The government issued guidance on 26 March 2020 for people involved in buying or selling homes during the COVID-19 stay-at-home period.
This blog usually only deals with commercial property, but I thought it might be helpful to include something on house buying and selling too.
The government guidance has separate elements aimed at estate agents, conveyancers, surveyors and removal firms.
The general advice is to urge parties involved in home moving to adapt and be flexible to alter their usual processes.
Where contracts have already been exchanged but not completed
The guidance states:
“There is no need to pull out of transactions, but we all need to ensure we are following guidance to stay at home and away from others at all times, including the specific measures for those who are presenting symptoms, self-isolating or shielding. Prioritising the health of individuals and the public must be the priority.”
This may mean it’s simply not possible to move home.
Where the property being moved into is vacant, then the advice says you can continue with the transaction although you should follow the guidance note on home removals.
Where the property is currently occupied, the government encourages all parties to do all they can to amicably agree alternative dates to move, for a time when it is likely that stay-at-home measures against COVID-19 will no longer be in place.
In practice, that could be for a long time.
Under its heading “Advice to the Public” the government states:
· “Home buyers and renters should, where possible, delay moving to a new house while measures are in place to fight coronavirus (COVID-19).
· Our advice is that if you have already exchanged contracts and the property is currently occupied then all parties should work together to agree a delay or another way to resolve this matter.
· If moving is unavoidable for contractual reasons and the parties are unable to reach an agreement to delay, people must follow advice on staying away from others to minimise the spread of the virus.
· In line with Government’s advice, anyone with symptoms, self-isolating or shielding from the virus, should follow medical advice which will mean not moving house for the time being, if at all possible. All parties should prioritise agreeing amicable arrangements to change move dates for individuals in this group, or where someone in a chain is in this group.”
The government advises agents to work with their clients to broker a new date to move where sales are due to complete on occupied properties; and conveyancers to make every effort to support clients who are due to complete on occupied properties in the stay-at-home period to change this date.
The government guidance also states that conveyancers should prioritise supporting anyone with symptoms, self-isolating or shielding from the virus and those they are in chain with, and the government urges them to do all they can to help a new date to be agreed in these circumstances.
The legal consequences of delayed or abandoned completion are not contemplated by the government guidance, which as we have seen focusses more on trying to resolve things amicably.
Standard conveyancing contracts do not contain force majeure clauses.
The Standard Conditions of Sale (Fifth Edition – 2018 revision), used in most residential transactions, contain provisions dealing with delayed completion, remedies and compensation. I won’t go into all those terms here, but they were clearly designed to deal with defaulting buyers or sellers, rather than the current situation.
Under Standard Condition 6.8, a notice to complete may be served when the completion date specified in the contract has passed and completion has not taken place. The notice requires the parties to complete within 10 working days of the notice, excluding the day on which the notice is given.
However, a notice to complete may only be served by a party who is “ready, able and willing to complete”. If it’s impossible for completion to take place whilst complying with the lockdown, then that might also prevent a contractual party from serving a valid notice to complete or render a notice invalid following its service. Each case will depend on its own facts.
If a notice to complete is served, then that makes time of the essence. That could potentially make serving the notice counter-productive if the person receiving the notice is then able to argue that completion by that date has become impossible.
Once a strict time limit has been imposed, the recipient of the notice to complete might be able to argue that the contract has been frustrated if completion is impossible, although how successful they would be in making such an argument is hard to predict as the law currently stands.
Will some contracts be frustrated anyway?
That's also hard to predict.
That's also hard to predict.
As we have seen in the context of commercial leases, frustration is not an easy case to prove, and the government guidance places an onus on all parties to do all they can to agree alternative arrangements, which is likely to be taken into account.
There don’t appear to have been any cases in English law considering frustration by a pandemic, not even during the so-called Spanish Influenza of 1918/19.
Inevitably there will be commercial disputes arising out of COVID-19 that will include arguments on frustration. Whether there will also be disputes concerning residential sales where frustration is argued remains to be seen.
Some might try and argue that their contract has been discharged by supervening illegality.
A contract is discharged if its performance becomes illegal by English law. However, for the doctrine to take effect, the illegality must prohibit performance. Hindering performance or making it more inconvenient is not good enough, and so that could make this a difficult argument to run in the context of house sales, especially as the parties have been encouraged by government guidance to agree alternative arrangements.
Anyone involved in such transactions would surely be better served by following the general advice to adapt and be flexible, rather than resorting to litigation in novel circumstances. That being said, it takes two to tango.
Where matters are litigated, a party’s conduct, judged in the light of the government guidance, will surely be an important factor to be taken into consideration by the courts.
UK Finance has confirmed that lenders are working on ways to support would-be borrowers that have exchanged contracts. This includes looking at extending mortgage offers for up to three months to enable the move to take place at a later date.
The guidance refers to the new emergency enforcement powers that the police have been given to respond to coronavirus, and states “there is an exemption for critical home moves, in the event that a new date is unable to be agreed”.
I’ve taken a closer look at these new powers.
The emergency powers are contained in Statutory Instrument 2020 No. 350 The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020, made on 26 March 2020 under the Public Health (Control of Disease) Act 1984, and are in force until further notice.
The phrase “critical home moves”, that is used in the guidance, is not used in the Regulations themselves, which instead refer to moving where “reasonably necessary”, which seems to set a lower bar.
The following regulations are directly relevant to house moves.
· Regulation 6 (1) states that during the emergency period, no person may leave the place where they are living without a reasonable excuse. Regulation 6 (2) sets out a non-exhaustive list of reasonable excuses which includes the need “to move house where reasonably necessary” (Regulation 6 (2) (l)).
· Regulation 7 states that during the emergency period, no person may participate in a gathering in a public place of more than two people, and lists a series of exceptions, which include “where reasonably necessary…to facilitate a house move” (Regulation 7 (d) (i)).
The Regulations must be reviewed by the Secretary of State at least once every 21 days, with the first review being carried out by 16 April 2020 (Regulation 3(2)). The Regulations otherwise expire 6 months after coming into force.
Anyone who contravenes a requirement in the relevant Regulations without reasonable excuse commits an offence punishable by a fine.
In most cases these fines will be imposed by fixed term penalty notices, and the fine is £30 if paid within 14 days, increasing to £60 if not paid within that period. This doubles for every subsequent fixed penalty notice to a maximum of £960 (Regulation 10). The CPS also has powers to bring prosecutions under the Regulations (Regulation 11). Prosecutions could lead to a person having a criminal record.
Entering into new contracts
Where contracts have not yet been entered into, if the property is unoccupied then the guidance states that you can continue with the transaction.
This isn’t mentioned in the guidance, but thought will still need to be given to practicalities such as to the execution of documents; ensuring monies are paid on time; handing over keys; and securing the property if it is to remain unoccupied.
With occupied properties, the guidance states that all parties should work together either to delay exchanging contracts until after the stay-at-home measures have been ended, or to include explicit contractual provisions to take account of the risks presented by the virus.
Draft contractual provisions are now being circulated within the legal profession for use in such cases.
The standardised residential conveyancing contracts widely in use, without the addition of new specific provisions dealing with the current situation, are no longer adequate.
Viewing and inspecting properties
Physical viewings of properties should not take place.
The guidance states that surveyors should not expect to carry out non-urgent surveys in homes where people are in residence, and no inspections should take place if any person in the property is showing symptoms, self-isolating or being shielded.
Preparatory work that can be undertaken remotely can proceed, but inspections to take internal photographs or produce an energy performance certificate should not be undertaken, which in practice may mean a property cannot be put on the market.
There are other recommendations in the guidance for surveyors and removal firms.