It is common for the draft to include compensation in case of delays caused by either party to the contract. SC 6.1.2 and SCPC 8.1.2 state that if the money is received after 2.00 pm, then for the sake of calculating compensation, the money is said to be paid the next day. But the 2.00 pm cut-off can always be changed with a special condition in the contract.
Under SC, the buyer or the seller (depending on whose fault it is) will have to pay compensation; but in the case of SCPC, the buyer will have to pay compensation if he has defaulted in payment or in any other way that causes delay in completion. However, the buyer is not eligible for any compensation.
SC 7.2 (SCPC 9.3) includes provisions for compensation in the case of delay in completion and also suggests that this amount be assessed at the contract rate. Contract rate refers to the interest rate set by ‘The Law Society’ from time to time. Such interest rate is weekly published in the Law Society’s Gazette, and is set at 4% above the base lending rate of Barclays Bank plc.
Such an interest rate is included to provide an incentive to complete the transaction before the stipulated date and to provide monetary compensation to the innocent party for financial losses suffered. In practice, parties include an interest rate of 4% above the base lending rate of a major bank. Thus, if the draft contract mentions a higher interest rate, it should be resisted by the buyer. Standard contracts forms available from law stationers contain a space where the contract rate is to be inserted. But if parties to the contract agree to condition 1.1.1(e), this space is to be left blank.
Some conveyancing solicitors include an interest rate that is linked to the base rate of their own banker. However, a fixed rate of interest is not advisable if there is a large time gap between the time when the contract is drafted and the time when the interest becomes payable as it would be detrimental to the interest of the buyer/seller.
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