COVID clauses for residential property transactions

Earlier in the summer we wrote about increasing movement in the housing market, focusing on ten practical things to consider when buying a property under the current COVID-19 restrictions.

With the introduction of more local lockdowns and the recent increase in cases of COVID-19, the Law Society has produced specific guidance in relation to contractual elements of the conveyancing process.

A link to the full Government advice on moving house can be found here and we have gone into detail below, summarising the risks and potential solutions to allow property transactions to continue in a safe manner with minimal risks, both contractual and in relation to the health of the parties involved.

The key additional risks of buying or selling during the current pandemic include:

• you or your buyer/seller or someone in your or their household may be unable to move out, either through illness or the need to self-isolate
• you or your buyer/seller may be in hospital
• there may be a further lockdown which prevents you or your buyer/seller from moving however, the government’s guidance during the initial lockdown did authorise completions to proceed where exchange of contracts had taken place but only where it was essential and the parties could not agree to delay completion
• moving might be in breach of government regulations or contrary to government guidance
• there may be difficulties in obtaining removal services
• your or your buyer’s mortgage offer might be withdrawn or the financial position might change of one of the parties
• the UK financial system fails to deliver the purchase or mortgage money
• any of these problems might occur to another party in the chain of transactions on which your move is dependent

Taking the above risks into account, three options have been identified with regard to contracts for residential property transactions:

1. Enter into a standard contract as would have happened prior to COVID-19

Issue: One or more parties may be unable to complete on the agreed date.  If you are one of the parties, you will suffer financial penalties (which could be significant) and ultimately the loss of any deposit paid on exchange, usually 10% of the purchase price.  All parties are likely to suffer financially due to costs incurred (removal firms, fees for mortgages etc).

Solution: Ensure the time between exchange and completion is short to reduce the risk of one party not being able to move.

2. Exchange and complete on the same day

Issue: You will need to be ready to move quickly and could lose a deposit for a removal firm etc if the date had to change as this will need to be booked in advance.  This would be an ideal situation for a buyer who is not reliant on occupying the property immediately on completion.

3. Add a ‘COVID clause’ into your contract which allows completion to be delayed if certain circumstances occur after exchange of contracts.

All contracts in the chain would need to contain similar provisions and there would be no financial liability for any party if the clause needed to be implemented however this still comes with a risk.

We would strongly recommend the inclusion of COVID specific clauses in property transactions and are already including them for many clients to afford protection in what is a difficult time for all parties.  Local lockdown measures have been introduced with relatively short timescales and this could impact heavily on the ability to complete a transaction, particularly when one or more parties in the chain is moving to/from another area.  Moving house during a pandemic comes with uncertainty for the reasons set out above and a COVID specific clause will not be right for all transactions.

For advice on what specific measures you can take to protect yourself when moving house during a pandemic or any other aspect of residential property transactions, please contact Candice Rumble or another member of the  Residential Property team.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.