10% loss if fail to complete?

tigertrio

As far as I am aware, in a standard contract, if you fail to complete, you forfeit 10% of the purchase price plus damages.

What happens in this scenario...


Buyer A (purchase price £250K) > Buyer B (purchase price £500K) > Buyer C (purchase price £1mil)

If contracts have been exchanged, but Buyer A can not complete, they forfeit 10% (25K to Buyer B ). But then Buyer B cannot complete through no fault of their own, do they then owe Buyer C 100K? This does not really seem fair as it was Buyer A causing the issues.

saajan_12

tigertrio said:

As far as I am aware, in a standard contract, if you fail to complete, you forfeit 10% of the purchase price plus damages.

What happens in this scenario...


Buyer A (purchase price £250K) > Buyer B (purchase price £500K) > Buyer C (purchase price £1mil)

If contracts have been exchanged, but Buyer A can not complete, they forfeit 10% (25K to Buyer B ). But then Buyer B cannot complete through no fault of their own, do they then owe Buyer C 100K? This does not really seem fair as it was Buyer A causing the issues.

B is buying a 500k house? So their 10% deposit would be 50k. which they lose (lets assume C has no damages for ease). 
Then B's damages are 50k, which they sue A for, so B ends up flat. 

Note this is if completion fails entirely.. in which case the damages may often exceed the deposits, so the 10% becomes irrelevant. If completion is simply delayed, then the claims are just for the damages. 

tigertrio

Ok so you just sue for damages, thank you.

Zerforax

It rarely happens because you usually exchange contracts very late in the process. It is only if you fail to complete after you have exchanged contracts that forfeiting deposits comes into play. Solicitors usually wait until everything is sorted in the chain before agreeing to exchange.

ReadingTim

Given it's possible to exchange and complete on the same day, all the pieces of the puzzle have to be in place prior to exchange, with completion being an administrative formality which occurs anything from a few seconds to a couple of weeks afterwards.  The only things I can think of which would prevent that from occurring aren't likely to be within the control of the vendor or buyer, so in reality the situation is extremely unlikely to materialise.  

km1500

There are possible scenarios where buyer A cannot complete for example it is discovered that the mortgage application was fraudulent and their offer is pulled or an acrimonious split of a couple or some other similar problem.

Whereas I agree buyer B can then sue buyer A  for their losses this is not much use if buyer A has no assets

So although extremely rare it is not impossible that buyer B  could be on the hook for damages to buyer C which they cannot recover from buyer A

 I have no idea if there is anything like 'post contract completion failure' insurance

movilogo

10% deposit loss is not the celling, it is the floor! Longer the chain, more risk one has at bottom who fails to complete after contract is exchanged. 

People often don't realize, how much power the buyer at bottom of chain has (who is not selling). The whole chain rests on that buyer. Longer the chain, more chance that if buyer wants to reduce price before exchange, everyone else would agree. 

MobileSaver

movilogo said:

10% deposit loss is not the celling, it is the floor! Longer the chain, more risk one has at bottom who fails to complete after contract is exchanged. 

People often don't realize, how much power the buyer at bottom of chain has (who is not selling). The whole chain rests on that buyer. Longer the chain, more chance that if buyer wants to reduce price before exchange, everyone else would agree. 

I don't quite follow your logic here. As you say, failing to complete after exchange carries the most risk for the one at the bottom of the chain.

Before exchange though, any or all of the chain can pull out or ask for a reduction for any reason; I can't see why the one at the bottom has any more "power" than anyone else?

k12479

tigertrio said:

But then Buyer B cannot complete through no fault of their own...This does not really seem fair as it was Buyer A causing the issues.

I normally equate the term 'through no fault of their own' as people failing to take any responsibility for their own choices and actions. Buyer B has made their purchase dependent upon Buyer A, bearing some risk in the process. Especially if the following materialises:

km1500 said:

...buyer B can then sue buyer A  for their losses this is not much use if buyer A has no assets