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How Covid clauses can keep residential property transactions moving

Although government measures mean that we are all currently in lockdown, and buyers and sellers of residential property may not want to contract and commit to a completion date, new 'Covid clauses' allow parties to exchange contracts with the comfort of knowing there will be no penalty if completion is delayed due to a coronavirus related event.

Covid clauses enable transactions to continue where coronavirus would delay completion if, due to the virus:

  • staff at the buyer's or seller's solicitor or the lender are not available;
  • the buyer or seller (or anyone living with them) is ill or self-quarantining;
  • the government introduces recommended or mandatory measures to reduce transmission;
  • there is disruption to the post or sending money electronically;
  • the buyer or seller cannot properly execute documents e.g. if no witness is available;
  • the buyer cannot carry out standard pre-completion searches;
  • a lender withdraws their offer to finance the purchase; or
  • there are delays elsewhere in the chain.

Where a contract contains a Covid clause, if a party cannot complete on the specified completion date, they will not be in breach of contract.  Ordinarily (in contracts without a Covid clause) if either party is unable to complete on the specified date, compensation will be due to the other party for any delay.  

Including a Covid clause means that completion can be delayed for an agreed period with no penalty or breach.  In a world of uncertainty, Covid clauses provide some reassurance and minimise the risk of parties failing to comply with contractual terms through no fault of their own.

Covid clauses also include a deadline for completion in the event that, for example, restrictions continue longer than expected and a party is unable to complete.  An agreed long stop date means that the contract can be rescinded (and the deposit returned to the buyer) if completion cannot be achieved by the agreed date due to coronavirus.

Government guidance is clear that transactions can proceed where the property is vacant and social distancing protocol is observed.  In those cases, Covid clauses allow the legal aspects of exchange of contracts to continue with minimal disruption.  Although Covid clauses are not a perfect solution, and do not provide certainty as to completion, they do help both parties achieve an exchange if this is preferable to waiting for the restrictions to lift.

15 April 2020

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