibly difficult to anticipate the extent of the disruption on the UK property market and commercial property transactions.

What if, for example, a seller contracts coronavirus and has to self-isolate between exchange and completion? In this article, we consider the potential impact of coronavirus on your property contracts, and the steps you can take now to ensure that your position is protected.

What About Force Majeure?

You may have seen discussions in the press about the concept of 'force majeure'. This is where an unforeseen circumstance or event prevents someone from fulfilling their contractual obligations.

Force majeure provisions, which relieve parties from their contractual obligations in the event of a 'force majeure', are common in some types of commercial contract. However, contracts for the sale of land that incorporate the Standard Conditions of Sale (whether Commercial or Residential), rarely contain 'force majeure' provisions that would apply to the kind of disruption we are seeing.

If Contracts Have Already Been Exchanged

  • What happens if you are a seller but your buyer cannot complete on the agreed completion date?
    In this event, the contractual position is that the seller can serve a "Notice to Complete", requiring the buyer to complete within 10 working days. If the buyer cannot complete within this period, the Seller can rescind the contract (ie to treat the contract as though it never existed) and retain the deposit. Alternatively, the seller could issue court proceedings seeking 'specific performance' of the contract.

  • What happens if you are a buyer and your seller cannot complete on the agreed completion date?
    In this scenario, the buyer could serve a "Notice to Complete" requiring the seller to complete within 10 working days. If the seller fails to complete, the buyer could rescind the contract and demand the return of their deposit. Alternatively, the buyer could issue court proceedings seeking 'specific performance' of the contract.

    Buyers in this position will need to consider factors such as the impact (if any) of the ongoing disruption on property values, and the potential time and expense of a specific performance claim. 

What About Where Contracts Have Not Already Been Exchanged?

Whether you are a buyer or seller, you may wish to consider negotiating a force majeure provision into your contract. Such a provision could, for example, seek to suspend the parties' right to rescind the contract whilst the disruption associated with the coronavirus pandemic continues.

Unfortunately, even the inclusion of a force majeure clause is not a failsafe. Disputes could arise surrounding the interpretation of the force majeure event, and other supervening events could render one or both parties unable to complete when the disruption has come to an end. Clients in chains will need to ensure that similar force majeure provisions are included in all contracts in the chain.

In times such as this, it is more important than ever that parties act commercially and in good faith. If you have not yet reached the stage of exchanging your property contract, you should discuss the possibility of including a force majeure clause with your solicitor. Likewise, if you are due to complete a property contract and run into issues, such as being forced to self-isolate, you should raise this issue with your solicitor and the other party as soon as possible.

The above reflects guidance as at 23 March 2020. We will continue to update this as the situation develops. While we aim to release updates as quickly as possible, it is important that readers check the latest governtment advice for further updates.


If you require any specialist legal advice or would like more information in relation to the issues raised in this article, please contact Steven McGuigan in our Real Estate team on 0117 314 5442 or complete the form below.

 

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