Missives: What can you do if a buyer fails to pay?

Missives: What can you do if a buyer fails to pay?

After months of negotiations, at last, parties have finally reached an agreement over the sale of the property. This agreement will probably take the form of 'concluded missives', a series of letters between lawyers setting out the conditions of sale and imposing obligations on both buyer and seller. However, when it's finally time to handover the keys, it turns out that the buyer doesn’t have the funds to complete the sale.

Unfortunately, many businesses will be familiar with this nightmare scenario. However, missives create a binding contract in Scots law, enforceable by either party. So, what are your options if a buyer fails to pay?

1. Renegotiate

If the market is on a downturn, or the pool of potential buyers is particularly niche, then the most practical option might be to return to the negotiating table. It may be possible to vary the timings under the missives, however, the seller will have to be satisfied that the buyer will be able to procure the funds at a later date. 

2. Force through the sale

The seller can seek a court order compelling the buyer to make payment and effectively force implementation of the missives. However, if the buyer is in poor financial health, recovery of the funds may prove impossible even if armed with a court order. 

3. Bring the contract to an end

The cleanest option for the seller is often to terminate the missives and resell the property. This is known as 'rescission'. The seller can only rescind the missives if there has been a 'material' breach. If the missives clearly express 'time is of the essence' when it comes to payment or that failure to pay on the date of completion entitles the seller to immediately rescind, then failure to pay on time will be considered a 'material' breach.

However, if the missives are silent on whether timeous payment is a material condition, then the seller should serve an ultimatum giving the buyer reasonable time to make payment, failing which the seller will be entitled to rescind the missives. The amount of time considered 'reasonable' will depend on the facts. The courts have previously found 28 days to be reasonable in a residential sale. However, the buyer may be entitled to less time for the sale of commercial property in which there is a business. In assessing how much time is 'reasonable', the seller should consider whether payment is possible at a later date.

If the seller rescinds the missives and suffers a loss as a result of the buyer's failure to pay, then the seller may wish to pursue the buyer for damages. Nevertheless, punitive damages are not available under Scots law. Therefore, despite the immense inconvenience caused by the sale falling through, damages will only reflect the loss actually suffered. This may include the marketing and legal fees incurred in reselling the property or the difference between the original sale price and the resale price if the latter is lower. If the property is resold at a similar or higher price and the seller is entitled to retain a non-refundable deposit from the first sale, then a claim for damages might not be worth pursuing in court.