The Coronavirus Effect
The threat of the coronavirus increases and while most of us are primarily worried about the health of loved ones and making sure we have enough food and medicines to weather the storm, if you are about to exchange contracts it can leave you wondering what you should do. There are several aspects to looks at:
- The professionals who will be dealing with the transaction are not in the office. It is likely that at some point, your solicitor and the solicitor of the other party may be advised to work at home. Most solicitor’s firms are able to fully facilitate working at home and so should be able to essentially carry on as normal We have the technology to be able to move money most of the time but it might be worth asking us to check if the opposing solicitor is able to work at home or share their mobile contact details in case of their office shutting down. Most completions do require that original signed documents are in the office and so it is worth making sure your solicitor has carried out all ID checks and has all of the signed paperwork in their possession before exchange of contracts and so does their opposing number, so that even if scanned copies are emailed to each other, everyone has the ability to complete as the original documents are in the office.
- What if banks aren’t working as normal? Banks are important for many reasons when it comes to completions: If you are a cash buyer, you will need your bank to send funds to your solicitor; If you are getting a mortgage your solicitor will need to draw down mortgage funds: if you are paying off a mortgage on a sale, you will need a redemption statement; and you will also be relying on the bank to move money up or down a chain on the day of completion. Things would have to be very serious for banks not to be able to perform those functions, but it is feasible that there may be delays and none of us know what the future effects of the coronavirus may be. Ultimately the least risky way would be to both exchange and complete on the same day so that you would not be bound to complete until your solicitor was holding all of the funds and could reasonably estimate the risk in being able to send funds up the chain. That can often be impractical if people have to move, as people reasonably would not want to arrange removals and pack up their homes (or even exchange on a related purchase) without certainty. Therefore you may wish to try and exchange and complete in as short order as possible. You could potentially have a removals firm ready to instruct and pencil in a day and then exchange and complete as few days as possible later. Many mortgage companies do allow solicitors to draw down mortgage funds a few days in advance of completion and your solicitor can also ask the lender if in the circumstances, they can draw mortgage funds even earlier than usual (they may refuse). You could therefore draw down funds before exchange so you know you have the funds by completion, but this would mean you have to pay mortgage interest from the date of draw down instead of completion. Exchange with completion 2-3 days later might have to be the temporary norm.
- What if my family and I or the other seller or buyer are so ill that no one can move? In this situation, firstly we could approach the other party to see if we can agree another completion date. If this is not possible, you will have to weigh up the possibility of drafting in friends and family to help you move against the cost of a failed completion and being sued.
- What is the seller or buyer dies between exchange and completion? This is very rare but unfortunately not unheard of and this advice is the same regardless of the coronavirus. If you are buying from someone who has a high risk of dying before completion then you should try to exchange and complete simultaneously or keep a very short space of time between exchange and completion as, if the seller were to die after exchange, you would not be able to complete until a grant of probate had been obtained. This could take months.
Please note that if you fail to complete, you will be liable to pay interest at 4.25% (correct as at 13.03.20) per annum on the outstanding balance plus all of the other party’s losses. By way of example, on a £500k transaction where 10% was paid, this would be £52.40 per day interest plus losses which can easily and quickly run to several thousands of pounds. You can also lose your 10% deposit 2 weeks after a failed completion (based on usual terms – check your contract which may be different). The effects of the coronavirus will not be a valid reason not to complete and you could still be sued, but all solicitors would hope to appeal to the other party’s human side in limiting losses. It is always vital to let your solicitor know as soon as you know that you will have problems completing as negotiating with the other party is much easier a few days before completion as opposed to when they are sitting in their removals van having packed up their whole lives.
Finally, it is an unfortunate truth that fraudsters may take this opportunity to take advantage of the situation to commit fraud. Therefore, whatever happens with the coronavirus, you should be reassured that we would never change our bank details and would never ask you to send funds to another party in the chain or otherwise. If you are asked to do this, it is a scam and you should not send funds and should report this to us and Action Fraud.
This blog is not to be taken as legal advice and you should contact us with full details of your own circumstances so we can advise you.