Sale of land — Completion — Notice to complete — Compliance — Contract providing for completion by 1pm on completion date failing which purchaser to be treated as having completed on next working day — Whether completion date in contract to be rectified on ground of common mistake — Whether failure of purchaser to pay purchase moneys by 1pm on last day permissible under completion notices entitling vendors to rescind
The claimant agreed to purchase a freehold property from the defendants for £120,000; contracts were exchanged and a deposit of £12,000 was paid. Since the tenants of the flats in the property had a right, under Part I of the Landlord and Tenant Act 1987, of first refusal in respect of any such sale, the agreement was made conditional upon the tenants not exercising that right, and provided for completion “10 days after the said tenants’ right to proceed under the Act have expired”. That date was incorrectly stated in the contract to be 24 January 2007; the correct date was 1 February 2007. Completion was to take place by 1pm on the completion date “and if completion shall take place after that time the Buyer shall be treated as having completed on the next following working day”. The claimant was to pay the defendants’ legal costs of the sale in the sum of £500 plus VAT.
The tenants did not exercise their rights under the 1987 Act. A dispute arose as to the contractual completion date for the sale to the claimant; the defendants maintained that it was 10 working days after 24 January 2007, while the claimant contended for 10 working days after 1 February 2007, namely 12 February. The defendants served various notices to complete, the last of which was given on 12 February and required completion by 26 February, with time to be of the essence. At 2.44pm on 26 February, £113,070 was transferred to the defendants’ solicitor. The defendants maintained that the money had been paid too late and that it should have included the sum for their legal costs. They repaid the money and purported to rescind the sale contract and forfeit the claimant’s deposit. The claimant brought proceedings for: (i) rectification of the sale contract to state that the completion date was 10 days after 1 February 2007; and (ii) specific performance, on the ground that the payment at 2.44pm had been effective to complete the sale.
Held: The claim was allowed in part. (1) The date of 24 January 2007 had been inserted into the agreement owing to an erroneous belief shared by both parties that the tenants’ right expired on or by that date, whereas it actually expired on 1 February. The common intention of the parties had been that the date specified in the agreement should represent the expiry date. That intention had been clear and there had been a more than sufficient outward expression of it in the communications between them. Since the contract had failed accurately to reflect that intention, the claimant was entitled to rectification. The defendants’ notice to complete served on 12 February was effective. (2) It had been open to the claimant to tender the purchase moneys at 2.44pm on 26 February in fulfilment of his obligation to complete. Such a payment was not out of time to complete in accordance with the notice. Read in context, the purpose of the relevant contractual provision was not to set a deadline of 1pm as being the latest time by which completion on any given day could be contractually insisted upon, but merely to provide that if payment were made later, it was to include an additional day’s interest. The sum to be paid therefore had to be calculated as though completion had taken place before 1pm on the next working day. (3) Although there was no express reference to the payment of the defendants’ legal costs upon completion, the relevant clause had that effect when read with the other provisions of the contract, such that the claimant’s failure to include those costs in the moneys paid on the completion date entitled the defendants to rescind.
The following cases are referred to in this report.
Carne v Debono [1988] 1 WLR 1107; [1988] 3 All ER 485
Rose (Frederick E) (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450; [1953] 3 WLR 497; [1953] 2 All ER 739; [1953] 2 Lloyd’s Rep 238, CA
This was the hearing of a claim by the claimant, Raymond Chinnock, against the defendants, Mustafa Hocaoglu and Vasfiya Hocaoglu, for declaratory relief and specific performance in respect of a contract for the sale of land.
Philip Kremen (instructed by Gelbergs) appeared for the claimant; Thomas Weekes (instructed by DKLM Solicitors) represented the defendants.
Giving judgment, Blackburne J said:
[1] This is a claim for rectification and specific performance of a contract for the sale by the defendants to the claimant, for £120,000, of a freehold property situate at and known as 70 Ommaney Road, London SE14. Damages and interest are also claimed. The defendants contend that they have lawfully rescinded the contract and forfeited the £12,000 deposit and, therefore, that the claimant is not entitled to the relief that he claims.
