Covid Clauses – More protection from the impact of coronavirus
By James Gostling (pictured), lawyer at Devonshires
Even by the standards of the housing market, it has been a rollercoaster few months. Just as the market was recovering from its Brexit malaise, coronavirus reared its head, causing the market to grind to an almost total halt. Though activity picked up remarkably quickly once restrictions were lifted, we need to give buyers and sellers confidence that they are protected if their deals are affected by a sudden local lockdown or wider restraints. Enter the Covid Clause which home movers have rapidly embraced and can partly be credited with the market recovery.
What is a Covid Clause?
Put simply, it is a clause in the sale contract that ensures the seller is not in breach if they are unable to complete because of a defined ‘Coronavirus Event’.
Ordinarily, if a party fails to complete on the agreed date, the other side can serve a ‘notice to complete’, which in most cases gives them 10 days to complete the transaction. The notice makes time of the essence for the contract. If they fail to do this, the contract is terminated and – if the buyer is the party who defaulted – the seller can keep the deposit. Alternatively, a party can go to court and seek an order that the other side must complete (otherwise known as specific performance).
To avoid this unpleasantness, a Covid Clause provides 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.
What is a Coronavirus Event?
Basically, anything coronavirus related that could potentially delay property deals. More specifically this can include:
- Absences or unavailability of staff at either side’s conveyancer, any lender or other finance provider, and any loss of, or disruption to, any of their facilities.
- Any illness, quarantining or self-isolation, including precautionary self-isolation, of the buyer, seller or anyone living with either before completion, or who will live with them after completion.
- Any measures taken by the government to prevent the spread of coronavirus, such as local lockdowns.
- Disruption to any services, such as electronic transmission of monies, the Post Office or the Document Exchange – a private postal service for lawyers and others – or unavailability of packers, movers or storage facilities.
- If you are unable to get witnesses to sign documents because of a local lockdown.
- If pre-completion searches or inspections can’t be made.
- Any withdrawal by a bank, or expiry, of a mortgage offer due to coronavirus
- If another part of the chain collapses because of a similar Coronavirus Event which was detailed in their contract.
If any of the above happen then a longstop date specifies when deals have to be completed by. If the deal has not completed by then, then the transaction is usually null and void 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.
Why insert a Covid Clause?
A better question may be, why would you not? If you need to move on a specific date, then a Covid Clause might not be suitable. However, if you prefer to have peace of mind and ensure you are not penalised should a Coronavirus Event happen, then they are sensible. We are certainly seeing more and more clients ask for them.
Don’t take it for granted that you or somebody in your chain won’t get sick, have to self-isolate or have to go into local lockdown, as if you do you may well end up being left to pay the price.