Remedies for delayed completion - Common law damages

Learning Outcomes

After reading this article, you will be able to identify when a delayed completion in a property transaction gives rise to a claim for common law damages, explain the significance of "time is of the essence," outline the process for serving a notice to complete, and apply the principles for calculating damages in accordance with SQE1 requirements. You will also be able to distinguish between contractual compensation and common law damages, and understand the duty to mitigate loss.

SQE1 Syllabus

For SQE1, you are required to understand the remedies available for delayed completion in property transactions, with a focus on common law damages. In your revision, pay particular attention to:

  • The legal consequences of delayed completion as a breach of contract
  • The meaning and effect of "time is of the essence" in property contracts
  • The procedure and effect of serving a notice to complete
  • The principles for calculating common law damages, including foreseeability and mitigation
  • The distinction between contractual compensation and common law damages
  • The interaction between contractual remedies (e.g., Standard Conditions of Sale) and common law rights

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. What is the effect of serving a notice to complete in a property transaction?
  2. When can a party claim common law damages for delayed completion?
  3. What is the duty to mitigate loss, and how does it affect the calculation of damages?
  4. How do contractual compensation provisions interact with common law damages?

Introduction

Delayed completion in a property transaction is not simply an inconvenience—it is a breach of contract that may entitle the innocent party to remedies at common law. Understanding when and how common law damages are available, and how they interact with contractual remedies, is essential for SQE1. This article explains the legal framework for claiming damages, the importance of "time is of the essence," the procedure for serving a notice to complete, and the calculation of damages for loss caused by delay.

Delayed Completion as a Breach of Contract

When a party fails to complete a property transaction on the agreed date, this constitutes a breach of contract. The innocent party may be entitled to damages, but the nature and extent of the remedy will depend on whether time is of the essence and the terms of the contract.

Key Term: breach of contract
A failure by one party to perform their contractual obligations, entitling the innocent party to remedies such as damages or, in some cases, rescission.

Time Is of the Essence

Whether a delay in completion is a serious breach depends on whether "time is of the essence." If time is of the essence, any delay entitles the innocent party to terminate the contract and claim damages. If not, the innocent party may claim damages for loss caused by the delay, but cannot immediately terminate.

Key Term: time is of the essence
A contractual term making the completion date a fundamental condition, so that any delay is a repudiatory breach.

Time is of the essence in three main situations:

  • The contract expressly states that time is of the essence.
  • The circumstances or nature of the contract make timing critical.
  • A party serves a notice to complete, making time of the essence after an initial delay.

Notice to Complete

If time is not originally of the essence, the innocent party can serve a notice to complete. This notice requires the defaulting party to complete within a specified period (usually ten working days). After this period, time becomes of the essence, and failure to complete entitles the innocent party to terminate the contract and claim damages.

Key Term: notice to complete
A formal notice served by one party requiring the other to complete the contract within a specified period, after which time becomes of the essence.

Worked Example 1.1

A buyer fails to complete on the agreed date. The seller serves a notice to complete, giving the buyer ten working days to complete. The buyer still does not complete. What are the seller's rights?

Answer: The seller may treat the contract as terminated, forfeit the deposit, and claim damages for losses caused by the delay and non-completion.

Calculating Common Law Damages

Damages at common law aim to compensate the innocent party for losses caused by the breach, putting them in the position they would have been in had the contract been performed.

Key Term: common law damages
Monetary compensation awarded for loss suffered as a result of a breach of contract, subject to rules of foreseeability and mitigation.

The leading case is Hadley v Baxendale (1854), which established that damages are recoverable for:

  • Losses arising naturally from the breach (direct losses)
  • Losses that were in the contemplation of both parties at the time of contract (special losses)

Types of Recoverable Loss

  • Additional legal or professional fees
  • Extra mortgage interest or insurance costs
  • Loss of rental income or alternative accommodation expenses
  • Wasted expenditure in reliance on completion

Duty to Mitigate

The innocent party must take reasonable steps to reduce their loss. Losses that could have been avoided by reasonable action are not recoverable.

Key Term: duty to mitigate
The obligation on a claimant to take reasonable steps to minimise their loss following a breach of contract.

Worked Example 1.2

A seller incurs storage costs because the buyer delays completion. The seller could have arranged cheaper storage but did not. Can the seller recover the full cost?

Answer: The seller can only recover costs that are reasonable. If cheaper storage was available and the seller unreasonably failed to use it, damages may be reduced.

Interest on Damages

Courts may award interest on damages to reflect the time the claimant has been out of pocket. The rate and period are at the court's discretion.

Contractual Compensation vs. Common Law Damages

Most property contracts incorporate the Standard Conditions of Sale (SCs) or Standard Commercial Property Conditions (SCPCs), which provide for contractual compensation for delayed completion.

  • Under the SCs, either party may be liable to pay compensation at the contract rate (typically 4% above base rate) on the balance of the purchase price for the period of delay.
  • Under the SCPCs, only the buyer is liable to pay compensation for delay.

Key Term: contractual compensation
A sum payable under the contract for delay in completion, usually calculated at a specified interest rate.

Receiving contractual compensation does not prevent a claim for additional common law damages, but any compensation received must be deducted from damages to avoid double recovery.

Exam Warning

If the contract provides for compensation for delay, you must consider whether additional losses are recoverable at common law. Double recovery is not permitted.

Interaction with Other Remedies

If the delay is prolonged and a notice to complete is served but not complied with, the innocent party may terminate the contract, forfeit or recover the deposit, and claim damages for any further loss. Specific performance may also be available if damages are inadequate.

Summary

IssueStandard Conditions (SCs)Standard Commercial Property Conditions (SCPCs)
Who pays compensation?Either partyBuyer only
Rate of compensationContract rate (e.g., 4% above base)Contract rate (e.g., 4% above base)
Additional common law damagesYes, but no double recoveryYes, but no double recovery
Notice to completeMakes time of the essenceMakes time of the essence

Key Point Checklist

This article has covered the following key knowledge points:

  • Delayed completion is a breach of contract that may entitle the innocent party to damages.
  • "Time is of the essence" determines whether delay is a repudiatory breach.
  • A notice to complete makes time of the essence if it was not already.
  • Common law damages compensate for foreseeable loss, subject to mitigation.
  • Contractual compensation is usually provided for in the SCs/SCPCs.
  • Contractual compensation and common law damages may both be claimed, but double recovery is not allowed.
  • The duty to mitigate loss applies to all claims for damages.

Key Terms and Concepts

  • breach of contract
  • time is of the essence
  • notice to complete
  • common law damages
  • duty to mitigate
  • contractual compensation
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