[2] Since at the date of the contract the property was divided into flats held by qualifying tenants within the meaning of Part 1 of the Landlord and Tenant Act 1987, (the 1987 Act) under which the tenants in question enjoy a right of first refusal in the event of a sale of the kind involved in this case, it was necessary for the defendants to serve offer notices on the affected tenants pursuant to section 5 of that Act. As they were required to do under section 5(5) of the Act, the defendants served notices on two of the three tenants and specified 1 February 2007 as the date by which the offer of disposal had to be accepted. Under section 5A(4) of the Act, a section 5 notice has to specify a period of |page:78| not less than two months, which is to begin with the date of service of the notice. The notices served on the two tenants in this case were dated 24 November 2006 and were served, I understand, on that date. This meant that the notices were seven or so days longer than they needed to be. In the event, neither of the tenants exercised his or her right to acquire the defendants’ interest in the property.
[3] The contract was dated 12 December 2006, which is when, in accordance with the Law Society formula B, contracts were exchanged. As I have mentioned, the stated purchase price was £120,000. A deposit of £12,000 was duly paid on exchange. The contract was expressed to be subject to the special conditions endorsed on it and, by special condition 4, to the standard conditions of sale (4th ed), in so far as appropriate to a sale by private treaty and not inconsistent with or varied by the express provisions of the contract.
[4] The following special conditions are material to this dispute. Special condition 10:
Completion shall take place by 1.00pm on the day fixed for completion at the place reasonably nominated by the Seller’s Conveyancers… and if completion shall take place after that time the Buyer shall be treated as having completed on the next following working day not being a Saturday, Sunday or Public Holiday.
Special condition 11:
If the Seller’s Conveyancers serve a Notice to complete the Seller shall not be obliged to complete until the Buyers pay Seller’s Conveyancers
(a) monies due on completion including interest and… .
Special condition 24:
The purchaser’s Solicitors will pay to the vendor’s Solicitors upon completion the additional sum of £4,497.91 to recoup the Vendor of the losses incurred to date due to the owner of the Ground Floor Flat which is made up as follows:
The make-up of the £4,497-odd is set out. I pause to say that something has gone wrong with the grammar of that condition, but the sense of it is reasonably plain.
Special condition 25, which has been added in handwriting:
Prior to the date hereof the Seller’s Solicitors have served notice pursuant to section 5 Landlord and Tenant Act 1987 upon the qualifying tenants of the property. This agreement is conditional upon the said tenants not exercising their rights under the 87 Act. If the said tenants do exercise their rights under the Act, then this Agreement shall be null and void in all respects and the deposit paid hereunder shall be returned in full with interest. If the said tenants do not exercise their rights under the Act, then completion shall take place 10 days after the date upon which the said tenants’ rights to proceed under the Act have expired. Such date shall be 24th January 2007.
Then, special condition 26, also in handwriting:
The purchaser will be responsible for the legal costs incurred by the vendor in relation to the sale of the above being £500 plus VAT, plus office copies of £12.00.
I should also refer to certain of the standard conditions. Standard condition 6.8, which is headed “Notice to complete”, provides:
6.8.1. At any time on or after completion date a party who is ready, able and willing to complete may give the other a notice to complete.
6.8.2. The parties are to complete the contract within 10 working days of giving a notice to complete, excluding the day on which the notice is given. For this purpose time is of the essence of the contract.
Standard condition 1.1.1 defines working day as “any day from Monday to Friday (inclusive) which is not Christmas Day, Good Friday or a statutory Bank Holiday”.
Standard condition 7.5, headed “Buyer’s failure to comply with notice to complete”, provides:
7.5.1. If the buyer fails to complete in accordance with a notice to complete, the following terms apply:
7.5.2. The seller may rescind the contract, and if he does so:
(a) he may;
(i) forfeit and keep any deposit and accrued interest;
(ii) resell the property and any chattels included in the contract;
(iii) claim damages.
Then, by 7.5.2(b), “the buyer is to return any documents he received from the seller and is… to cancel any registration of the contract,” and by 7.5.3: “The seller retains his other rights and remedies.”
[5] Both parties to the sale had lawyers or conveyancers acting for them. The claimant had a firm of solicitors called Gelbergs, with the matter being handled by one of the firm’s partners, a Mr Graham Taylor. The defendants acted by licensed conveyancers called Cain Associates, initially through an associate called Ms Nicola Walsh and subsequently by a partner, Mr Joseph Mann.
