Penalty clauses

[hastobe]

We are hoping that it won't come to this but...the vendors are

threatening us with penalties.  The notaire's office have said

that this is 'interest for loss of use of the sale proceeds for the

period from 30th May to the end of June 

Background - we signed the compromis for our house in early March after

making an offer in early February.  The delay in signing the C d V

was because one of the vendors lives on the other side of the globe and

everything had to go by airmail.  The compromis gave a completion

date of 30th May with a latest possible date of 15th June and had a

clause suspensive in respect of our french mortgage.  We had a

nightmare trying to get the medical report for the life insurance - the

French insurance company would only deal with me (the applicant) for

reasons of confidentiality / consent and my doctor (on the other hand)

insisted that the insurance company contact him directly (having first

obtained my written consent) - again for reasons of confidentiality /

consent.  Neither would budge and the matter was only resolved

when we asked the department of health in the UK to intervene. 

All other  documents we have recieved have been signed and

returned within 72 hours of receipt.  We even completed the first

stage of our mortgage application before we made our offer on the

house.  We have kept everyone informed throughout the process.

We are hoping to sign by the end of June and have already (voluntarily)

paid the furniture storage costs for the vendor for the month of June

(nearly £200).  The C de V includes a penalty clause if we

withdraw or we fail to complete by the 15th June - allowing the vendor

to require that the courts enforce completion with us also having to

pay the 10% penalty plus 'damages'. 

I can't see how the vendors have any rights here - even if they have a

clause that states that they can require completion and demand 10%

deposit a condition precedent (i.e. clause suspensive)  is a

condition that has to exist before a contract can be signed. 

Surely a problem getting a mortgage offer would (as I thought was the

intention) be the failure of the condition precedent and hence the

contract fails and no penalties are payable?  There seems to be no

reference in the contract to any other damages / interest payment for

'loss of use of money'.  Has anyone else come across this.

Just as an aside I thought 4 months plus was an avaerage time for a

purchase that involved a mortgage so surely this situation must arise

on a regular basis?

Kathie

[Nick Trollope]

I'm afraid that it is normal (if there are any "normal" circumsances like this). They will (quite reasonably) expect you to pay the interest charges on their mortgage for the time that they cannot repay it.

They can indeed ask a court to require you to complete the transaction - and they would win, in my experience. It is not a matter of clauses in your contract, it is a matter of French contract law. Now that you have your mortgage, you can't expect that clause to get you out of the transaction.

When we have bought with mortgages, we are normally given 2 months to find the mortgage, leaving a typical month for the rest of the paperwork. Again, as you have your mortgage, this isn't an issue here.

 

[hastobe]

We don't have a mortgage offer yet - we only heard today (by phone)

that it has been approved - but the formal offer won't be available

until 23rd June.  It is the delay in getting the mortgage that has

caused the delay in signing.  We couldn't have completed the transaction any earlier - because we didn't have a mortgage...

If what you are saying is correct then a clause suspensive in respect of a mortgage is pointless.... 

Kathie

[painterman]

Hi, we were told three to four months to complete on our purchase but by the 15th December 2005 at the latest. Our purchase has now been going on for ten months now and it is all due to the estate agent basically not telling us the truth (saying he has submitted the correct CU and applying for septic tank permission at the beginning and insisting that he had done so himself until March 2006 when he finally had to come 'clean' and admit that which he did not do, and so our notaire has stepped in because the vendor thought that we no longer wanted the property and was going to put it back on the market. I think there is room for estate agents to make a 'quick buck' here by not responding to purchasers (us) and supposedly giving vendors incorrect information, and guess who would still have to pay the estate agent fees? The estate agent could have sold this house nearly four times over by now...and what if three of those sales had fallen through? A nice 30,000.00 euros in fees for him with no work done.  .....  and . so we are still waiting......) The estate agent wouldn't let us put in the C de V the more specific clause suspensives and he insisted on writing in himself the two we were adamant about but there is room for ambiguoity in his wording. We have spoken in length to our notaire and put all of it in writing registered post. Our notaire is helping us. Try keeping in very close touch with your notaire for what you can do with regards paying the sellers 'damages' (storage costs/mortgage) as time goes along (with receipts done through the notaire's office to keep everything above board) this way if it does end up in court the court should be able to see that you have been making all attempts to resolve the issue without monetary loss to the vendor so the courts can see that you are still trying to complete on your purchase but that circumstances outside of your control are what are causing the delays. This may help to negate 'damages' the court could impose. Best of luck.

 

 

[tj]

Hi

I dont understand why you agreed to a completion date when you knew you could not complete by that date?

What I'm getting at is, you are only able to agree a date when you have mortgage offer. insurance or whatever else you need, sounds like the solicitors are to blame somewhere?

Would be looking to recover any default payments from them!

good luck!!

 

[hastobe]

The problem is the completion date is stated in the compromis de vente

and you have to have a signed compromis de vente before you can apply

for a French mortgage.  A bit 'chicken and egg'. That's why you

need the condition precedent in the compromis in case you then fail to

get a mortgage. The irony is that we had to wait weeks for one of the

vendors to sign the compromis because they live on the other side of

the globe (and took ages to sign the thing!) but they seem to have

forgotten that minor detail!

