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Rights and liabilities of buyer and seller between exchange and completion of contract

Date: (26 April 2013)    |    

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Until such time when contracts are exchanged both buyer and seller are free to withdraw from the transaction without incurring any penalty without assigning any reason.
The buyer could have verbally agreed to buy or the seller agreeing to sell a property is not sufficient to create a binding contract. This is because land transactions are subject to special rules which don’t apply to transactions involving other types of property.
These rules are set out in paragraph 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and they require that any contract for the sale of land must be in writing, must be signed by both buyer or seller and must contain all of the terms in one document.
But once the contracts are exchanged the penalties, for failing to keep up to the agreement even in case it is delayed than the appointed day, can be severe.
The contracts are in writing and every term being expressly included it could be made out which party is at fault and to what extent. Failure to comply with the agreed terms could be for many reasons they could be
• Death of the Seller
• Death of the Buyer
• Seller going bankrupt or
• Buyer going bankrupt
Death of the Seller
It is of course very unfortunate however occasionally the seller will die following exchange but before completion. Property solicitors may bring the date of completion forward if the impending death of the seller could be anticipated but it is not always possible.
The contract law says when events beyond the control of the parties happen it is no longer possible for it to be completed which is called frustration of the contract but sellers’ death does not frustrate contract.
In land transactions, the personal representatives of the deceased can be compelled by the buyer to sign the transfer deed as buyer acquires a beneficial interest in the property once contracts are exchanged. The nature of that interest being a right to have the property transferred to him provided he performs his obligations under the contract – paying the purchase monies to the seller or his personal representatives.
The difficulty would arise despite the naming of an executor in a will who may have the transferring powers a transfer cannot be carried out without producing a grant of probate which can only be issued once the will has been proved. Which means completion cannot take place until probate has been issued.
Buyer may not be successful in claiming compensation as the court may find the delay as something beyond the control of the personal representatives.

Death of the Buyer
The situation is different when a buyer dies before the completion. Though buyer acquires beneficial interest in the property once contracts are exchanged the same cannot be said about the seller who does not get any corresponding interest in the purchaser’s money which arises in favour of the seller.
Practically it would be impossible for a buyer’s personal representatives to complete transaction. Generally a buyer may be borrowing money in the form of mortgage to pay purchase price and clearly that Will facility will not be available to the personal representatives.
In addition it is not possible for a deceased person to be registered as proprietor of a property. A contract is personal and cannot impose an obligation on someone who is not a party to it. In the reverse situation, where the seller has died, he can still sell because he is acting by his personal representatives and the obligations under the contract are therefore still being fulfilled by the deceased.
The contract in this case is frustrated by reason of the death of the buyer as personal representative of the buyer cannot be forced to become registered proprietor of the property – the only way for the transaction to be completed.
Bankruptcy of the Seller
If the seller is the sole proprietor and becomes bankrupt then the buyer must deal with the official receiver or, if one is appointed, the trustee in bankruptcy.
The trustee is entitled to, and may, have the property registered in his name but even if he does not the Land Registry should accept a transfer signed by him provided the necessary evidence of appointment is lodged. Trustee stepping into the sellers shoes he could be forced for specific performance to sign the transfer.
Where there are joint proprietors then the legal title to the property does not pass to the trustee, only the bankrupt’s beneficial interest only the equity he is entitled to. The transfer can therefore still be signed by the proprietors. But to avoid any threat of action by the trustee in future it is good practice to get him sign on the transfer also by way of consent.
Bankruptcy of the Buyer
A bankrupt person’s asset belongs to the official receiver or if one is appointed, the Trustee in Bankruptcy. If the buyer becomes bankrupt in between the exchange and completion then he cannot be compelled to complete since the funds he was use to complete the purchase no longer belong to him.
The trustee is not obliged to complete the transaction on his behalf and as far as the seller is concerned he need not check whether the buyer is bankrupt or not if he is getting the sale price which is fair as per market value or is at undervalue, since the trustee will be receiving the asset which is at least equivalent value to the cash paid.
The seller may have a duty to check of buyer’s bankruptcy where the sale price is significantly more than the actual value of the property, since the trustee is losing out by the difference between the actual value of the property and the price paid.