True to your words

In times when there are more and more purchasers failing to complete the purchase of properties, one recent case provides a timely reminder that loose and inconsistent drafting of property sale contracts can leave a vendor red-faced when seeking to rescind the contract following service and expiry of a notice to complete.

In Chinnock v (1) Mustafa Hocaoglu (2) Vasfiya Hocaoglu [2008] EWCA Civ 1175, the Court of Appeal analysed the meaning of the contractual provisions in a residential sale contract.

The vendor and the purchaser had entered into a contract for the purchase of freehold property. The purchase price was £120,000, with a 10 per cent deposit paid on exchange. Completion was set for 12 February 2007, but did not happen that day. The vendor served a notice to complete, which required completion within 10 working days, namely on or before 26 February 2007. That made time of the essence. On 26 February 2007, the purchaser sent the vendor a sum of money. It arrived at 14:44. The vendor rejected that money, because: (1) it was too late (it should have been paid by 1pm); and, (2) it was not enough '“ it failed to include the sum of £599.50 for costs, as required by a special condition of the contract. The vendors rescinded the contract and forfeited the £12,000 deposit.

The purchaser brought a claim for rectification and specific performance of the contract. The vendor defended on the basis that it had lawfully rescinded the contract and forfeited the £12,000 deposit. On 9 November 2007, Blackburne J found in favour of the vendor: that the purchaser had failed to comply in one respect with the requirements of a notice to complete, and had not paid the full amount due to the vendor on the completion date. Accordingly, the vendor was entitled to rescind the contract.

The purchaser appealed. The starting point was condition 26: 'The purchaser will be responsible for the legal costs incurred by the vendor in relation to the sale of the above being £500 plus VAT plus office copies of £12.00.'

The vendor argued that in separate special conditions and standard conditions, the use of the phrase: 'the money due on completion' meant that the sum provided for in condition 26 should also be payable as completion monies, thereby entitling, in the circumstances, the vendor to rescind. The purchaser argued that, in fact, the sum was payable on the date of completion, but only after and not as a condition of completion.

A lack of clear and explicit language

Lord Justice Lloyd decided that as explicit and clear language had not been used in condition 26, making it clear that legal costs were payable as completion monies, the legal costs were not due upon completion, and, accordingly, the vendor did not have the right to rescind.

Further, Lloyd LJ found that the difference in the language used in different parts of the contract, and in particular the absence from condition 26 of any provision as to when and in what circumstances the sum was payable, amounted to a 'cogent factor' in favour of the purchaser. This was especially important when contrasting the unclear condition 26 with condition 24, which read: 'The purchaser's solicitors will pay to the vendor's solicitors upon completion the additional sum of £4,497.91.'

Accordingly, the judge held that condition 26 did not have the effect that the sums in question were payable upon completion:

'If the condition was to achieve that effect, it should have done so clearly, rather than leaving the time of payment, and the consequences of non-payment, open to doubt.'

The judge found that the vendor had not been entitled to rescind the contract and the purchaser was entitled to an order for specific performance of it.

Use consistent formulas and plain language

The message was therefore made clear: the use of different language in different parts of a contract can be disastrous. If completion is to be dependent upon payment of a sum of money, by a certain time, this should be clearly and explicitly recorded, using plain and common-sense language.

There must be no conflict between clauses, and crucially, consistent formulas must be used when drafting cause and effect clauses.

Property lawyers must therefore always stop and think about the juxtaposition of the wording of the contract, the contract's special conditions, and incorporated standard conditions. In Chinnock, a failure to do this, and some arguably slack drafting, cost the seller the valuable right to rescind the contract. A failure to so could result in a professional negligence claim.

Further, and despite the Court of Appeal reversing the first instance decision, practitioners should also ensure that when drafting completion statements, all sums required under the contract are paid. Although the Court of Appeal ultimately ruled against the vendor, it was a lucky escape.

But for inconsistent drafting, the contract would have been rescinded. It is worth recording that even being short by a couple of pounds in the face of a notice to complete can result in the contract being torn up. Much care must therefore be taken, not only in the drafting of the contract, but also in the preparation of completion statements.