VAT Warranty: Seller Entitled To Delay Completion

A recent case highlights that where a warranty is to be given on completion by a buyer confirming that it is then VAT registered, the seller is entitled to delay completion and receive compensation where the buyer is unable to give that warranty.

In the case in question the contract provided that the buyer would warrant on completion that it was VAT registered. The buyer was not able to do so and the seller delayed completion by 11 days until the buyer had secured its VAT registration. No agreement had been reached between the parties as to whether the delay would be treated as a breach of contract and the seller successfully sued for the delay. The court ruled that where there was a contractual obligation to do something on completion, it followed that if that party did not do it, that party was not in a position to complete on the relevant date.

If a buyer is concerned about his ability to register in time for completion in similar circumstances then the buyer should suggest that the contract is conditional upon registration although this may well be unacceptable to a seller. Alternatively the contract should expressly make it clear that either failure to register is a breach which allows the seller to delay completion or require the buyer to complete irrespective of whether the VAT registration has been completed and for the buyer to suffer whatever adverse consequences flow as a result of this.

Law: Davey -v- Lombard Asset Management Limited [2006] EWCA Civ 1543.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 23/01/2007.