Delayed Completion

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As we know, the majority of housebuilders’ plot contracts are exchanged on the basis that legal completion will take place after the builder has served notice on the buyer, confirming that the property has been completed in accordance with the contract. Given this fact, and the potential which therefore exists for disputes about practical and legal completion under such contracts, it is quite surprising how little case law seems to exist in respect of such contracts. For this reason the recent case of North Eastern Properties v Coleman & Quinn caught my eye. 

 

The facts of the case were as follows. The developer agreed to sell 11 flats at its development at Bedlington, Northumberland to Messrs Coleman and Quinn. Contracts for all 11 units were exchanged on 24 October 2007. The legal completion date was not fixed by the contracts, but was defined as being one not more than 10 working days after the buyer (or their solicitors) received notice from the developer that the properties had been completed to the required standard.

 

At the time of exchange it was anticipated that all the flats would be practically complete by the end of 2007. Under the contracts the developer was under an obligation to construct the properties with "due dispatch". Now, you perhaps won't be hugely surprised to find that the estimated date for practical completion proved a little optimistic. Following exchange, various problems were encountered by the developer who periodically revised the estimated date. At a site meeting with the buyer's agent on 21 May 2008, a further estimated completion date was given by the developer of mid to late June 2008 with the developer citing "contractor difficulties" for the delay.

 

On 23 May 2008, the buyer served a notice on the developer stating that time was now of the essence and that unless the properties were ready for occupation within 10 working days, and both final building regulation and warranty inspections had been passed, then the buyer would consider the contracts discharged, and require the return of their deposit.

 

What the buyer was trying to do here was serve a notice making time of the essence under the contract. This notice would be of the type normally served by developers on buyers, who have not completed following service of a contractual notice stating that the property is complete and that legal completion is now due.

 

The problem for the buyer was, that the completion date under the contract was defined solely by reference to the developer serving notice.  The developer had not served any such notice. Legal completion was therefore not yet overdue. The court therefore found in favour of the developer on this point, stating that there was no ability for the purchaser to serve such a notice making time of the essence in this way.

 

The second point the buyer tried to argue and the court needed to consider, was whether the notice served by the buyer could constitute one rescinding the contract, as opposed to one simply requiring completion. The background to this is that under contract law an innocent party can serve such a notice if the other party unreasonably delays completion of a contract, or performing an obligation under it, and the innocent party can show that this breach went to the root of the contract.

 

Again, the court found in favour of the developer. There were essentially two reasons for this. Firstly, the buyer waited until May 2008, to inform the developer that they viewed the delay in construction as serious. This was clearly a long time after the delay in completion would have been apparent to the buyer, and was also too close to practical completion. Secondly, the buyer only gave the developer 10 working days to finish the outstanding works. The court said this was not a reasonable period of time.  

 

Both of these points seem correctly decided to me. It means in practice that unless a buyer is genuinely able to make out why a delay is important to them, as opposed to it being a commercial change of heart, then the court is likely to find in the developers favour.

 

It should however be acknowledged that where there is a delay to a project, that this does present the developer with a contractual risk. This is something you do need to consider in any dialogue you have with a buyer.  

 

Richard Stokes

 

Associate

 

November 2009

 

This article first appeared in Housebuilder Magazine, 1 November 2009