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Works done between Exchange and Completion
Sometimes, the purchaser of a house wants, or is required, to work on it after contracts are exchanged, but before completion. This has clear risks for both parties, and such an agreement should only be entered into if both are fully aware of, and acept, the dangers. A seller is under no obligation to allow works to be done, and any agreement must be clear and incorporated in the contract.
The risks for the seller are that the purchaser may begin the work, but either the work is not finished, or is not satisfactory, or not paid for. If then the purchaser does not complete, the seller may be left with a house which is worth less than before he exchanged contracts. It is sensible, from the seller's point of view, to ask for a full ten per cent deposit. He should also ask that the purchaser agree to complete all works which are begun, and the purchaser should also be quite clear and specific as to precisely what work is to be done. At the same time, the need for such works usually arises because a purchaser cannot find a deposit. If he had the money to pay a full deposit, his lender would not insist on his doing the work before any money is lent.
From a buyer's point of view, he will be putting money into property which still belongs to somebody else. It may be a term of his mortgage that work is done before completion. What happens if the lender says that the work has not been done to an acceptable standard? Clearly, whoever does the work must be told that he will only be paid if the work is done, and approved by the lender. Trying to sort out a builder's dispute in the middle of a conveyancing dispute would be a nightmare. The purchaser will often not be in a position to pay for the work until after completion. Again this must be made clear to the contractor.
The insurance position must be clear. Who is to insure, for how much, and against what? When contracts are exchanged a fixed date is made for completion. It is common that contractors will begin work, and then be unable to complete the work in the time stated. It is therefore essential that sufficient time be allowed to be very confident that the work will have been completed. Typically, contracts will be exchanged with a distant completion date, which can be brought forward if both seller and purchaser agree.
Once contracts are exchanged both seller and purchaser are under an obligation to take the matter through to completion. It is rare for either party to fail to do complete, but this is not entirely in control of either party. Clients should understand that, on exchange of contracts, the purchaser has not confirmed that the seller's title to the land is satisfactory. The solicitors may not have seen the title. If therefore a defect in title does appear, the purchaser would find that they had spent money on the house, but were then advised not to complete. The seller might even be quite unable to give proper title to the land. A right to sue is no substitute for having a house to live in, having perhaps spent several thousand pounds improving the house for the seller.
Either party may find that an entirely unrelated event occurs in their life which makes completion impossible. A couple's relationship may break down, and one party refuses to go ahead. Someone may fall into financial difficulties, resulting either in the purchaser's mortgage offer being withdrawn (all mortgage offers can be withdrawn), or perhaps the seller finds that he will not have enough to redeem the mortgage, and the lender refuse to consent to the sale. There are many other possibilities. These possibilities are increased because of the extended length of time before completion in these arrangements. These risks rarely materialise, but if they do a client who has entered into such an agreement can expect severe problems.
Our advice is always, both to seller and buyer, that entering such arrangements is unwise. It sometimes happens that it is, in practice, the only way in which the deal can proceed, and, therefore, a client may choose to ignore this advice. If this happens, we do not object, provided the client appears to understand the extent of the risks involved.
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