Moving house, buying or selling, is inherently stressful and one of the worst aspects is the prospect of the transaction falling through, also known as an abortive sale or purchase.
Under the English legal system, unless and until contracts are formally exchanged, either party can back out of the transaction without penalty, unless there is a separate type of pre-contract agreement which has been breached, such as a lock in agreement or an agreement to pay abortive legal fees.
In addition to the aggravation of a transaction not proceeding, both parties are likely to have incurred legal costs, possibly mortgage application fees, surveyors fees and other costs,making the whole thing even worse.
As a property solicitor, I am not trying to put off clients or potential clients from starting transactions due to the risks – that would not be in my interests. However, forewarned is forearmed as the saying goes.
Why do transactions fall through ?
There are a multitude of reasons why a transaction may not proceed but in my experience, by far the most common reason is a problem in a chain of transactions. In a situation where a number of sales and purchases are all dependent on each other, it stands to reason that the longer the chain, the higher the chances of something going wrong. It is therefore always important to find out at the earliest stage how long the chain is and to check regularly, at early stages, whether there are any problems in the chain.
Th 4 other main reasons property transactions may not go ahead are :-
- delays – the longer a transaction takes, the higher the chance something will go wrong, whether an unforeseen intervening event or a simple change of mind. Delays can occur for lots of reasons, but having proactive, knowledgeable and organised solicitors and estate agents is important.
- legal issues – contrary to popular belief, conveyancing is not simply paper shuffling. Issues can include Planning or Building Regulation breaches, covenants relating to land, leases which are old and no longer suitable and many others. Critically, most buyers rely on mortgage finance and the lender will have it’s own policies on certain legal issues arising.
- change of circumstances, such as a party losing a job, a relationship break up or a family health or bereavement issue
- issues raised on a survey or valuation regarding value or condition of a property
Safety in numbers – what are the chances of a fall through ?
In my own personal experience, around 10-15% of transactions I deal with go abortive. I hope and believe that whilst this figure is still not low, the fact that it appears to be lower than the average (see below) has at least something to do with my firm’s skill and experience in property transactions. We ask the right questions, keep on top of all the issues and at the very least, look to identify problems as fast as possible.
Other survey suggest that the average fall through rate, depending upon market conditions, is generally between about 20-30%.
In data published last year by Quickmove, which we are unable to say is accurate or not, they suggested that the fall through rate at that time was as high as 34%.
Property Talk Live published data later in 2011 suggesting that the rate had fallen to 23% and that the norm was about 20%.
Is there any insurance available ?
It is possible to take out insurance against abortive costs. However, in my experience, few clients take out such insurance because it is comparatively quite expensive and the policy wording is very much based on a transaction going abortive for legal reasons, such as a failed survey. As advised above, whilst legal reasons are the cause of some transactions not proceeding, they are not the cause of the majority of fall throughs. As ever, insurers know their business and are good at assessing risk !
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