When time for performance of a contract is of the essence, or is made of the essence by a notice, and one of the parties agrees to defer the date for completion because the other party is not able to proceed, what is the position?
Hakimzay Ltd v Swailes [2015] EWHC B14 (Ch) concerned a contract for the sale of a property with vacant possession. When the contract was made, the property was subject to an assured shorthold tenancy in favour of a tenant who refused to vacate without a court order. Despite efforts, the seller was unable to obtain vacant possession in time for completion and the buyer served a notice to complete.
The seller was not in a position to complete until several days after the deadline set by the notice had passed. Meanwhile, the buyer chose not to rescind – but did ask for a price reduction of £10,000 to compensate him for the delay.
The seller notified the buyer that the tenant had vacated the property and served a notice rescinding the contract five days later on the ground that the buyer had failed to complete. The seller claimed that time had remained of the essence after the notice to complete had expired, and that the buyer’s failure to complete as soon as vacant possession became available constituted a repudiatory breach of contract that entitled the seller to terminate the contract and forfeit the buyer’s deposit.
The court noted that the seller’s argument appeared to be that time for completion of the contract remained of the essence for a reasonable period after the expiry of the notice to complete. However, the judge ruled that this was manifestly wrong. To say that time remains of the essence of a contract for a reasonable period after the expiration of a notice to complete – in the sense that the further time after the expiry of the notice is itself of the essence even though no new date for completion has been fixed – would be a nonsense.
The judge ruled that, if a party who is in the right allows a defaulting party to try to remedy his default after an essential date has passed, he cannot then call the bargain off without first warning the defaulter by fixing a fresh deadline that is reasonable in the circumstances: Luck v White [1973] 26 P&CR 89. Consequently, the buyer could not simply pull the plug on the contract without having fixed a new date for completion that was reasonable.
It must follow that the seller could not do so either. He could not just turn round and say, “I require you to complete forthwith, failing which I shall terminate on account of your repudiatory breach”.
The parties had not fixed a new date for completion after the expiry of the notice to complete, performance by which should be of the essence of the contract. Therefore, the seller had not been entitled to rescind the contract and its notice attempting to do so was ineffective to bring the contract to an end.
Allyson Colby is a property law consultant
