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Court of Appeal considers the date for valuation when a purchaser of property failed to complete

03 May 2013

Stephen John Hooper & anr v Beverley Charles Oates [2013] EWCA Civ 91, 20 February 2013

The Court of Appeal upheld a decision that, where the purchaser failed to complete on the purchase of land and the value of the land subsequently fell, damages for the seller were not to be assessed by reference to the value of the property at the date of the breach, but at a later date depending on the state of the market and the actions of the seller. This had the result that the purchaser was liable for the loss caused by a drop in the market value of the property after the intended date of completion. The court’s approach to assessing damages is applicable to both residential and commercial properties.

Background
The respondents (sellers) agreed to sell their freehold property at Northwich in Cheshire (the property) to the appellant (purchaser) for GBP 605,000. The sale was supposed to complete by 30 June 2008, but the purchaser failed to do so. The sellers served a notice to complete on the purchaser and, after the purchaser failed to comply with it, the sellers accepted the purchaser’s repudiation by notice dated 14 July 2008.

The sellers had already moved into a new premises so continued, over the next 14 months, to attempt to sell the property but without success. In October 2009, the sellers rented out the property for six months. Once the tenants had left, the sellers again attempted to sell the property. In the summer of 2011, the sellers gave up trying to sell the property and moved back into it. Due to the financial crisis, the value of the property had substantially fallen between the intended date of completion and when the sellers moved back in. The sellers sued the purchaser for the loss they suffered.

On the question of the quantum of damages, the court heard expert evidence that the value of the property on the intended date of completion in 2008 was GBP 600,000, but by September 2010 the value had dropped to GBP 495,000. The court decided that the purchaser should be liable for the fall in value of the property and awarded damages of GBP 110,000 (GBP 605,000 less GBP 495,000). The court found that there had been no fall in the value of the property from September 2010 to when the sellers moved back into the property.

The purchaser appealed and argued that the correct date for valuing the property was the date of the breach and not any later date. The purchaser argued that it was not liable for any fall in value of the property after the date of the breach, that date being the date of intended completion. Had damages been assessed at that date, the sellers’ loss would have been limited to the difference between the agreed purchase price and the value at the intended date of completion, that amount being GBP 5,000 (GBP 605,000 less GBP 600,000).

Assessment of Damages
The Court of Appeal dismissed the purchaser’s appeal and decided that, where a seller has taken all reasonable steps to mitigate its loss and sell the property, the correct date for valuation was the date the seller ended its attempts to sell the property and took it back for its own use. The normal rule for assessing damages is to take the value at the date of breach, but the court said that there are exceptions to that rule. In this case, departure from the general rule was required to ensure fairness and that the sellers received compensation that reflected their actual loss.

The court held that, when deciding the relevant date for assessing damages, the availability of a market in which to sell the property must be taken into consideration. The court decided that the breach date would only be the correct date for the assessment of damages where there is an immediately available market for the sale of the property. As no buyer would proceed with a purchase of the property that quickly, it is unlikely that the breach date would ever be the correct date to assess damages where the seller takes reasonable steps to mitigate their loss. If the seller follows proper professional advice and takes reasonable steps to mitigate its loss, the eventual resale price is likely to be the figure to be set against the contract price for the assessment of the damages.

Had the seller taken no steps to market and attempt to sell the property after the purchaser failed to complete, the date of breach might be taken as the correct date of valuation for the purposes of assessing damages because the seller would have failed to try and mitigate their loss.

The general principle of damages for breach of contract is that the innocent party who suffered loss should be placed in no worse position than it would be if the contract had been performed. In this case, as the events that occurred after the breach were relevant to the loss suffered by the sellers, they were taken into account by the court when deciding the damages to be awarded.

If the purchaser had completed the sale as he was contractually obliged to do so in June 2008, the purchaser would have suffered the loss in value of the property instead of the sellers. The sellers only suffered the loss because the purchaser did not complete, therefore the court found that the purchaser should suffer the burden of the fall in market value.

Comment: This case demonstrates that a seller must properly attempt to mitigate its loss in order to gain damages caused by a fall in property values that occurs after an intended completion date.

It is clear that the court considered that the illiquid nature of the property market justified a departure from the usual rule that damages be assessed as at the date of the breach. The court noted that the sale of land requires time and that the definition of market value involves an assumption that property has been exposed to the market for a reasonable time. Therefore the assessment of damages must be able to take into account a reasonable period of time after the breach date to market the property. This approach to assessing damages would not apply where the seller could simply go into the market and sell their goods instantly on the date of breach. Therefore the existence of a market is an important element when seeking to determine the correct date for valuing goods to assess damages.

The Court of Appeal did not limit the use of a date later than the date of breach to assess damages to only this type of case. Therefore, where a claimant has good reason for delaying taking action in other cases, a later date might be used to assess damages. However, a claimant should always be conscious of the need to take steps to mitigate its loss.

Whilst this case concerned residential property, the court’s approach to assessing damages is equally applicable to commercial premises. It is arguable that the case provides a common sense result, because assessing damages as at the intended date of completion would not have reflected the reality of the situation that the seller would need time to arrange a further sale of the property. The result reflects the genuine loss suffered by the seller and does not allow a purchaser to avoid that loss by simply walking away from a proposed transaction because of a downturn in the property market.