A contract for the sale of land is similar to other contractual agreements and is hence subject to the general principles of the law of contract. Contractual remedies are available to a person, but only to an extent where there is failure to comply with a notice to complete or when compensation is payable under Standard Conditions 7.2 (or SCPC 9.3) is not applicable.
Remedies available for breach of contract depend on the contract itself, entitling the aggrieved party to terminate the contract and/or claim compensation, or it allows them only to claim damages.
Conditions and warranties
A term in a contract can be considered as a condition only when it a fundamental or important term; otherwise it is only considered to be a warranty.
Sometimes, it becomes difficult to classify a term to be a condition or warranty, until the consequences of the breach are seen. When consequences are serious and far reaching, this unclassified term is treated as a condition. And when it is not, it is served as a warranty. While conveyancing contracts always refer to terms as conditions, this is not the case in common law. It is only considered to be a warranty. The classification of a term attached to a contract is not conclusive of its status in common law. For example, a defect in title usually allows a buyer to reclaim his deposit and claim damages for further loss as there has been a breach of condition.
Limitation periods
When a contract is not made by deed, the aggrieved party has a limitation period of six years from the date of breach to claim compensation. And when the contract is made by deed, the Limitation Act of 1980 sets the limitation at 12 years.
Merger
When the terms of the contract and the transfer deed cover the same grounds, a claim on the contract is no longer applicable on completion. But a claim on terms that remain in existence even after completion is possible. But for this to happen, the contract would have to include a non-merger clause that allows certain clauses to remain active even after completion.
Exclusion clauses
As per Standard Conditions 7.1 and Standard Commercial Property Conditions 9.1, remedies available for breach of contract are limited. Damages can be claimed only when there are material differences in the tenure or value of the property. He can cancel a contract only when there’s an error or omission as a result of fraud or carelessness. He is also within his rights to cancel a contract if he has to accept a property that differs in quality, quantity or tenure from what he was led to believe. Thus, in the case of residential contract, the buyer has the right to claim compensation only when the undisclosed incumbrance has caused a material difference in the value of the land. Also, he has the right to rescind the contract only when the seller was careless or used fraud, or the undisclosed incumbrance has caused material difference in the value of the land. Thus, a covenant that bars people from building a house on land that is suitable for development would have a greater effect on the value than a covenant that restricts a dwelling house to use as a house. But, if there is fraud or carelessness on the part of the seller, the buyer would be allowed to cancel the contract irrespective of the fact that there has been no effect in the value of the property.
The exclusion clauses mentioned in the contracts are usually not subject to a reasonableness test according to Unfair Contract Terms Act 1977.
Delayed completion
If time was made essence of the contract by including provisions of such nature or by service of notice, a delay in completion entails the aggrieved party to claim compensation due to delay.
Damages for breach
The damages to be claimed for breach of contract is adjudged by the normal contractual principles established in the case of Hadley v Baxendale (1894)9 Exch 341. Compensation can be sought for damages that have occurred and those that are foreseeable.
Quantum
The amount of damage is limited to loss that can be foreseeable according to the evidence known to him or by the agent when the contract was made. The starting point for the damages for breach of contract is the difference between the contract price and the market price of the property on the date of breach. Costs incurred on conveyancing, legal cost that occur as another property is to be purchased, interest incurred on mortgage or bridging loan costs incurred for removing furniture, etc. are all wasted expenses and hence compensation for them should also be claimed. Costs accrued for arranging alternative property can also be claimed as compensation.
Loss of development profit
Compensation for the loss of development profit can be claimed only if the person making the claim was aware of proposals for the property at the time when the contract was made. This was the gist of two decisions; viz. Diamond Vs Campbell Jones [1961] Ch22 and cf Cottrill vs Steyning and Littlehampton Building Society [1966] 2All ER 295.
Resale by seller
Contractual damages are awarded only to help the aggrieved party and place them in a position in which they would have been had the contract been performed. It is not the intended to punish the other party. Thus, when a buyer defaults, the seller is allowed to make a claim for compensation only when he incurs a loss. When he makes a profit on the resale, the seller will have to share the money (with the defaulting buyer) that is left after recovering his financial loss.
Mental distress
In the case of breach of contract, a claimant can only make claims for financial loss suffered and not make any claims toward mental distress. Although this was established in Jarvis v Swan Tours [1973] 1QB 233, claims for mental distress now seem to be confined to cases related to holiday contracts and contracts for leisure activities.
Pre-contract losses
A claim for contractual damages can be made only for losses incurred after the contract was made. Thus expenses such as land survey that were made before the contract was made cannot be claimed. However, in the case of Lloyd v Stanbury [1971] 1 WLR 535, it was held that money spent on repairs during the pre-contract stage can be claimed.
Mitigation
To make a successful claim for compensation for contractual damages, it is important that the claimant should have made an effort to mitigate the loss. Thus, he should have either tried to find another property (applies to a disappointed buyer) or should have tried to resell the property (applies to a disappointed seller) when the deal in question did not go through. When such an attempt is not made, the award for compensation is usually far less. But if an attempt was made and the claimant suffered increased loss, the defendant can be made liable for the increased loss.
Giving credit for money received
Credit for compensation received for damages should be given, or for a deposit forfeited by the buyer to the seller.
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