Part 4 - Missives PDF

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Missives...

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Missives Why do things go wrong? •

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Before conclusion of missives • Terminology: open missives v. closed missives • Exhibition/examination of title After conclusion of missives • most common reasons for breach? • position governed by missives and contract law • After settlement • Enforceability of missives • Breach of warrandice

Litigation health warning! Breach, or alleged breach, of missives may lead to litigation, and litigation is something that not only the loser but most probably even the winner will end up regretting. As well as the stress and worry, and as well as the time consumed, even the winner is likely to end up out of pocket. The best advice is to avoid litigation if at all possible. Clients usually underestimate the human and financial costs of litigation and overestimate their chances of success…”

Gretton and Reid, Conveyancing (5th ed) para 5-01

Options when faced with breach after conclusion of missives? • •

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Terminology is important • Rescind v. repudiate v. resile When faced with breach can “wait and see”. • Can buyer come up with purchase price? Or can seller locate missing title deed or other important documentation (eg building/planning). • Remember role of purchaser’s lender (they are very much in the driving seat). Decision time! • Option 1: pull out (rescind). May then claim damages. • Option 2: continue (and settle). May agree a retention (or negotiate lower price).

When can a party rescind? • •

Can rescind when faced with a clear repudiation by the other party. Where there is no repudiation, can rescind where there is a material breach. • Distinguish between positive obligations and warranties • Example: the obligation to deliver the disposition is a positive obligation, while clause that states that all necessary consents (eg planning and building) have been obtained is a warranty. • Breach of a positive obligation in and of itself is not a material breach (at common law time of performance is not “of the essence”).

Ultimatum procedure: Rodger (Builders) Limited v Fawdry 1950 SC 483: “reasonable time” given for performance. • Exception : immediate rescission is allowed where seller has no title to all or part of the property. • Contract can (1) make time “of the essence” or (2)Exception (2): set out that rescission allowed after a certain amount of time has passed (see Standard Clauses). Breach of a warranty allows rescission immediately provided it is sufficiently serious (not trivial). •

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The Standard Clauses (Edn 3) • • •

Need to read clauses 12 and 13 VERY carefully. Clause 12: Breach by Seller Clause 12: Breach by Purchaser

Clause 12: Breach by Seller •

Clause 12.1 • Seller does not give vacant possession or there is another material breach. • Purchaser can claim damages. • Additional legal fees • Fees paid to moving company • Clause 12.2 • Breach continues for 14 days then Purchaser may rescind (and claim damages). • Must give notice to the Seller.

Clause 13: Breach by Purchaser • •

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Clause 13.1 and 13.2: sets out that the price must be paid in full on the date of settlement and that vacant possession will not be given until this has been done. Two options: • Payment may be late, or • Payment may never be made. Clause 13.3: deals with late payment. Where payment is late seller can claim: • Ordinary damages (including but not limited to Wasted Expenditure), or • Interest. Missives specify the rate. Clause 13.4: if payment is still outstanding after more than 14 days Seller has the option to rescind and: • Claim ordinary damages (again this includes but is not limited to Wasted Expenditure) or • Liquidated damages: calculated by reference to interest. How long does interest run?

Clause 13: Interest/Liquidated Damages • •

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Clause 13 refers to interest at the “Prescribed Rate”. Prescribed Rate is a defined term in the Standard Clauses. • 4% above Royal Bank of Scotland base rate. • Currently 0.75% • Where payment is delayed, interest runs until payment made. Where Seller rescinds, liquidated damages equivalent to interest until: • Property is resold or • one year (from date payment should have been made). Example of longstop date.

Clause 13: “Wasted Expenditure” • •

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Defined term used to give examples of ordinary damages. Clause 13.5.3 contains the definition of Wasted Expenditure. • (i) difference between the sale price under the missives and the resale price (ie if Seller has to resell to someone else for a lower price, can claim the difference from Purchaser). • (ii) estate agency, marketing and advertising costs in connection with the resale. • (iii) legal fees in connection with the resale. • (iv) expenses in connection with removal costs (eg having to cancel removal van, or put furniture into storage). • (v) costs of bridging loan (eg if Seller has to go ahead with buying their new home while payment is delayed). Note: (i) to (iii) can only apply where the contract has been rescinded (ie where clause 13.4 is in play)....