Purchaser experiencing financial difficulties
There may be many reasons why a purchaser will be experiencing financial difficulties when they have agreed to purchase a property especially during the current economic climate. If this is the case there are certain legal problems which the purchaser may face if they decide to pull out of the deal.
Difficulties faced by owners and developers of property
It is not only the potential purchasers of property who are suffering during the financial downturn as individuals who develop and own property are facing huge issues. If individuals simply pull out of the property deal following the conclusion of the deal and the payment of the deposit it will often leave developers in major difficulties with properties that are left half empty, properties which are often mortgaged to a lender and a shortfall in anticipated income from expected transactions.
Due to the problems associated with the breach of the contract by the purchaser there are certain remedies which are available to the developer or the seller of the property.
What are the possible options available to the developers in this scenario?
Many developers will immediately look to recoup some of the losses by dropping the purchase price in an attempt to find a new buyer quickly.
There is however a specific remedy which is available to developers and which is often overlooked. That is the remedy of specific performance.
What is specific performance?
Specific performance is an equitable and discretionary remedy of the court imposed on a contracting party who has defaulted on performance of the contract.
What does this mean in the property context?
In the property context a court can ensure that a buyer who has defaulted on the contract for the purchase of the property to specifically perform or honour the terms of the contract to purchase.
When will the court order specific performance?
Specific performance will be ordered in circumstances when damages are seen to be in inadequate remedy for the breach of the contract. Often in the circumstances described if a developer is only compensated by damages this may not prove to be adequate compensation. In these circumstances the equitable remedy of specific performance is often an ideal remedy.
Will the court always impose specific performance?
As specific performance is a discretionary remedy this means that even if a developer claims for specific performance it will not definitely be granted by the courts. If they feel that the developer can be adequately compensated by damages then they will award damages. Often in cases the courts have been cautious when asked to force someone to buy a property.
What are the other possibilities which may be imposed on a purchaser pulling out of a property deal?
The following other options available to the seller of the property will include the following:
The contract being rescinded – in this case the seller will cancel the contract and the purchaser will lose their initial deposit. The seller will retain the property and attempt to sell it.
The contract being rescinded and the seller making a claim for damages – in this case the seller will cancel the contract and will make a claim for damages for any unpaid deposits. The seller will then retain the property and attempt to sell it.
The seller will sue for damages. In this case if the seller is successful in his claim the purchaser will be required to pay the difference between the contract price and the value of the property at the date when completion should have taken place.
From the point of view of the purchaser being sued for damages – although costly – will present a markedly better option that being forced to specifically perform the contract and purchase the property.
Care taken when entering into property agreements
During the current financial downturn it is imperative that potential buyers are aware of the potential implications of pulling out of the deal. During this time more than most potential buyers should ensure that they get full and proper legal and financial advice before entering into a contract to purchase property.