As first published in Inside Conveyancing.
House movers across the UK are increasingly insisting on Covid Clauses being inserted into their contracts to protect themselves from claims should they not be able to move because of coronavirus-related factors.
James Gostling, Chartered Legal Executive Lawyer, has seen a spike in clients asking for Covid Clauses to be inserted into their contracts when moving home, with around half of clients requesting them as they are concerned that local lockdowns could prevent them from moving to their new home.
A Covid Clause offers parties the ability to exchange contracts while ensuring they are not at fault and in breach of contract with all of the associated costs if they are unable to complete because of a defined ‘Coronavirus Event’. Ordinarily, if a party fails to complete on a given date, the other side can serve a ‘notice to complete’ which makes time of the essence for completing the contract and to seek damages. Ultimately, the party issuing the notice could rescind the contract, forfeit the deposit paid or seek specific performance, provided that they are ready willing and able to complete. A Covid Clause would allow a ‘longstop date’ for the completion to take place, meaning that the move must be completed by a certain date if it is delayed by a Coronavirus Event.
James says it is advisable to consider inserting Covid Clauses into contracts for the sale and purchase of properties:
“We are seeing more people insist on Covid Clauses and I think it’s a good idea to consider having one in your conveyancing contract. They may not work if you absolutely have to complete on a certain date. However, they do offer people protection from breaching their contract if a local lockdown occurs. If you have a standard conveyancing contract, without a Covid Clause, and you are unable to move because you cannot leave your house due to a local lockdown, then you could face financial penalties. You do however need to be wary of the impact with a chain of sales as your own sale and purchase could be affected by a Coronavirus event affecting a third party. Any steps taken to break a chain would, in our opinion, be advantageous as it allows greater control.”
James recommends that all of the parties in a chain should consider Covid Clauses to ensure that completions can occur on a similar basis. This also has the effect of seeking to make such clauses balanced between the parties: “If one party cannot move because of a Coronavirus Event, then that can set a whole domino effect in motion, whereby each party in the chain is in breach of their contract and faces action to claim damages and compensation,” he said. “It is much easier to avoid this by all parties in a chain having a Covid Clause on identical terms.”
Vendors could otherwise face charges for cancelled removals, legal fees, storage of furniture and the cost of alternative accommodation.
Covid Clauses generally have a long stop date of two to three months, and if the deal has not completed by such longstop date either party is usually entitled to serve notice on the other so that the transaction falls away and all purchasers are entitled to have their deposits back. When considering a longstop date, purchasers should bear in mind the recent stamp duty holiday which ends on March 31 next year.
For more information, please contact James Gostling.