As a Conveyancer when I take authority to exchange I always say the following; 'once you have exchanged it is then legally binding and you cannot pull out of the transaction without there being monetary loss'. This is after I have reported on the contract and told my client that if they withdraw from the transaction after exchange they will lose their 10% deposit and may be liable for costs incurred by the other side. It's part of the reporting process but it is very rare that someone withdraws from their transaction after exchange.
I have just been reading about a very recent case where exactly that happened. A buyer withdrew from their purchase after exchange of contracts and the sellers took the buyer to court for breach of contract. This reminded me of what monetary loss can actually be suffered.
The case itself was Conway v Eze (2018) and involved a £5 million property in Mill Hill. Prince Eze had agreed to purchase the property, contracts were exchanged and completion set for the 30th November. After the exchange, Prince Eze, for several reasons, had a change of heart and refused to complete. Mr & Mrs Conway were buying on and this caused them huge troubles as they were also going to be in breach of their contract. In order to secure the property they were buying they had to find bridging finance and put their property back on the market. When they did find a new buyer for their property it was for £800,000 less than Prince Eze's offer and they sued him for breach of contract.
The judge found in their favour and the deposit was to go to them. The judge also awarded damages to the couple. Damages are assessed based on a case precedent from 1854 and these are those that arise naturally, from the breach of the contract itself and those which may arise naturally as a result of the breach, which both sides would have contemplated. This means that if there is an ongoing purchase the damages will include any losses suffered in that respect.
The damages which were awarded were the interest on the bridging loan used to finance the ongoing purchase, the cost of obtaining the bridging loan, the difference in sale price between Prince Eze's offer and the resale price, wasted removal costs, additional solicitors fees and estate agent fees, maintenance and insurance on the property until it was re-sold, and interest paid to the sellers of the new property for the time delayed completing on the ongoing purchase. The damages awarded towards the bridging loan itself were in the region of £1million and Estate Agent Fees were £72,000, so there was a considerable loss to Prince Eze.
Whilst most of us don't have transactions at such a high value, it is worth noting what kind of damages can be awarded and the financial impact these can have should you fail to complete after exchanging contracts. It is also a reminder to me as a Conveyancer not to leave out those parts of the reporting process I initially mentioned. Withdrawing from a contract after exchange is incredibly rare but clients need to be made aware that it is not just the stress and worry that can be caused but also the huge financial implication.