Contracting to buy property without finance in place is a high-risk strategy

The decision in Oakley & Others v Harper McKay relates to a commercial transaction.

The Court’s decision re-affirms existing law and, on the facts of the case, the result is hardly surprising. Most buyers of commercial and residential property will choose to take advice from a Solicitor and are very unlikely to find themselves in a situation such as this. There are occasions, however, when a buyer might be prepared to accept as a commercial risk the possibility that it will not be in a position to complete the contract. If the gamble does not pay off the consequences are plain to see.

Our Commercial Property Partner, Laurence Lucas, comments his findings of the recent decision.

Outline of the Case

Those who enter into contracts to acquire property without having adequate finance in place beforehand do so at a considerable risk. In a High Court case on point, a property developer forfeited its six-figure deposit after failing to complete the £2,225,000 purchase of an office block by the date agreed.

The developer wished to convert the offices into flats. Although, it did not have any firm offer of finance in place, it contracted to complete the purchase by a particular date. After the developer encountered various difficulties, the vendors agreed to extend that deadline by one month. However, after that date came and went, they rescinded the contract and retained the developer’s 10 per cent deposit.

The decision

In ruling on the matter, the Court rejected the developer’s argument that the vendors had failed in their contractual duty to transfer to it, free of charge, all copyrights and other rights in plans and reports that had previously been prepared by Chartered Surveyors in respect of the property. On a true construction of the contract, the Court found that that obligation would only have arisen on completion.

Next Steps

The developer’s plea that the vendors had also breached the sale contract by failing to afford them reasonable access to the property for the purpose of commencing the conversion works also fell on fallow ground. Even had there been such a failure, it had not caused or contributed to the collapse of the deal. In those circumstances, the Court fond that the vendors had been ready, willing and able to complete the sale and granted declarations to the effect that they were entitled to rescinded the contract.

Some areas carry more risk than others and Laurence comments, “One area where prospective buyers might be exposed to more risk than usual, is in relation to auction sales and that is because a significant number of people may decide to consult a Solicitor only shortly before the auction – if at all. The loss of a deposit arising out of the failure to complete a property transaction is very uncommon and – caught up in the excitement of the process – some prospective buyers may not give any particular thought to the consequences, which flow from having probably accepted in their owns minds that if they are successful they will acquire the property “warts and all”, but those relying upon mortgage finance may not fully appreciate that the offer which they have received may be subject to conditions; which must be satisfied before the loan can be drawn down”.

Furthermore, Laurence notes that, “when the hammer goes down at an auction, a binding legal contract is created and the buyer usually has no ore than a period of 28 days in which to complete the contact. A period of 28 days is precious little time in which to prepare for completion and if the relevant paperwork is not immediately to hand, it may simply not be possible to satisfy mortgage conditions within this time frame”.

If you are thinking of entering into a contract to buy a property without taking legal advice, you could be at risk of losing your deposit. At Tayntons we can help you execute your commercial property transaction in a way that best matches your objectives, whilst protecting you legally and financially.

Our commercial property lawyers have many years of experience and offer a high level of service and a business-focus approach. Contact us on 0800 158 4147 to book your initial consultation today.

Oakley & Ors v Harper McKay Developments Limited. Case Number: HC-2016-001207

To contact us please call 0800 158 4147 or 03330 145451 or email

Contact us
  • Call us

  • Make an enquiry