Fiona Caldow of Pinsent Masons' property litigation team considers what sellers can do when purchasers in Scotland refuse to complete.

One of the main impacts of the ‘credit crunch’ has been a reduction in the availability of finance on favourable terms.  This has caused some potential property purchasers to seek to pull out of deals they have previously agreed to. So what steps can sellers take when purchasers refuse to complete on transactions?

In Scotland, contracts to buy and sell property are usually entered into through an exchange of formal letters between the seller's solicitor and the purchaser's solicitor. Together, these formal solicitors' letters are commonly referred to as "missives".

Once all the terms on which the property is to be bought and sold have been agreed in the missives, a binding contract between the seller and the purchaser has been created. 

The terms of this contract can then be enforced by the seller by raising a court action seeking “implement" of the missives. The general rule is that parties will be required by the court to perform their contractual obligations. The remedy of implement may, however, be refused by the court if a purchaser can show that it is impossible for them to complete on the purchase or that exceptional hardship would be caused by requiring them to do so. 

This means that purchasers cannot seek to avoid their commitments on the basis that a transaction is no longer a good deal for them. However, if a purchaser genuinely cannot obtain funding and has no savings or equity in other property, a court is less likely to order implement of the contract.

As an alternative to seeking implement, where a purchaser refuses to complete on a transaction, the seller may resell the property and then seek to recover from the original purchaser any loss it has suffered (including any reduction in the purchase price received) through an action for damages. 

From a practical perspective, where developers are facing this issue in relation to a number of properties it is important to be organised in your response, and send out a strong message to all purchasers, rather than raising court actions in a piecemeal fashion. Be clear on your objectives and be prepared to follow through. Most of all, it is important to focus on the personalities involved and why purchasers are seeking to pull out of deals they have previously agreed to, and to tailor the nature of your response accordingly.

For further information, please contact Fiona Caldow fiona.caldow@pinsentmasons.com.