Notices to complete: Timing and waiver

Summary: Cantt Pak Ltd v Pak Southern China Property Investment Ltd [2018] EWHC 2564 (Ch)

In this case, the High Court considered the validity of a notice to complete served by the seller of commercial premises. Under the terms of the contract for sale, the seller was obliged to provide vacant possession on completion, but the premises were still occupied when it served its notice to complete and they remained occupied after the deadline to complete passed. Nevertheless, although the seller was arguably in breach of contract itself, the buyer had not rescinded the contract for this reason and the seller was therefore entitled to rescind the contract when the buyer failed to complete in accordance with the notice. It was, in any event, immaterial that the premises were occupied when the notice to complete was served. The case highlights various problematic issues that can arise when a notice to complete is served, as well as the need to carefully assess associated risks from the outset.

The facts

On 21 December 2015, the claimant contracted to sell the commercial premises known as Hillbit House in Manchester (the "Premises"). A deposit was paid by the buyer and the contract required that the seller provide vacant possession on completion. Completion was to be no later than 30 June 2016, but the buyer's interest in the contract was assigned to the defendant and the completion date was simultaneously extended to 1 December 2016.

As the revised completion date approached, the buyer became aware that the Premises were still being occupied. Nevertheless, notice to complete was served by the seller on the buyer on 8 December 2016 (the "NTC"). In the ordinary way, the NTC recited that the seller was ready, willing and able to complete, and required the buyer to complete within 10 working days, time being of the essence. However, the buyer refused to accept the validity of the NTC, on the basis that the Premises were not vacant. The buyer estimated that it would take the seller at least a few days to vacate the Premises of the various people and chattels in situ, so it argued that the seller could not possibly be "ready willing and able" to complete in compliance with the contract.

The seller maintained throughout that the NTC was indeed valid. It argued that it was only required to provide vacant possession upon completion. In the circumstances, it served notice to rescind the contract shortly after the deadline for completion passed and forfeited the buyer's deposit. Nevertheless, the buyer refused to accept the position taken by the seller and applied for unilateral notices to be registered on the seller's title for the Premises, in order to protect its alleged rights under the contract. The seller subsequently issued proceedings on 6 July 2017 for the unilateral notices to be removed, so that the seller would be free to sell the Premises to a third party. The buyer counterclaimed for an order for specific performance, obliging the seller to sell the Premises to the buyer.

In a final twist, the buyer served its own notice to complete on 21 July 2017, again on the basis that the contract had not been validly rescinded.

Issues before the Court

The key issue before the Court was whether the seller's rescission of the contract was valid, even though it had not obtained vacant possession of the Premises when it was served. After all, it may have been impossible to provide vacant possession before the deadline for completion stated in the NTC. Several parties had occupied the Premises at the relevant time and witness evidence supported the contention that it would take some time to obtain vacant possession.

The decision

The Court made the following findings:

• The validity of the NTC needed to be assessed when it was given and not by reference to subsequent events between service and the applicable deadline for completion. That said, subsequent events might help to evidence whether the server was truly "ready, willing and able" to complete at the time the notice was served.
• On the evidence, the Court surmised that it might take 5 days to remove the licensees and chattels in situ at the Premises. The NTC provided 10 working days' notice, so at the time it was served, it was possible to comply with the vacant possession requirement in the contract. The NTC was therefore valid and once served, time was of the essence.
• After it became apparent that vacant possession would not be obtained by the seller before the deadline in the contract, it was arguably the case that the seller was in repudiatory breach of contract. However, it was then incumbent on the buyer to elect to either rescind the contract or waive the breach and affirm the contract. In this case, the buyer wanted to keep the contract alive and it took no action to rescind the contract, even though it was well aware of the fact that the Premises were not vacant. Its decision to register unilateral notices further evidenced this.
• The seller's NTC subsequently expired and this gave rise to a separate right for the seller to terminate the contract, which it duly took advantage of.
• As the seller's rescission of the contract was valid, the buyer's purported notice to complete served on 21 July 2017 was of no effect. The seller would also be entitled to an order compelling the buyer to remove the unilateral notices it had registered.

Our comment

Notices to complete provide a helpful tool to apply pressure when completion is delayed, but their use is not without risk for the serving party. Once time is of the essence, both parties are obliged to complete within the stated timeframe. This rule can catch a serving party unprepared to complete and inadvertently entitle the recipient to rescind the contract. Ideally, if a challenge is going to be mounted concerning the notice's validity, this should be dealt with as soon as possible, so that a right to rescind the contract doesn't arise first. Furthermore, an innocent party with the right to repudiate a contract must be careful to elect to either rescind or affirm the contract, before risking waiving its right to rescind. In such situations, whether buyer or seller, we recommend seeking urgent advice to ensure the most advantageous strategy is adopted.