The measures taken by the UK Government to contain the spread of the coronavirus have created profound complications for the UK residential property market. Legal concerns relate to drafting contracts, financing arrangements, force majeure provisions, exchanging contracts, and post-exchange & completion.
The following provides some guidance on these legal issues for buyers and sellers to consider in light of the current environment.
Q1. What should I do if I am due to exchange contracts on a residential property this week?
In accordance with the UK Government’s guidance, residential transactions can still progress but should delay completing whilst the emergency measures are in place.
It is important that you are aware of any existing force majeure provisions as they may no longer be applicable. It would be prudent to review the contract and for your solicitor to consider incorporating an additional clause which specifically deals with any possible delays as a result of the coronavirus. Implementing a long stop date within your contract should also be taken into consideration.
Every transaction has different circumstances and these additional provisions may or may not be required. However, if you do not make these provisions within your contract and the seller does not take a “good faith” view, the principles relating to default will apply.
As an aside, a force majeure clause is a provision contained within a contract which suspends or terminates the contract in the event of an occurrence outside the control of the parties, such as a fire, flood, storm or Acts of God etc. Whether or not a worldwide pandemic of the type we are currently experiencing would fall under force majeure remains to be seen and is very likely to have to be settled by the courts (unless the existing contract already legislates for pandemic occurrences).
Q2. Can I still obtain a mortgage to purchase a residential property?
YES. Mortgages are still possible. Lenders are in discussions with valuers in relation to whether desktop valuations can take place, and importantly, whether they are acceptable as valuers cannot physically inspect the property. The financing process can be made subject to the valuation coming at a later date when an inspection of the property is possible.
Buyers should be warned against exchanging subject to a later valuation unless it is very clear that if the value is below a certain level and/or leads to a lower mortgage offer or withdrawal of the offer the buyer can rescind the contract and get the full deposit back.
Q3. Can Force Majeure provisions be implied into the contract under the current climate?
The Standard Conditions of Sale, which are a set of standard conditions to be incorporated into the contract for sale, does not include a force majeure provision. Therefore, it will be difficult to imply a force majeure provision within the contract.
Q4. Is it still possible to exchange contracts even with the measures enforced by the Government?
YES. The measures implemented by the Government has not altered the legal position in relation to exchanging contracts. Solicitors in England and Wales typically use telephone exchange to exchange contracts, and specifically, Formula B exchange.
Q5. After exchanging contracts, will completion be able to take place on the completion date?
YES. The Government have indicated residential property transactions can still complete on the completion date but various factors must be considered: when is the completion date – is this within the next 6 months, what are both parties’ circumstances, what property will you be purchasing – a probate property which will be vacant on completion and the buyer is a cash buyer, a property where the seller refuses to vacate because they are in self-isolation and where removal companies are reluctant to enter.
Where contracts have been exchanged and completion is due within the next 6 months, a pragmatic solution is for both parties to agree to defer the contractual completion date. It should be noted that any variations made to the contract must be agreed in writing to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.