In Oakley v Harper McKay Developments
the High Court held that a Seller of an office block, to be converted into flats, was entitled to rescind the contract for the sale after the Buyer failed to respond to a notice to complete.
In 2015 contracts were exchanged for the sale of a property to the Buyer for conversion from an office block into flats, with completion set for 7 August 2015. The Buyer had difficulty securing their funding and the completion date was extended to 7 September 2015. On 11 September the Sellers served a notice to complete on the Buyer, requiring completion within 10 working days. After the Buyer failed to do so the Seller served notice on 12 October that they were rescinding the contract and entitled to retain the deposit. The Buyer argued that the Seller was not entitled to rescind the contract as it was not ready, willing and able.
The Buyer alleged that the Seller was not ready to complete as they were not in a position to assign copyright as required by clause 18.1 of the contract, which required the copyright in the plans and reports to be assigned to the Buyer. The Court found in favour of the Seller on this point. The Seller had prepared letters granting licences of the copyright and these were prepared at the time of the notice. They had also given express confirmation that the rights would be given to the Buyer on completion and no objection to the form of rights had been raised. The Seller was therefore ready and able to complete as the Buyer was held to have waived its right to insist on an assignment rather than the licences.
The Buyer also alleged that the Seller was in breach of clause 14.1 by failing to provide access to the site after 7 August. Clause 14.1 provided that the Seller would permit the Buyer access and exclusive use of the Property at reasonable times for the purpose of commencing the conversion works. Access to the site had been permitted until 7 August, the original completion date, but on that date the padlock was changed and the Buyer was prevented from accessing the property. The Court again found in favour of the Seller. Whilst access had been denied since 7 August, the access was specifically for commencing conversion works and the Buyer had not begun these or requested access to do so. There was no reason to allow access for funders as this was addressed elsewhere in the contract. In any event the court held that the refusal of access was not the cause or a material contribution to the failure to complete, but that the true cause was that the Buyer did not have the funds available.
The Seller was therefore entitled to rescind the contract and retain the deposit of £222,500, the fee it had paid to have an extension to the completion date, in addition to redeveloping the property themselves.
This case serves as a reminder to those in the property and development industry to pay particular attention to what is required under the contract and what may or may not be inadvertently waived. It also highlights the importance of being specific about the reasons for which properties may be accessed prior to completion, in particular in relation to funding arrangements and whether funders will require access. This case also highlights the dangers of progressing with transactions without secure funding arrangements in place. For further advice on commercial property matters please contact Graeme Sampson on 01223 532736 or click here
to email Graeme.