HOMEBUYERS who pull out of a deal after signing the contract could face huge financial penalties following a new ruling.
The Court of Session has found against Ron Law, his wife Sarah, and Glenmorison Ltd – a company in which he had an interest – after the purchase of a £212,000 home fell through in 2009.
The ruling means sellers can force buyers who attempt to pull out either to pay the full purchase price or a lesser penalty.
The decision is most likely to affect “off plan” buyers who exchange contracts on a property months, or even years, before it is completed.
Then, if they find they can no longer get the mortgage they had agreed in principle, because the lending climate has changed, the seller can extract an amount up to the full value.
More commonly they might seek costs – the difference between the valuation of the property at the time and when it goes back up for sale – if it has reduced – and the amount spent on marketing. The ruling is only likely to affect a dozen cases a year, if that, but could be catastrophic for those caught out.
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, going forward, it is clear that 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.”