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Apartment Purchase Contract Upheld Despite Delays by Developer

Published: 24th September 2009

The High Court has given a ruling in the case of Northern Properties Ltd v Coleman and another which should provide some welcome news for developers in this difficult market. The case provides that a developer can still be entitled to specific performance of the purchase contract notwithstanding a 7 month delay in procuring completion.

This case involved 2 purchasers of 11 new build flats. The developer informed the buyers before exchange of contracts that the flats would be completed in December 2007. The sale contracts provided for completion to take place within 10 days of the seller serving notice on the buyers that the flats were ready for occupation.

By May 2008, when the flats had still not been fully constructed, the buyers served notices to complete making time of the essence. The notices specified that the flats must be completed within 10 working days failing which the buyers would be entitled to rescind the contracts. The notices further claimed that the seller was in breach of its contractual obligation to erect and finish the construction of the flats 'with all due dispatch'.

The flats were subsequently completed in June 2008, and on 1 July 2008 the buyers were served with notice that the flats were ready for occupation. The buyers failed to complete and the seller in turn served notice to complete under SCS 6 on the buyers. The buyers did not complete and the seller brought specific performance proceedings.

Part of the buyers' defence was that they were not bound to complete because the seller was under an obligation to complete construction within a reasonable time after the date of the contracts and that this reasonable time had already expired by the time they served their notices to complete. On expiry of the notices, they argued, they were entitled to, and did in fact, rescind the contracts. Therefore the seller was not able, in July 2008, to seek to enforce the contracts.

The court did not accept this argument. It held that following the service of the initial notices to complete by the buyers they had not gone on to rescind the contracts. The contracts were still in place and the seller was entitled to specific performance of them.

The court held that the buyers were not entitled to serve notices to complete in May 2008 because the contracts clearly provided that completion would take place within 10 days of the seller serving notice on the buyers that the flats were ready for occupation. No such notice had been served in May 2008, the completion date had not passed, and therefore the buyers could not validly serve a notice to complete. In his judgment (at paragraph 62) HHJ Behrens said "it is plain from Condition 6.8.1 that a valid Notice to Complete may only be served 'on or after completion date'".

The court ruled that the notices to complete could not take effect as common law completion notices, because the time specified for completion in the notices was not reasonable.

While the court accepted that the seller was "plainly in breach" of its contractual obligation to complete construction with all due dispatch, the court did not accept that the breach was sufficiently serious as to be repudiatory. In reaching this conclusion the court considered that there had been no complaints of delay prior to the service of the buyers' notices to complete and that in fact the flats were completed by the end of June 2008.

This decision will be welcomed by residential developers, who may find themselves faced with buyers who contracted to buy property before the recession took hold and who are now seeking to 'wriggle out' of the agreement and reclaim their deposits. Where a seller is under an obligation to complete construction with all due dispatch, or a similar provision, the buyer remains bound to complete the purchase, providing that the breach is not so serious as to be repudiatory. However, this should not be seen as carte blanche for a seller to delay construction indefinitely. Following this decision buyers are still likely to be advised to serve notices to complete, albeit a notice specifying a longer period of time for completion than perhaps would have been the case prior to this decision, which a court would be more likely to consider a reasonable period. Buyers will also be advised to complain about delays in writing before serving notices to complete.