As an aside - I have read and re-read the compromis and it is my

understanding that, as the latest date has passed without us receiving

a formal offer of a mortgage, we can walk away from the contract

without any penalty (other than paying the notaires fees incurred to

date).  I have pointed this out to the vendor (who seems to have

focussed on the penalties that are payable if the matter goes to court

- a clause that doesn't apply until the condition precedents are met)

and the issue of fees seems to have gone strangely quiet... 

Anyway we

have been told that the mortgage offer will be ready for signing next

Thursday and the Acte de Vent by the following week.  So we are

flying over next week to sign the mortgage offer and power of

attorney (can't afford two trips in two weeks sadly!) - so looks like

things are going to resolve without anymore stroppiness on the part of

the vendors - fingers crossed.

Painterman, I really hope you get things sorted out - the stress of

this has sent me grey and I feel for you!  We did exactly as you

suggested and copied everyone in on everything and kept the notaire /

agent informed in writing at every stage.  If our compromis is

typical, with the exception of simply pulling out of the contract,

penalties are awarded if it can be shown that one or other party has

not done everything they could to ensure the sale went through - we

certainly have the documentation to show that  that was not the

case for us.

Kathie

[Sunday Driver]

Your compromise is a straightforward contract under French contract law.  It contains a clause that makes the purchase of the property conditional upon acquiring a mortgage offer.  If you are not able to acquire a mortgage offer, then the terms of the contract are not met and you are not required to proceed with the purchase.

[hastobe]

That was my understanding SD - I think we have just had the misfortune to buy from very unreasonable vendors! 

Kathie

[Benjamin]

Kathie

Only you know what the vendor is like but if I was in his position I would not sit idly back and just be letting things happen. He is using (maybe wrongly) anything he can see in the contract to push you towards completion which is fairly natural in the buying/selling process. The fact that you are flying over shows that you are doing as much as you can to resolve the matter. Can't you, through the Notaire or Agent, pass on your assurance that you are doing as much as you can?

Best of luck with a speedy conclusion.

Benjamin

[Nick Trollope]

[quote user="hastobe"]That was my understanding SD - I think we have just had the misfortune to buy from very unreasonable vendors! 

Kathie

[/quote]

But you have had a mortgage offer. It only has to be within the terms that were stated in the Compromis (ie. no silly interest rates) to make that clause invalid - you can't simply say "no I don't want the mortgage". Also, you would be obliged to try somewhere else (and fail) before you could invoke that clause. Again, if you don't get an offer (or refusal) within the stated timescale, then you could be penalised. That is French house-buying law.

That said, your vendors are being unreasonable. I'd bluff it out.

 

[hastobe]

Nick - we didn't have a mortgage offer before the final date in the compromis.  Our compromis states:

"It is specified that the

condition precedents will have to be carried out within the agreed time frame

of this contract except for any other specified and agreed time limits.  However, this time will be automatically

extended until reception of the administrative parts necessary to the perfection

of the notarial act............In any circumstance, this extension will not

exceed beyond June 15, 2006."

We won't, in fact, receive our formal mortgage offer until next week

The compromis states what constitutes having met the condition precedent in respect of the loan as:

"the condition precedent will be carried out as of the handing-over by the bank to the purchaser the

written offer, as envisaged with the articles L 312-1 with L 312-36 referred to

above, authorising credit in accordance with the above-mentioned principal conditions and

within the completion date of this contract" 

(i.e. 15th June latest)

Kathie

[Nick Trollope]

Then I suspect it is up to you. If you want to proceed, tell the Vendors & accept the offer from the bank, otherwise tell the Notaire and withdraw, making sure that he accepts the fact that you did not get the mortgage within the timescale - and hence can get your deposit back/not be penalised.

Be aware that, if you do proceed, the Vendors may still ask you for additional out-of-pocket expenses (mortgage interest, storage etc), but there is a compromise out there somewhere.

Point out to the Vendors that you can now complete within a month and that no other buyer can.

Resist moves to renegotiatethe price - they can do this, but shouldn't.

 

I added this comment on afterwards;

I have a nagging doubt in my mind about failing to get either an acceptance, or a rejection of a mortgage application (typically from 2 banks) within the timescales mentioned in the CdV. I have no real idea what happens in this circumstance, so all of the above may be rubbish....

 

[Sunday Driver]

The compromis will normally state that the acte de vente will be established on the XXXX date providing that all the necessary documentation to perfect the acte has been received.  The penal clause sets out the amount to be paid in the case of either party refusing to sign the acte by the date specified, but makes an exception in the case of of unfilfilled clause suspensives. 

So the compromis would normally remain valid until such time as the mortgage offer is received ,so you wouldn't normally be able to just abandon a mortgage application and withdraw from the sale without breaching the terms of the compromis and losing your deposit. 

If the mortage is ultimately refused, then the condition has not been fulfilled and as a result, the contract cannot be enforced. In the latter case, you would be entitled to the refund of your deposit and no further penalty.

In your case, however, a specific end date for the mortgage offer has been included for the mortgage offer, so this may alter things.  As Nick says, best press on.  You're almost there!

[hastobe]

All things being well everything will be completed  in the next

week or so - and we have had no more penalty threats from the vendor

since we pointed out the time limit for the clause suspensive.  So

the bottle of champagne and glasses are on standby [:)]

From what you both say it just shows how the clauses/wording can differ

between compromis - and underlines how important it is to be clear

exactly what your compromis states.

Kathie