HOUSEBUYERS who back out of a contracted house deal at the last minute have been warned they could be liable to pay the full asking price for the property following a legal ruling.
An Edinburgh property developer took a couple to court after they reneged on a contract to buy a £212,000 apartment in the capital.
Legal experts have claimed those in the market to buy a home should be wary in light of the judgment, particularly given the changing financial status of many purchasers.
Ron and Sarah Law now face being forced to pay up the full sum agreed for the property after the Court of Session found the developer, AMA, was entitled to claim the sum set out in the contract.
Such claims were earlier limited to the difference between the agreed purchase price and the resale value of the property, plus expenses associated with selling the property on.
The Laws say they will appeal the ruling at the Supreme Court.
Claire Thornber, a senior associate at Pinsent Masons, said: "This is an important decision with far-reaching consequences for homebuyers, sellers and developers. It remains to be seen whether other developers decide to take retrospective action in the wake of this ruling – there will be many more instances where purchases have fallen through given the changing economic circumstances.
"However, it is clear homebuyers will have to be more careful than ever when entering into contracts. It is by no means certain that a seller would exercise the option to recover the full asking price if a purchase goes awry, as it is probably reasonable to assume in many cases that purchases are withdrawing due to a lack of funding.
"However, that option exists and buyers should be wary."
Under Scots law, if one party reneges on a contract, the innocent party has an option to sue for damages for breach of contract or seek enforcement of the contract. The couple had argued AMA could not pursue enforcement of the contract because it was incomplete. Mr Law, a founder of Glenmorison Group property developers in Edinburgh, argued that as a result it could only seek damages.
Lord Menzies rejected his arguments and said: "The appellants [AMA] clearly believe that the alleged impecuniosity is rather an unwillingness to proceed further because it is now not convenient. They clearly believe that they will be able to recover the funds they seek. They may be right about that; they may be wrong; but the risk is one for them to choose to take."
No-one from AMA was available for comment yesterday.
William McBryde, Professor Emeritus of Commercial Law at Edinburgh University, and George Gretton, Lord President Reid Chair of Law at Edinburgh University, have both favoured a damages as the judicial ultimatum in such cases. They say this "achieves a fair balance between the rights of the parties, fortifies sellers with a judicial determination of their rights, enables a second sale in good faith, and does not pose conundrums about the seller having both property and price."
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