What is the effect of a provision in an agreement for sale stating that the buyer will complete its purchase “as soon as” its “legal and banking formalities are completed”? Does it render the agreement void for uncertainty? The Upper Tribunal roundly rejected this notion in SK Properties (Midlands) Ltd v Byrne [2018] UKUT 356 (LC), applying the maxim that “words are to be understood so that they have effect, rather than fail”.
The parties had signed the agreement on 8 December 2015. They had discussed how long the formalities might take, but the contract – which was not drafted by a solicitor and was written on a single sheet of paper – did not oblige the buyer to take any steps to complete the formalities. The seller chased the buyer for a completion date twice in January and, on 5 February 2016, the buyer replied that its bank had indicated that their formalities should be complete by 19 February 2016. The seller responded, saying that “I want this matter completed in the next week or I will find someone else”.
The buyer contacted the seller on 4 March asking for a completion date and, on receiving no reply, applied to the Land Registry to register a unilateral notice to protect the agreement – which the seller applied to cancel. He argued that the contract was void for uncertainty for two reasons. First, because the clause did not define the phrase “legal and banking formalities”. And, second, because the completion date was uncertain.
The Upper Tribunal refused to direct the Land Registry to cancel the buyer’s notice. It ruled that the phrase “legal and banking facilities” should be interpreted as a reference to the steps needed (a) to put in place finance to fund the purchase and (b) to undertake the normal conveyancing process.
How, then, did the tribunal deal with the fact that the contract did not impose any time limit for the completion of the formalities, especially as the buyer was not under any express obligation to take any steps to advance the process? Could the judge imply such a term? HHJ Behrens decided that he could. There was a clear case to imply a term that the buyer would use its best endeavours to complete the legal and banking formalities as soon as reasonably practicable. The term was necessary to give business efficacy to the contract and represented the obvious but unexpressed common intention of the parties. And it was not inconsistent with the express provision in the contract, which used the phrase “as soon as”, suggesting a need for haste.
Furthermore, if a contract does not fix a date for completion, the law implies that completion is to take place within a reasonable time. And the normal position is that time is not of the essence in contracts for the sale of land. But, if a reasonable time has elapsed, either party can serve a notice to complete on the other specifying a reasonable time in which the other must complete, in respect of which time will be of the essence. Was it possible to construe the ultimatum on 5 February 2016 as a notice to complete? If it was, the period specified in the notice was not “a reasonable time”. Therefore, the “notice to complete” was invalid and the agreement was still in force.
Allyson Colby, property law consultant
