£1.5 million recovered from seller when property purchase went sour

When the sale of a commercial property is agreed, it is usual for the buyer to be asked to pay a deposit.  It is also usual for the seller to have the right to retain this if the sale does not go ahead because the buyer fails to conclude the transaction on a date fixed by the seller via the service of a notice to complete.

What is not usual is for a seller to try to retain the deposit in circumstances where the buyer has indicated that they are ready, willing and able to finalise the deal and the seller then decides that they no longer wish to proceed.

This unexpected turn of events was something a client of ours had to grapple with after a commercial property purchase they had spent nearly a year negotiating, and paid a £1.1 million deposit to secure, fell through at the last minute when the seller decided to pull out.

David Ingram, head of our litigation team, was instructed to recover the deposit together with the money wasted in gearing up for completion.  The matter was far from straightforward, not least because part way through the case the seller became insolvent.

‘When a date for the completion of a property purchase is set, time will not normally be of the essence’, explains David Ingram, ‘meaning that there will be no right to walk away if the completion date is missed.  However, in accordance with the standard terms and conditions used in most sale agreements, there will be a right to serve a notice requiring completion to take place on an alternative date and entitling the seller to terminate the agreement and retain the deposit if the new deadline is missed.’

‘Indeed, it was our view that if anyone had the right to treat the agreement as being at end and to claim compensation – it was our client.’  

‘In this case completion had been set for 7 March 2016, but due to ongoing negotiations about the terms of the deal this date was missed.  As a consequence, the seller served a notice to complete, imposing a new deadline of 24 March. Our client duly agreed to this and asked the seller’s solicitors to prepare the necessary documents to enable the deal to be finalised.’

‘Delays in supplying these documents, coupled with the need to deal with queries raised by our client’s lender meant that, despite everyone’s best efforts, the revised deadline for completion could not be met.’

‘This would have been a cause for concern had the seller not assured our client that they still wanted the deal to go ahead. Correspondence to this effect continued to be exchanged right up until 24 April when the seller suddenly decided to change tack.’ 

‘In response to our client’s request for a further completion date to be set, the seller claimed that our client had committed a fundamental breach of contract (by not completing the transaction on 24 March) which entitled them to treat the sale agreement as terminated and to retain the deposit by way of compensation.’ 

‘Understandably alarmed, the client contacted us for urgent advice. The upshot was that the seller had been wrong to act as they had, on the basis that any right that may have existed to rely on a failure to comply with the notice to complete as grounds for walking away had effectively been waived as a result of the continuing negotiations.’

‘Indeed, it was our view that if anyone had the right to treat the agreement as being at end and to claim compensation – it was our client.’  

‘In view of this, court proceedings were duly issued.  These were progressing well until they were brought to a sudden and unexpected halt following the collapse of the seller into insolvency administration.’ 

‘Following this unanticipated turn of events, we had to handle a series of problems including the administrators’ failure to deal with a number of important court orders designed to get the case ready for trial which ultimately resulted in sanctions being imposed on the seller/administrators . There was also an (unsuccessful) attempt to compel our client to part with even more money to cover the anticipated costs of the administrators if the action to recover the deposit and our client’s associated losses was ultimately unsuccessful.’ 

‘Tackling these problems head on, we pushed on with the litigation and were able to secure a judgment in the client’s favour for a sum in excess of £1.5 million.’

Needless to say, both we and the client are delighted particularly given that a sizeable chunk of the money has already been recovered and steps are in hand to recover the balance.

We were able to secure a judgment in the client’s favour for a sum in excess of £1.5 million.’

This case should act as a salutary reminder to property sellers that once a notice to complete has been served no further negotiations with the buyer should be conducted if you want to be able to rely on the notice to walk away.

It should also serve as a reminder to insolvency practitioners of the importance of taking legal advice where a property transaction is in progress at the time of their appointment.

For further assistance

If you require help resolving a commercial dispute, please contact David on 020 7845 7406 or email at davidingram@iwg.co.uk to see how he can help.

David can assist with everything from breach of contract, fraud claims and professional negligence claims to shareholder actions, property disputes, breach of directors’ duties and the prosecution and defence of insolvency-based claims.  He acts for both claimants and defendants and for insolvency practitioners in need of strategic advice and support and legal guidance.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published in May 2019.