[6] By 18 January 2007, it seemed very likely that the tenants would not be exercising their right to acquire the defendants’ interest in the property and, therefore, that the contract would be proceeding to completion. However, at this point, a difference of opinion surfaced between the parties’ advisers concerning the identity of the contractual completion date. Initially, the defendants’ advisers took the view, mistakenly, that the contractual completion date was 24 January 2007, the date appearing at the end of special condition 25. In that belief, and on the basis that the completion moneys had not been tendered on that day, Cain Associates served notice to complete under standard condition 6.8.1 in purported exercise of its clients’ right to do so under the contract.
[7] Gelbergs, which had been supplied a few days earlier with copies of the section 5 notices that had been served, immediately responded by pointing out that this involved a misreading of special condition 25. It did so in a letter to Cain Associates, dated 25 January, in which, omitting irrelevant immaterial parts, it stated:
Clause 25 of the contract is clear in that completion is to take place 10 days after the date on which the Tenants rights to proceed under the Act [that is the Landlord and Tenant Act 1987] expire. This date was stated in the contract to be 24th January 2007 thus making the completion date envisaged by the terms of the contract 3rd February 2007, which is of course a Saturday.
This point is somewhat irrelevant as the actual date stated on the Notices served by you as being the date of expiry of the Tenants rights, is stated to be 1st February 2007. Accordingly, the 10 day period would expire on Sunday 11th February 2007 and accordingly completion would be due to take place on 12th February 2007.
[8] Accepting that its notice to complete was indeed premature, Cain Associates wrote to Gelbergs on 31 January to confirm that the notice to complete was withdrawn. However, contrary to the contentions in Gelbergs’ letter, Cain Associates maintained that the contractual completion date would be 10 days after 24 January, that is, on 3 February 2007. Gelbergs again countered that this was wrong, and that the 10 days fell to be calculated by reference to the date upon which, by their terms, the section 5 notices expired, namely 1 February, and that since the 10th day so calculated fell on a Sunday, contractual completion would fall on Monday 12 February 2007.
[9] Sticking to its view of the contract, Cain Associates, on 5 February, served a fresh notice to complete. Once again, Gelbergs challenged the validity of the notice. It again pointed out that the contractual completion date was intended to be 10 days after the date upon which the tenants’ rights under the 1987 Act expired and that, in accordance with the notices served on the tenants specifying 1 February as the latest date for acceptance, the 10-day period would not start to run until after 1 February.
[10] No doubt accepting that Gelbergs’ view of special condition 25 might be right, Cain Associates served a further notice to complete the third in this dispute on Monday 12 February. It was expressed to be without prejudice to any previous notice served. It was served not least because Gelbergs’ client, the claimant, had still failed to tender the completion moneys.
[11] Nothing material then seems to have occurred until 2.44pm on 26 February, when Cain Associates received by telegraphic transfer from Gelbergs the sum of £113,070.34. It arrived unaccompanied by any letter, although Mr Taylor says in his evidence, and since there has been no cross-examination of the witnesses I accept, that he put in several calls to Mr Mann, of Cain Associates, and left at least four |page:79| messages on his answer phone to state that the money was on its way, but that none of his calls was answered.
[12] Cain Associates faxed a letter to Gelbergs at a little after 5pm on that day to say that the receipt of the £113,070.34 at 2.45pm that day was “out of time” and that they therefore intended to return the money the following day.
[13] It has not been suggested that that letter did not amount to a notice of purported precision of the contract by the defendants. Any doubt about the matter is removed by Cain Associates’ action two days later on 28 February in returning the £113,070-odd to Gelbergs. These proceedings were launched the same day.
[14] The following questions arise for determination on the amended pleadings. First, if in the events that happened and on a proper construction of the contract the completion date for the sale was 10 days after 24 January, that is 3 February 2007, should the contract be rectified to specify that the completion date was to be on the 10th day after 1 February; that is to say, on 12 February, being the next available working day? Second, if, as a result of rectification of the contract or on its true construction, 12 February was indeed the contractual completion date with the result that the notice to complete served that day was effective to require completion by 26 February, did the claimant in making payment at 2.44pm that day tender his moneys too late? It is not suggested that he attempted to effect any earlier tender. Third, and in any event, did the claimant remit inadequate moneys?
