Can I Pull Out of a House Purchase?

Author: scott
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Can-I-Pull-Out-of-A-House-Purchase

  • The short answer to the question in the title is one beloved of lawyers namely: it depends.
  • The answer is yes you may pull out before ‘missives are concluded’; but no you may not once ‘missives are concluded’.

An explanation of the legalese of ‘missives being concluded’

 

  • The process of buying a house in Scotland is made up of a series of formal letters between the buyers’ and the sellers’ solicitors.
  • The buyers make an offer which covers the obvious things like specifying the property; the price; and the ‘date of entry’. But the offer will also generally include a whole series of standard conditions as well as some particular conditions that the purchasers may wish to include in a particular case.
  • In response it would be unusual for the sellers to simply accept every single one of the conditions. They will usually come back with what is called a ‘qualified acceptance’ of the offer. This will probably accept most of the conditions but will reject or qualify others of them.
  • There is then some to-ing and fro-ing of formal letters (‘missives’) between the solicitors which can go on for a while: sometimes a couple of weeks or so and sometimes considerably longer. Once both parties have agreed all the conditions that are to apply to the transaction it is said that the ‘missives are concluded’.
  • As noted at the outset while the missives are being negotiated either side may pull out. But, once missives are concluded, neither side may pull out.

A purchaser’s obligations under the ‘missives’

 

  • The main obligation of purchasers under concluded missives is to pay the price in full on the ‘date of entry’ i.e. the date when the purchasers are due to get the keys to their new property.
  • There may also be other obligations to implement other conditions of the missives specifically undertaken in any particular case. But in this Note the focus is on payment of the price. Normally the price must be paid in full on the date of entry.
  • And, in focusing on a purchasers’ main obligation to pay the price, we look at what may happen if the purchasers simply cannot (or will not) pay.
  • Such inability to pay could arise, for example, if purchasers have not got the money from the sale of their existing house to put towards the new one. In such a case a ‘bridging loan’ from a bank might bridge the funding gap so enabling payment for the new house. But a bridging loan might not always be obtainable or only available at exorbitant rates.

What the missives say about purchasers’ failure to pay the price

 

  • It was mentioned above that the missives will generally include a whole series of standard conditions as well as the crucial ones about describing the property; the price; and the ‘date of entry’.
  • Such standard conditions will generally include what is to happen if there is a ‘breach of contract’ by the purchasers e.g. if they do not pay the price as stipulated in the missives.
  • Generally such a clause will provide in particular that if the price is not paid in full within 14 days then the sellers may treat the contract as being at an end whereby the sellers are no longer bound to sell and the purchasers are no longer entitled to buy.
  • The point of the sellers choosing to treat the contract at an end (the legal term is ‘rescinding’ the contract) is so as to allow them to re-sell to someone who will pay.

‘Damages’ due by the purchasers for breach of contract

 

  • The general rule is that if one party to a contract breaches it the injured party may sue for his or her losses (’damages’) arising from the breach.
  • So, if purchasers fail to pay entitling the sellers to treat the contract as at an end the sellers’ primary remedy as the ‘injured parties’ is to sue for the losses they suffer as a result.
  • Generally, the missives will specify the ambit of those losses and standard missives provide the seller with two alternative approaches as regards losses.

The alternative approaches to losses in standard missives

 

  • The first approach is that the sellers are entitled by way of losses to interest (at 4% above bank base rate) on the price from the date of entry until the earlier of:
    • the sellers’ re-sale of the property, and
    • 12 months after the date of entry.

If the sellers manage to re-sell at a profit then that will be deducted in computing these losses.

  • This first approach is what is sometimes called a ‘liquidated damages’ approach: in other words an attempt to pre-estimate what the sellers’ losses may be rather than waiting and seeing what they actually are.
  • Alternatively, the second approach is that the sellers are entitled by way of losses to ‘ordinary damages’ that is those losses which they actually suffer and as arise naturally out of the breach by the purchasers. These could include:
    • the sellers’ capital loss if they then re-sell for a lower price;
    • the sellers’ estate agency, marketing and advertising expenditure in connection with re-sale;
    • the sellers’ expenses in connection with cancellation of removals etc;
    • any bridging loan costs of the sellers incurred in respect of any purchase transaction of the sellers which they require to complete under concluded missives.

Final re-cap

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  • As was said at the start you may pull out before ‘missives are concluded’ but not once ‘missives are concluded’.
  • Given that pulling out after missives are concluded may involve a claim for damages by the disappointed sellers as outlined above the moral is to take care to try and avoid being tied into ‘concluded missives’ until you are confident that funds will be available to pay the price.

 

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action.


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