Covid Clauses Rising Due To Local Lockdown Risk

The law firm Devonshires, has seen a spike in the number of clients asking for Covid Clauses to be included into their contracts when moving home. 

It is believed the client’s reasoning for this clause is due to the threat of local lockdowns, which homebuyers fear could prevent them from moving into their new home, and they want to protect themselves from claims.

What is a Covid clause?

A Covid Clause offers parties the ability to exchange contracts while ensuring they are not at fault and in breach of contract with all of the associated costs if they are unable to complete because of a defined ‘Coronavirus Event’. Ordinarily, if a party fails to complete on a given date, the other side can serve a ‘notice to complete’ which makes time of the essence for completing the contract and to seek damages.

Ultimately, the party issuing the notice could rescind the contract, forfeit the deposit paid or seek specific performance, provided that they are ready willing and able to complete. A Covid Clause would allow 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.

James Gostling, a residential conveyancing lawyer from Devonshires, said it is advisable to consider inserting Covid Clauses into contracts for the sale and purchase of properties.

He said:

“We are seeing more people insist on Covid Clauses and I think it’s a good idea to consider having one in your conveyancing contract. They may not work if you absolutely have to complete on a certain date. However, they do offer people protection from breaching their contract if a local lockdown occurs. If you have a standard conveyancing contract, without a Covid Clause, and you are unable to move because you cannot leave your house due to a local lockdown, then you could face financial penalties. You do however need to be wary of the impact with a chain of sales as your own sale and purchase could be affected by a Coronavirus event affecting a third party.”

James recommends that all of the parties in a chain should consider Covid Clauses to ensure that completions can occur on a similar basis.

This also has the effect of seeking to make such clauses balanced between the parties:

“If one party cannot move because of a Coronavirus Event, then that can set a whole domino effect in motion, whereby each party in the chain is in breach of their contract and faces action to claim damages and compensation,” he said. “It is much easier to avoid this by all parties in a chain having a Covid Clause on identical terms.”

Vendors could otherwise face charges for cancelled removals, legal fees, storage of furniture and the cost of alternative accommodation.

Covid Clauses generally have a long stop date of two to three months, and if the deal has not completed by such longstop date either party is usually entitled to serve notice on the other so that the transaction falls away 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.

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