[15] What, then, was the contractual completion date? Moreover, if it was 10 days after 24 January, does the claimant establish his claim to rectification? The outcome of these issues turns on whether the 10 days referred to in special condition 25 runs from after 24 January or from after the date upon which the tenant’s rights to proceed under the 1987 Act expired.
[16] In my view, it is obvious that the date specified in special condition 25, that is to say, 24 January 2007, erroneously assumes that the notices served on the tenants under section 5 would expire on or by that date. That is apparent from a letter that Gelbergs wrote to Cain Associates on 29 November 2006, responding to an earlier letter and a subsequent telephone conversation. In that letter, Mr Taylor of Gelbergs said:
We note that you served the Landlord & Tenant Act Notices on 24th November 2006 and accordingly we anticipate that the expiry date for those Notices will be 23rd January 2007. In the circumstances we require the clause to be inserted into the contract to be amended so that at the end of the clause the following words are added, “which shall be 24th January 2007”.
[17] In his second witness statement, Mr Taylor said, and I accept, that not having seen the notices at that time or, indeed, until several weeks after contracts were exchanged, and having been informed that the notices were being served on 24 November, he assumed that 23 January would be when they would expire and that he specified 24 January accordingly. In fact, as he was later to discover, the notices had expired on 1 February. In that statement Mr Taylor said:
Under Clause 25 of the Contract for Sale of 70 Ommaney Road exchanged between the parties, it was expressly provided that the agreement for sale was conditional upon the Tenants not exercising their rights under Section 5 of the Landlord and Tenant Act 1987. This Clause further provided that if the Tenants did not exercise their said rights under the Act, then [and then he quotes from that clause] “… Completion shall take place 10 days after the date upon which the said Tenants’ rights to proceed under the Act have expired which date shall be 24th January 2007.”
3. The date inserted in Clause 25 of the Contract was based upon the fact that I had been informed by Ms Walsh of Cain Associates by letter dated 24 November 2006, that the Section 5 Notices were being served that day. Accordingly, I calculated the usual 2 month notice period assuming that the said Notices would expire on 24 January 2007. Ms Walsh was fully aware at the time that this date was inserted into the Contract, that I had not seen copies of the relevant Notices, and at no stage did she correct my assumption or point out that the said Notices did not in fact expire until 1st February 2007. Nevertheless, Clause 25 clearly states that completion is to take place 10 days after the date that the Tenants’ rights expired, which was the parties’ clear and unequivocal intention and which would in fact have been 10 days from 1st February and not 10 days from 24th January, as inserted in the Contract.
[18] Ms Walsh, who works for Cain Associates, has not provided a witness statement to contradict what Mr Taylor has stated and, as I have already mentioned, neither side has sought to cross-examine the other side’s witness. (I should say that the defendants’ only witness is Mr Mann, of Cain Associates, and the claimant’s only witness is Mr Taylor.)
[19] From Mr Taylor’s evidence and his letter of 29 November, it is apparent, and I find, that both sides, Mr Taylor for the claimant and Ms Walsh for the defendants, assumed that the expiry date of the section 5 notices was two months after those notices had been served and that 24 January was inserted in the belief, erroneous as it turned out, and with the intention that that date represented the expiry date. That that belief and intention were shared by both sides is apparent, not just from Mr Taylor’s evidence but also from his letter to Cain Associates and, indeed, from the terms of the special condition itself. It cannot credibly be suggested, and I reject the submission of Mr Thomas Weekes, for the defendants, to this effect, that the date of 24 January was inserted into the contract in order to provide certainty whatever the true date of expiry of the notices.
[20] I am very far from certain that I cannot, as a matter of construction, substitute 1 February for the erroneous 24 January, but Mr Philip Kremen, for the claimant, did not invite me to approach the matter in that way. Instead, he submitted that the necessary requirements of rectification for common mistake are established, that is to say: first, the requisite common intention (the date to be inserted) should coincide with the expiry of the notices; second, the continuance of that common intention at the time the contract was entered into on 12 December 2006; and, third, the failure of the contract accurately to reflect that intention. He therefore submitted that the contract should be rectified to specify 1 February 2007 in place of 24 January 2007.
