Valid Termination of a Sale Contract

Valid termination of a sale contract

George Coucounis gives advice on how and when a sale agreement can be legally terminated.

Every written agreement for the sale of an immovable property contains a term expressly stating that all its terms and conditions are of the essence of the agreement and the vendor and the purchaser for themselves and their successors in title are bound and that any party in breach of the agreement shall be liable to the payment of damages to the other, without prejudice to any other remedy.

Moreover, in the event the price or any part of it is not paid within the agreed time, interest will be charged on any instalment due and the vendor will have the right to claim any sum payable to him with interest.

Such terms in a sale contract as well as the time limit set for the payment of the purchase price are not considered of the essence of the agreement to qualify the vendor to terminate the agreement immediately, without a previous written notice to the purchaser.

The vendor, to validly terminate a sale contract in the event the purchaser fails to pay the purchase price or any part of it, must take action without any delay so that to inform the purchaser of the breach and that he is not willing to accept the default. In this respect, the vendor must send a written notice to the purchaser giving him reasonable time to pay and to warn him that if he fails to do so, his default will result to the vendor taking legal steps to terminate the agreement. Such a notice giving reasonable time to the purchaser to pay makes the payment of the essence of the agreement and in the event the time passes without a response by the purchaser, it gives the vendor the right to lawfully terminate the agreement. Reasonable time is a matter of fact in each case and depends on the circumstances.

The relevant law with regard to the effect of failure to perform at fixed time, in a contract in which time is essential, provides that when a party to a contract promises to do a certain thing at or before a specified time, and fails to do any such thing at or before the specified time, the contract or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

Although a similar provision is found in the common law, nowadays the principle is that the terms for the payment of the price though essential, have been overcome by equity, since the parties to an agreement are considered that they intend to complete the agreement and not to be released from their obligations. Based on this, compensation is assessed as if the agreement was concluded.

A good example is the case of an agreement for the sale of land which provided for the payment of a certain amount as a deposit and the balance was agreed to be paid later at the date of the transfer. The deposit was paid but the balance was not, even though the sale contract was deposited at the Land Registry.

The vendors, immediately after the expiration of the specified time, sent a written notice to the purchaser claiming the balance of the purchase price and they had given him ten days to pay. The Court found the ten-day notice reasonable and the termination which followed thereafter to be valid. It was held that the vendors did not waive their right to terminate the agreement in the event the payment of the price was not made and that they did not let time pass in order to charge interest before taking any steps for the termination of the agreement. They insisted on the purchaser complying with the terms of the agreement regarding the payment of the purchase price, thus they became legally entitled to terminate the agreement.

They did so, a declaratory order was issued to that effect as well as an order for the removal of the sale contract from the Land Registry where it was deposited for specific performance purposes.

With regard to the deposit paid, the Court held that according to the true intention of the parties, it was a part payment of the purchase price. Therefore, it ordered the return of the deposit to the purchaser, restoring the parties to their position prior to the agreement. There was no special reason for the vendors to retain it. The deposit under the circumstances was given to them without any consideration and consequently they were not entitled to keep it.

The authorities give guidance to an innocent party for the time which he must give to the other so that the notice to be considered valid. The more time given the safer it will be for the innocent party to legally terminate the sale agreement.