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Buyer Who Failed to Complete Must Pay for Loss of Value
In these straitened times, it is regrettably not uncommon for a buyer to withdraw from the purchase of a property after a legal agreement to purchase has been completed.
When this happens, the vendor may be entitled to claim damages.
In a recent case, a purchaser had agreed to buy a property for £605,000 and the completion had been set for June 2008. The buyer failed to complete the purchase, however. The vendors put the property back on the market, but could not find another buyer. They therefore let the property from October 2009 until March 2011, when they remarketed it yet again. Having again failed to secure a sale, they moved back into the property shortly thereafter.
The purchaser had forfeited the deposit she had paid but, in 2010, the vendors went to court to claim damages for the loss of value of the property. The court had to consider how much (if anything) the purchaser who failed to complete should pay to the vendors in damages. The purchaser argued that no damages were payable on the ground that the value of the property at the date that she breached the contract was effectively the same as the purchase price, and that any loss suffered by the vendors would be more than covered by the deposit forfeited.
The general rule in such cases is that the person who commits the breach of contract must restore the other party to the position they would have been in had the breach not occurred. However, events happening after the breach can be relevant.
The judge considered that the appropriate valuation to take for the purposes of assessing any damages was that made prior to the court hearing, which was £495,000. The purchaser appealed against that decision.
The Court of Appeal noted that in the case of sales of property, the market is often ‘sticky’ and sales can be difficult to obtain. Consequently, the date of the breach was only relevant if there was an immediate opportunity to sell the property after the breach occurred. The vendors could not have been said to have failed to mitigate their loss as they had clearly made every attempt to market the property. When that failed, the fact that they had reoccupied it did not mean that they had not suffered a loss as a result.
Accordingly, the appropriate valuation of the property to be used for calculating the vendors’ loss would be the value on the date they reoccupied it.