If a seller doesn’t fulfil their contractual obligations, what are the rights of the property purchaser?

A common dilemma facing purchasers of property is what to do when the seller fails to fulfil their contractual obligations prior to completion. A purchaser’s response will often be dictated by market conditions, for example, in a rising market (such as we are in at the moment), a purchaser may be reluctant to terminate a contract and wish to sue the vendor after completion.

Where a vendor fails to comply with the terms of the contract, a purchaser has the right to either terminate the contract and sue for damages, or complete the contract and sue the vendor after completion.

If the purchaser completes and then wishes to sue, the purchaser will be entitled to seek damages based on the vendor’s breach. These damages could include some or all of the following:

1. Loss of profit or loss in the value of the property due to the vendor’s breach. The measure of damages being the difference between the contract price and the value of the property as at the date the vendor breached the contract.
2. Loss of opportunity. For example, the loss of an opportunity for the purchaser to enter into a new lease of the premises with a tenant due to the fact, for example, that the building was not in a state able to be leased out.
3. Cost of rectification of incomplete or defective work. In particular this arises where there are significant works to be done prior to completion or, in particular, where a purchase is ‘off the plan’.
4. A combination of any or all of the above.

If a purchaser wishes to reserve their rights to take action after completion, the purchaser should, prior to completion, expressly reserve their legal rights to sue the vendor. If the purchaser fails to do this, the vendor may be able to argue that the purchaser waived their rights to sue by completing the purchase.

The other issue that needs to be carefully considered is whether the contractual provisions attempt to limit the purchaser’s rights to take action after completion for pre-completion breaches. This requires an analysis of the contractual terms and highlights the importance of negotiating the terms of the contract in the first place to avoid the purchaser being precluded from having the opportunity to sue after completion.

For further information, please contact our Commercial & Property Team.