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What happens when a property sale doesn’t complete on the closing day?
When you have entered into contracts with a purchaser to buy a property, the contract will provide for a date on which the sale is due to close. The conveyancing process revolves around an accepted form contract for sale and virtually all contracts for the sale of land in Irelandare in the form of the Law Society of Ireland Conditions of Sale (2019 Edition).
These contracts contain a set of general conditions which govern the operation of the contract.
Where there is default on the part of the purchaser in failing to complete the sale on closing day, the seller will serve a completion notice.
1. Completion Notice
If the sale does not complete on the closing date where the vendor is ready, willing and able to complete but the purchaser is unable to complete the transaction, the vendor may serve a 28-day completion notice on the purchaser in accordance with General Condition 36.
The Notice is only valid where the vendor is “able, ready and willing to complete the Sale or is not able, ready or willing by reason of the default or misconduct of the purchaser”.
Where the purchaser does not comply with the Notice they are deemed to have failed to comply with the General Conditions and Special Conditions in the contract. In such a scenario, there are certain remedies open to the seller which we deal with below.
2. Forfeiture of Deposit and Resale
If the purchaser fails to comply with the Notice, the seller may forfeit the deposit and resell the property with or without notice to the purchaser. The deposit is usually 10% of the purchase price so it can be a significant sum.
Furthermore, if the seller resells the property within one year after the closing date, any shortfall arising on such resale and all costs and expenses relevant to the resale are to be paid by the purchaser. The purchaser is allowed a credit against this amount for the forfeited deposit.
If the sale does not complete on the closing date because of the default on the part of the purchaser, the purchaser must pay interest to the seller on the balance of the purchase price remaining unpaid at the interest rate specified in the contract for sale. This interest rate is usually between 8-12% per annum. The interest accrues from day to day.
The seller is also entitled to any rents and profits arising on the property up to the actual date of closing.
4. Sue for Specific Performance and Damages
Where a purchaser has defaulted in closing the sale, the seller can sue the purchaser for specific performance of the contract following the passing of the closing date. If successful,
this means that the Courts would provide an Order compelling the purchaser to carry out their contractual obligations as per the contract i.e. buy the house.
The seller may also seek damages in addition to or as an alternative to specific performance.
The disadvantage about seeking specific performance for a seller is that the property cannot be dealt with until the proceedings are finally determined. It may prove more convenient for the seller to cut his losses by forfeiting the depositing and reselling the property.
A purchaser should be conscious of the closing date in the contract for sale to ensure that completion on the closing date is within his power and achievable prior to executing the contract for sale.
A good solicitor will ensure that this is the case and advise you of the consequences of signing a contract. For example, if you are using a mortgage to buy a house, then the contract should contain a clause allowing you to exit the contract if the mortgage monies are not provided by the bank for whatever reason.
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