Defaulting purchasers may have to compensate sellers for a subsequent decline in the value of properties they had agreed to buy
The normal rule is that damages for breach of contract should be assessed at the time of the breach. This is relatively easy to apply where there is an immediately available market for the sale of the relevant asset or, in the converse case, for the purchase of an equivalent asset. However, this is unlikely where the asset in question is land.
The issue that arose in Hooper v Oates [2013] EWCA Civ 91 was whether it was appropriate to include the diminution in the value of a property after the contractual completion date in the damages awarded against a buyer who failed to complete a contract to purchase land. The Court of Appeal decided that it was.
The sellers had agreed to sell their property for £605,000, but had to re-market it when the buyer failed to complete. They remained keen to sell because the house was mortgaged and they had already moved elsewhere. However, the property market had slumped and they were unable to find another buyer. They eventually let the house for twelve months, before offering it for re-sale, but were forced to move back into the property two years after it should have changed hands.
The downturn in the market had taken its toll and the property was now valued at £495,000. However, the defendant denied any liability for the diminution of the value of the property after the contractual completion date.
The Court of Appeal contrasted contracts for the sale of commodities with contracts to sell land. It is unusual for a seller to be able to go out into the market as soon as a sale of land has fallen through, and find a purchaser who can and will proceed at once. Selling land takes time – and the time that it takes will depend, in part, on the economic circumstances at the time.
In addition, the property industry assesses market value by estimating the amount that a property will fetch on the date on which it valued, on the assumption that there is a willing buyer and a willing seller in an arm’s length transaction “after proper marketing”, where the parties each act knowledgeably, prudently and without compulsion. The assumption that the property has been properly marketed means that it must have been exposed to the market for a reasonable time. This may take several months.
The defendant had not suggested that the sellers had acted unreasonably or that they had failed to mitigate their damage by taking too long or by failing to follow proper professional advice, and the fact that they had decided to retain the property, rather than sell it, should make no difference to the way in which damages were assessed. There could perhaps be a debate about when the sellers’ losses had actually crystallised; was this when they let the house, or when they moved back in? However, it was unnecessary to investigate this further because there was nothing to suggest that the figures would have been any different.
The buyer would have suffered the decline in value had he completed the contract, and the loss in question was part of the loss for which the sellers were entitled to be compensated.
Allyson Colby is a property law consultant