[21] I agree that the necessary elements for rectification are established and that the contract should be rectified as Mr Kremen suggested. Mr Weekes submitted that the parties intended to insert 24 January and the fact that they did so on the basis of the shared misunderstanding of the date of expiry of the section 5 notices does not entitle the claimant to rectify the contract. He referred to me to the well-known judgment of Denning LJ in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd [1953] 2 QB 450, especially at pp461-462.
[22] The difference between that case and this is that here the parties’ intention was, as I have stated, clear, that there was a more than sufficient outward expression of that intention in the communications by Mr Taylor to Ms Walsh to which I have referred, and I may add in special condition 25 itself, and that it is quite evident that the insertion of 24 January failed to give effect to this intention. Given those ingredients, the fact that the parties intended to insert and did insert 24 January into the contract does not answer the case. I shall accordingly proceed upon the basis that the claimant establishes his right to rectification of special condition 25 and that I should therefore consider the parties’ rights as though that condition had stated 1 February and not 24 January.
[23] That brings me to the second issue, which is whether by transferring the £113,070-odd to Cain Associates at 2.44pm on 26 February, the claimant failed to comply, because 2.44pm was too late, with the notice to complete served by Cain Associates on 12 February. It is common ground that with the substitution in special condition 25 of 1 February for 24 January, the contractual completion date fell on Monday 12 February 2007. It is also common ground that the notice to complete served on 12 February was effective to require the parties to complete the contract within 10 working days of the giving of the notice, excluding the day of service, that time was thereby made of the essence of the contract and that the notice expired on 26 February.
[24] Mr Weekes submitted that special condition 10, requiring completion to take place by 1pm on the day fixed for completion, determines the matter, in that, as a result of the notice to complete, 26 February was the latest date for completion, and since the moneys were not made available until after 1pm the claimant was out of time to complete in accordance with the notice. He submitted that this is confirmed by the second half of the condition, which states that |page:80| “if completion shall take place after that time, the buyer should be treated as having completed on the next following working day”. This confirms, he said, that any attempt at completion after 1pm is to be regarded as occurring on the following working day.
[25] Mr Kremen submitted that this is to misunderstand the purpose of that condition. Its function, he said, is the same as standard condition 6.1.2, namely if payment is made but after 1pm, it requires the payment of the day’s additional interest if the next working day is the following day and an adjustment of the apportionments on the same footing, but it does not, he said, set a deadline of 1pm as the latest time by which completion that day can be contractually insisted upon. He submitted that the second part of the special condition predicates completion actually taking place on the same day, but after 1pm. This is inconsistent he said with the proposition that completion, if it is to take place at all that day, must take place by 1pm.
[26] Mr Weekes responded by submitting that the function and effect of standard condition 6.1.2 may be as Mr Kremen submitted, but there was a vital distinction between special condition 10 and standard condition 6.1.2, in that the latter states:
If the money due on completion is received after 2.00pm, completion is to be treated, for the purposes only of conditions 6.3 and 7.3, as taking place on the next working day as a result of the buyer’s default.
Condition 6.3 is concerned with apportionments of income and outgoings and condition 7.3 with compensation at the contract rate on the balance of the purchase money on account of late completion. Mr Weekes emphasised this limitation in standard condition 6.1.2. He pointed out that there was no equivalent limitation in special condition 10.
[27] I accept that standard condition 6.1.2 has the limited function for which Mr Kremen contended. This finds support in para 8.013 of Emmet on Title (19th ed). The question therefore is whether, as a result of the absence of any reference to the delayed completion being for the purpose of apportionments and compensation only or something to like effect, special condition 10 has the wider effect for which Mr Weekes contended and means that if the moneys have not been tendered by 1pm on the day upon which the notice to complete expires, the claimant has failed to comply with the notice and it is then open to the defendants to rescind the contract under standard condition 7.5. In my judgment, Mr Kremen is right on this point and that even though there is no limitation in special condition 10 equivalent to what is found in standard condition 6.1.2, the effect is the same. Without going into the question of how late in the day on the last day for completion fixed by notice to complete it is open to a purchaser to tender the necessary completion moneys, I am of the view that, unless prevented by the terms of the contract from doing so after a stated time, it was open to the claimant under this contract to tender the moneys at 2.44pm in fulfilment of his obligation to complete within the time stipulated by standard condition 6.8.2. I agree with Mr Kremen that special condition 10 assumes that completion may lawfully occur after 1pm. Its effect, in my judgment, is that if completion is after 1pm, the sum to be paid must be calculated as though completion had taken place before 1pm on the next working day.
