In the event that termination of a sale contract for immovable property is held invalid, the purported termination constitutes a breach, resulting in consequences to the party in default
Every sale contract seeks to define the terms that the parties agree on to govern the sale of a property. The parties seek to ensure that their rights are safeguarded and their obligations are defined, in order to achieve successful completion of the transaction.
During performance of the agreement, any party may choose or omit to adhere to the terms, or otherwise fail to perform their obligations, for example the property may not have been constructed or delivered at the agreed time, or the purchase price may not be paid on time. Such breaches or non-compliances may cause a dispute, resulting in the parties ending up in court.
In such an instance, the competent court or other forum for dispute resolution will examine the terms of the agreement, the rights and obligations of the parties, which party was in default, the remedies available and the measure of damages entitled.
The court also examines whether a specific term of the agreement was violated and whether it is a fundamental term of the agreement, giving the right to the innocent party to terminate the agreement, or whether notice must be given to render time of the essence, hence giving reasonable time to the party in default to perform their obligations and in the event of no compliance, such party will have the right to terminate the agreement by notice.
Most sale contracts contain a general provision pertaining that all the terms of the agreement are of the essence and breach of any gives the right to the innocent party to terminate the contract and claim damages. Nevertheless, such a term does not of itself render the time of performance of a party’s obligations of the essence. Express agreement to this end is necessary so that such intention is clearly provided in the agreement. Depending on the circumstances, rendering this time of the essence is a pre-requisite to the termination of the agreement, whereas in the course of doing this, reasonable time has to be afforded to a party to comply before termination.
The above principles are encapsulated in Article 55(1) of contract law, Cap.149, which provides that when a party to a contract promises to do a certain thing within a specified time and fails to do so, 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.
In a recent judgment issued in Civil Appeal 264/2014, dated February 22, 2023, the Supreme Court examined a vendor’s appeal and annulled the judgment of the court of first instance, holding that the time given on behalf of the purchaser when rendering the time of the essence, was not reasonable under the circumstances, hence the purchaser’s notice did not achieve the purpose of rendering the time for the delivery of a flat of the essence of the agreement. The vendor’s failure to comply was considered a breach of a fundamental term entitling the purchaser to terminate the agreement. However, the purchaser’s termination of the agreement was invalid and unjustified, constituting a breach of the agreement which allowed the vendor, as the innocent party, to claim a remedy against the purchaser.
The Supreme Court held that the compensation to which the vendor was entitled was the difference between the purchase price of the flat and its market value at the time of the breach, ie the date of the invalid termination. The vendor could essentially forfeit this amount from the sums he had already received from the purchaser and return the balance to the latter. Nevertheless, the vendor counterclaimed the balance of the purchase price of the apartment, plus interest; he demanded the completion of the transaction, including an order for the purchaser to take delivery of the flat when completed. What the vendor was actually seeking was the specific performance of the sale contract.
The Supreme Court concluded that no damages could be awarded to the vendor and all that could be awarded in the circumstances were nominal damages of €100, issuing a judgment accordingly. Nevertheless, given that the vendor included in his pleadings the amounts that the purchaser paid to him pursuant to the terminated agreement and there was a claim by the purchaser for their return, the court entered judgment against the vendor for the return of the amount so paid by the purchaser.
George Coucounis is a lawyer practicing in Larnaca and founder of George Coucounis LLC, Advocates & Legal Consultants, [email protected]