Remedies for delayed completion - Common law damages

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Overview

In property transactions, completing on time is essential, yet delays can lead to significant legal issues. This article examines common law remedies for delays, with an emphasis on damages. Understanding these concepts is important for SQE1 FLK2 exam candidates as it relates to contract law, property law, and equitable remedies. We will explore the basic ideas, calculation methods, and practical uses of damages, offering a thorough guide to addressing issues from delayed property completions.

Breach of Contract and Damages

Failing to complete a property transaction on the agreed date results in a breach of contract. The goal of damages is to put the injured party back in the position they would have been in if the contract had been fulfilled. This approach follows the Hadley v Baxendale (1854) case, which established the test for recoverable damages:

  1. Losses arising naturally from the breach
  2. Losses both parties considered at contract formation

In delayed completion cases, this allows recovery of losses directly caused by the delay, as long as they were reasonably foreseeable.

Time of the Essence

A key factor in determining the scope of damages is whether time is "of the essence" in the contract. Typically, in property deals, time is not considered essential unless specified or established through later actions.

The "time of the essence" can be established by:

  1. Express contract terms
  2. Implication from the property's nature or transaction circumstances
  3. Subsequent notice to complete

When time is of the essence, not completing on the specified date is a serious breach, allowing termination of the contract and claims for damages. This was highlighted in Union Eagle Ltd v Golden Achievement Ltd [1997], stressing the need for certainty.

Notice to Complete

A notice to complete makes time essential. This involves:

  1. Giving formal notice to the defaulting party
  2. Specifying a reasonable completion period (usually 10 working days)
  3. Stating that time will be essential after the period

The legal effect of a valid notice was established in Stickney v Keeble [1915], confirming that it creates a new obligation, making time essential for completion.

Calculating Damages

Calculating damages for delayed completion involves careful consideration of various factors. The main principle is to compensate for losses directly due to the delay.

Categories of Recoverable Damages

  1. Direct Financial Losses

    • Legal costs due to the delay
    • Additional mortgage interest
    • Extra insurance costs

  2. Loss of Use

    • Lost rental income
    • Cost of alternative accommodation

  3. Consequential Losses

    • Missed business opportunities (subject to remoteness)
    • Additional storage or removal expenses

  4. Wasted Expenditure

    • Costs of arrangements made for completion

Mitigation of Loss

The injured party must take reasonable steps to lessen their losses, according to British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912]. Failure to do so may reduce damages.

Interest on Damages

Courts may award interest on damages under Section 35A of the Senior Courts Act 1981. The rate is discretionary but usually follows the judgment rate (currently 8% per annum).

Contractual Compensation vs. Common Law Damages

Standard contracts often include provisions for compensation due to delays. It's important to distinguish these from common law damages.

Standard Conditions of Sale (SC)

The Standard Conditions of Sale (5th edition) cover compensation for delays. Key points include:

  • Compensation at the contract rate on the purchase price balance
  • Contract rate is typically 4% above a specified bank's base rate
  • Paid for the delay period on a daily basis

Standard Commercial Property Conditions (SCPC)

The Standard Commercial Property Conditions (3rd edition) are slightly different:

  • Only the buyer pays compensation for delay
  • Rate is fixed at 4% above the Law Society's CON1 base rate
  • Calculated on the full purchase price

Interaction with Common Law Damages

Contractual compensation does not prevent claims for common law damages. However, as in Telfner v Burley [1976], any received compensation must be deducted from common law damages to avoid double recovery.

Practical Application and Case Studies

Case Study 1: Residential Property Chain

In a chain of property transactions, Buyer A's delay impacts Buyers B and C.

Analysis:

  • Buyer A may owe compensation under the Standard Conditions of Sale.
  • Buyers B and C might claim damages against their sellers, who may seek recovery from Buyer A.
  • Courts would assess the foreseeability of losses along the chain, using principles from Hadley v Baxendale.

Case Study 2: Commercial Property Investment

An investor buys a commercial property for renovation and leasing. A delay causes a missed leasing opportunity.

Analysis:

  • The investor may claim compensation under the SCPC.
  • Additional damages might be claimed for the missed opportunity, if it was foreseeable.
  • Evidence of mitigation efforts, such as finding other tenants, is needed.

Case Study 3: Development Land

A developer buys land with planning permission for residential buildings. Seller’s delay causes the planning permission to lapse.

Analysis:

  • Damages could include reapplying for planning permission and delay-induced costs.
  • The developer must prove the risk was communicated to the seller, adhering to Hadley v Baxendale.
  • Courts would consider if the developer could have mitigated by extending the permission.

Conclusion

Remedies for delayed property completion, especially common law damages, involve complex legal territory. SQE1 FLK2 candidates must understand these principles and their application across various situations. Important points include:

  • Damages aim to restore the injured party
  • Distinguishing when time is essential
  • Balancing contractual compensation with common law damages
  • Considering foreseeability and mitigation in damages calculation

Proficiency in these areas prepares candidates to tackle the challenges of delayed completions, a vital skill for the SQE1 FLK2 exam and future legal work in property transactions.