[28] This conclusion renders it unnecessary to consider Mr Kremen’s other point, which was that special condition 10 does not apply once notice to complete has been served. It is sufficient if I say, in agreement with Mr Weekes, that I do not consider that its operation is confined to completion on the contractual completion date. I see no reason why it should not apply to completion on any day when, as a matter of contractual right, it is open to the parties to complete.
[29] I should mention that I derive no assistance from the Court of Appeal decision in Carne v Debono [1988] 3 All ER 485, to which I was referred. The issue in that case was whether a vendor’s solicitor was obliged to provide a purchaser with a completion statement. The issue with which I am concerned does not appear to have arisen in that case. The fact that the contract in that case stipulated that the balance of the purchase moneys had to be received by the vendor’s solicitor not later than 12 noon on the date of completion is not the same as the special condition in this case. Nor is it evident what other provisions there were in the contract in that case that might throw light on the proper understanding of the term requiring payment by noon on the completion date. I also observe that the purchaser in that case appeared in person and that the court was at pains to emphasise its concern to limit its decision to matters essential to the determination of the appeal.
[30] That brings me to the final issue, which is whether, even if it were open to the claimant to complete his purchase when the moneys were paid at 2.44pm, the sum tendered was too little. This turns on the effect of special condition 26 of the contract, which provided that the purchaser will be responsible for the vendor’s legal costs of the sale fixed by the condition in the sum, inclusive of VAT, of £599.50. It is common ground that the sum paid over at 2.44pm did not include this amount. Nor was it tendered at any other time on 26 February.
[31] In his reply submissions, Mr Kremen submitted that although the liability to pay the sum specified by special condition 26 crystallised on the contractual completion date and, accordingly, the sum became payable on completion, it does not follow that failure to pay the sum by the expiry of the period specified by the completion notice entitled the defendants to rescind the contract. He submitted that there was a difference in this respect between special condition 24 and the requirement under standard condition 6.4 that the purchase price for the property be paid on completion.
[32] Special condition 24 states explicitly that the additional sum of £4,497.91, which it then explains, is to be paid “upon completion”. Since, as Mr Kremen conceded, that is exactly how special condition 26 is to be understood, even though that condition does not contain the word “upon completion”, I fail to see why, as Mr Kremen accepted, failure by the expiry of the notice to complete to pay the £4,497.91, specified by special condition 24, entitles the vendors to rescind, whereas failure to pay the £599.50 specified by special condition 26 does not. The fact, as Mr Kremen pointed out, that special condition 14 entitles the vendor’s conveyancers to “retain possession of the title deeds as long as any monies due under this agreement remain unpaid”, thereby predicating that there might be sums due under the contract that were payable other than on completion, and that special condition 12 stipulates what compensation the vendor may be entitled to over and above what is provided by standard condition 7.3 if the buyer, through no fault of the vendor, fails to complete by the due date in time, does not seem to me to assist the claimant on this issue.
[33] In my judgment therefore, the claimant’s failure to include the £599.50 in the amount transferred to Cain Associates in the afternoon of 26 February entitled the defendants to rescind the contract because it is accepted by the claimant that they purported to do so later that day. It was a part of the sum that the claimant was obliged to pay on completion. He failed to do so by the deadline imposed as a result of the service of the notice to complete.
[34] In the result, the defendants establish their entitlement to rescind the contract and, accordingly, the claimant’s claim for specific performance and damages fails. This may appear a hard result, given the comparatively small shortfall in payment, but by leaving payment until so late after service of the third notice to complete, the claimant was leaving himself with no room for error. Time had been made of the essence of the contract. The claimant was up against a final deadline.
Claim allowed in part.
