Calculating contractual compensation for late completion (SCS 5th ed, condition 7.2)
Ola Bankole sold a house in Northampton to Ben Ashworth for £400,000. The contract incorporates the Standard Conditions of Sale (Fifth Edition, 2018 Revision) and a special condition providing that the contract rate is 8% per annum. Ben paid a deposit of £40,000 on exchange. Completion was delayed and took place 10 days after the contractual completion date. It is agreed that Ben's total period of default was 10 days and that Ola's total period of default (a delay in providing a document she was obliged to supply) was 3 days. Assume a 365-day year.
How much compensation, if any, is payable under condition 7.2, and by whom?
Choose one answer to see the reasoning.
Worked answer
Correct answer C: Ben must pay Ola £552.33.
THE RULE TO REMEMBER
Under SCS 7.2 the party with the greater default pays interest at the contract rate on the price (less any deposit, if the buyer pays) for the net period of excess default.
Calculating contractual compensation for late completion (SCS 5th ed, condition 7.2)
Condition 7.2.1 provides that where either or both parties default and completion is delayed, the party whose total period of default is greater pays compensation to the other. Ben's default (10 days) exceeds Ola's (3 days), so Ben pays. Under condition 7.2.2, compensation is calculated at the contract rate on the purchase price less, where the buyer is the paying party, any deposit paid, for the period by which the paying party's default exceeds that of the receiving party, or the period between completion date and actual completion if shorter. The relevant sum is £400,000 − £40,000 = £360,000. The excess period is 10 − 3 = 7 days, which is shorter than the 10-day actual delay. Compensation is therefore £360,000 × 8% × 7/365 = £552.33. Under condition 7.2.3, any claim by Ola for loss caused by the delay must be reduced by this compensation.
Why A is wrong: £789.04 uses the full 10 days and ignores that only the period by which Ben's default exceeds Ola's counts.
Why B is wrong: £613.70 uses the correct 7 days but calculates on the full £400,000 instead of deducting the deposit Ben paid.
Why D is wrong: £876.71 uses the full price and the full 10 days, ignoring both the deposit deduction and Ola's own default.
Why E is wrong: Contractual compensation under condition 7.2 does not depend on a notice to complete having been served.
A little more practice done.
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