Covid Clauses – What Are They And Why Are They Useful In The Conveyancing Process?

More than 9 months have now passed since a nationwide lockdown was imposed by the Government as a result of Covid 19.

The lockdown restrictions severely affected the ability of residential conveyancing transactions to proceed. For those that could proceed, the “Covid clause” became a necessity.

What is a Covid clause?

A provision inserted into a contract to provide a mechanism for parties to proceed to exchange contracts, whilst ensuring they are not at fault if completion of the transaction is delayed as a result of a party being unable to perform their obligations under the contract as a result of a Covid defined event.

What is a Covid defined event?

Clauses vary but events may include:

• absences or unavailability of staff at the buyer’s conveyancer, seller’s conveyancer or any lender or other finance provider;
• illness, quarantine or self-isolation of the buyer, the seller or anyone living with the buyer or seller before completion;
• any recommended or mandatory measures introduced by the Government (ie lockdown);
• unavailability of removal firms;
• inability to procure witnesses for the signature or execution of any deeds or documents;
• inability to carry out pre-completion searches;
• the withdrawal by a lender of finance;
• delays in the chain.

Why is it necessary?

Without this clause, if exchange of contracts had taken place and the buyer or seller was unable to complete due to Covid 19, the party at fault would immediately be in breach of contract. This means the other party could serve a notice to complete on the party at fault providing that completion must take place within a specific defined time scale. Failure to complete within this time scale would impose financial penalties and ultimately could lead to the loss of any deposit paid and the contract being brought to an end. This remains true for any event that prevents completion taking place, not just Covid 19.

The property industry breathed a sign of relief when the market reopened for business on 13^th May 2020, meaning house moves could take place so long as Government guidance was followed.

It should be borne in mind however that whilst the restrictions have been lifted, the insertion of a Covid clause within the contract is sensible for as long as Covid 19 remains a concern.

An alternative is to proceed to a simultaneous exchange and completion (both happen on the same day). This may be preferable in view of the fact you would not be contractually bound to proceed until the actual completion day and only commit yourself once you are sure all is in order for all parties to move.  It does of course present practical difficulties of not knowing you are going to move until the very last minute.

The use of a Covid clause can have disadvantages. The main problem being that neither the buyer nor seller has the usual certainty that completion will in fact occur on a specified date. In addition, not all parties in the chain may agree to it.

Conveyancers will often suggest narrower clauses with a more restricted list of Covid events in an attempt to deal with this uncertainty.

It is possible to insert a Covid clause even after exchange of contracts has taken place – this would involve a variation to an existing contract. This will only work if all parties are willing to be flexible and preserve the transaction.

A Covid clause will not cover every eventuality in what is a fast moving and complex crisis, but they do provide a basic layer of protection for both parties who may otherwise be wary about transacting in the current circumstances.

With the UK currently facing a third wave of infections, it is critical that the surrounding issues presented by the Covid 19 pandemic are not ignored.