Approved Judgment
MR. JUSTICE
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
2. Because 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, 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 1st 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 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 24th 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 12th 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 edition, 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 1.00 p.m. 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, 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
6. By 18th 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. But at this point a difference of opinion surfaced between the parties’ advisers over the identity of the contractual completion date. Initially the defendants’ advisers took the view, mistakenly, that the contractual completion date was 24th January 2007, the date appearing at the end of Special Condition 25. In that belief, and on the basis that the completion monies had not been tendered on that day, Cain Associates served notice to complete under Standard Condition 6.8.1 in purported exercise of their clients’ right to do so under the contract.
7. Gelbergs, who had been supplied a few days earlier with copies of the section 5 notices which had been served, immediately responded by pointing out that this involved a misreading of Special Condition 25. They did so in a letter to Cain Associates, dated 25th January, in which, omitting irrelevant immaterial parts, they 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 their notice to complete was indeed premature, Cain Associates wrote to Gelbergs on 31st 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 24th January, i.e., on 3rd February 2007. Gelbergs again countered that this was wrong, that the 10 days fell to be calculated by reference to the date when by their terms the section 5 notices expired, namely 1st February, and that as the 10th day so calculated fell on a Sunday, contractual completion would fall on Monday, 12th February 2007.
9. Sticking to their view of the contract, Cain Associates on 5th February served a fresh notice to complete. Once again, Gelbergs challenged the validity of the notice. They again pointed out that the contractual completion date was intended to be 10 days after the date on which the tenants’ rights under the 1987 Act expired and that in accordance with the notices served on the tenants, specifying 1st February as the latest date for acceptance, the 10–day period would not start to run until after 1st 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, 12th 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 monies.
11. Nothing material then seems to have occurred until 2.44 p.m. on 26th February when Cain Associates received by telegraphic transfer from Gelbergs the sum of £113,070.34. It arrived unaccompanied by any letter, although
12. Cain Associates faxed a letter to Gelbergs at a little after 5.00 p.m. that day to say that the receipt of the £113,070.34 at 2.45 p.m. that day was “out of time” and therefore that they 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 28th 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 24th January, i.e. 3rd February 2007, should the contract be rectified to specify that the completion date was to be on the 10th day after 1st February; that is to say, on 12th February being the next available working day? Second, if, as a result of rectification of the contract or on its true construction, 12th February was indeed the contractual completion date with the result that the notice to complete served that day was effective to require completion by 26th February, did the claimant in making payment at 2.44 p.m. that day tender his monies too late? It is not suggested that he attempted to effect any earlier tender. Third, and in any event, did the claimant remit inadequate monies?
15. What then was the contractual completion date? And if it was 10 days after 24th 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 24th January or from after the date when 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 24th 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 which Gelbergs wrote to Cain Associates on 29th November 2006, responding to an earlier letter and a subsequent telephone conversation. In that letter
“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 24th November, he assumed that 23rd January would be when they would expire and that he specified the 24th January accordingly. In fact, as he was later to discover, the notices had expired on 1st February. In that statement
“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
18.
19. From Mr.
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. Kremen for the claimant does not invite me 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 12th 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 1st February 2007 in place of 24th January 2007.
21. I agree that the necessary elements for rectification are established and that the contract should be rectified as
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 Miss 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 24th January failed to give effect to this intention. Given those ingredients, the fact that the parties intended to insert and did insert 24th January into the contract does not answer the case. I shall accordingly proceed on the basis that the claimant establishes his right to rectification of Special Condition 25 and that I should therefore consider the parties’ rights as if that condition had stated 1st February and not 24th January.
23. That brings me to the second issue, which is whether by transferring the £113,070–odd to Cain Associates at 2.44 p.m. on 26th February, the claimant failed to comply, because 2.44 p.m. was too late, with the notice to complete served by Cain Associates on 12th 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, 12th February 2007. It is also common ground that the notice to complete served on 12th 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 26th February.
24.
25.
26.
“If the money due on completion is received after 2.00 p.m., 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.
27. I accept that Standard Condition 6.1.2 has the limited function for which
28. This conclusion renders it unnecessary to consider
29. I should mention that I derive no assistance from the Court of Appeal decision in Carne v Debono [1983] 3 All ER 405, 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 monies had to be received by the vendor’s solicitors not later than 12 noon on the date of completion is not the same as Special Condition in this case. Nor is it evident what other provisions there were in the contract in that case which 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 was open to the claimant to complete his purchase when the monies were paid over at 2.44 p.m., 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 2.44 p.m. did not include this amount. Nor was it tendered at any other time on 26th February.
31. In his reply submissions,
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 26th February entitled the defendants to rescind the contract as it is accepted by the claimant that they purported to do 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.
MR. JUSTICE
My Lord, the claimant has lost the opportunity of acquiring the property by reason of my Lord’s judgment. My Lord, I certainly could not put my submission any wider than that on section 49.
There is one loose end and that is, in view of the outcome of this case, whether the claimant is entitled to the exercise in his favour of the court’s discretion under section 49(2) of the Law of Property Act 1925 to require the repayment of the deposit which is otherwise forfeited. I am not persuaded that I should exercise discretion in the claimant’s favour. As is clear by authority: see Omar v El Wakil [2002] EWCA (Civ) 1090, [2002] 2 P&CR 3, where a purchaser has acted in breach of contract, as has happened in this case, the circumstances which make it appropriate for the court to exercise the discretion under the section in his favour must be exceptional. I do not consider that the circumstances here were exceptional. I am not therefore persuaded that I should exercise the discretion in the claimant’s favour.
Now, the schedule of costs?
MR. JUSTICE
MR. JUSTICE
MR. JUSTICE
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