3. The Contract Flashcards
What is the purpose of a contract?
Provides certainty and prevents withdrawal without liability.
What are the formalities of a contract?
In writing, contains all express terms, signed by parties.
What are the Standard Conditions of Sale (SCS) used for?
Residential and simple commercial transactions.
What are the Standard Commercial Property Conditions (SCPC) used for?
High value commercial properties with detailed provisions for leases.
What are the three parts of both SCS and SCPC?
Particulars of Sale, Standard conditions, and Special conditions.
What are Title Guarantees?
Full Title, Limited, and No Title.
With full and limited seller is impliedly convenating that:
Right to dispose land
Seller will do all the can reasonably to transfer land
In case of leasehold land, lease is subsisting at time of disposal and there is no breach of covenant making lease liable in future for forefeiture
No title suitable for person appointed after owner insolvency
What are Specific Incumbrances?
Third party rights that run with the land.
Why is it necessary to specify incumbrances in the contract?
To identify all burdens on the property.
Breach
Seller not meeting contract terms
Non-disclosure
Failure to disclose property burdens
Searches
Investigation for hidden property burdens
Excluded
Checking if mortgage is discharged after completion
Title Guarantee
Seller’s assurance of property ownership
Both SC and SCPC have full title guarantee has standard and ull need soecial condition to change
Full Title Guarantee
Seller owns entire legal and equitable title
Impliedly covenants that land is disposed free from any encumbrances other than those seller dk about and could not reasonably know about.
Exclude incumbrance known to buyer or those available on register of title
Limited Title Guarantee
Seller has limited knowledge of property
Impliedly covenants
Seller hasnt incumbered the land and isnt aware of anyone else has done since last disposition for value
Suitable for trustee bd executor
Effect of Title Guarantee
Seller’s implied covenants in property transfer
Different Guarantees
Varying title guarantees between parties
Contract Rate
Interest charged for late completion
Law society rate from time to time is 4% above lending rate of barclays
What is a relevant base rate?
High enough to incentivize completion on time.
What is a deposit?
Prepayment of purchase price made by buyer to seller.
What is the purpose of a deposit?
Evidence of commitment and can be forfeited if buyer fails to complete.
What is the stakeholder rule?
Deposit is payable to seller’s solicitor and cannot be handed over until completion.
For residential aw simple commercial u can use deposit for other transactions
If its complex transaction SCPC u cannot as stakeholder do that
What is an agent?
Buyer agrees deposit will be held by seller’s solicitor as agent.
Deposit money cam be given to seller after exchange for any purpose.
Useful for commercial property
What are the payment methods for SCS?
Electronic or cheque drawn on conveyancer’s client account.
What are the payment methods for SCPC?
Electronic only.
What is the purpose of special conditions?
To vary default terms of SCS or SCPC.
What are some common changes in special conditions?
Deposit reduced to 5% and VAT included in purchase price.
Who is responsible for insurance?
Buyer, unless seller agrees to continue existing policy.
Under what conditions is the seller obligated to insure a freehold property?
If required by a special condition in the contract.
What happens if the seller agrees to insure the property?
Seller must maintain the policy until completion and hand over insurance proceeds to the buyer.
What is the risk of having two insurance policies on the same property?
Buyer’s insurer may reduce proceeds if another policy exists.
What happens if the buyer cannot recover the full insurance proceeds?
Purchase price is reduced accordingly.
What is the risk in a contract?
Buyer is responsible for property damage before completion.
What are the basics of VAT in a contract?
SCS: purchase price includes VAT, residential property exempt.
Is VAT normally chargeable for residential properties?
No, purchase price and contents price are inclusive of any VAT.
Does the purchase price in SCPC include VAT?
No, purchase price excludes VAT.
When is VAT payable for commercial properties?
Standard Rated: property <3yrs old or seller opts to tax, Exempt: property >3yrs old + seller hasn’t opted to tax.
Why might a seller opt to tax for a commercial property?
To offset input and output VAT.
What should one be cautious of with VAT sensitive buyers?
Beware of VAT sensitive buyers.
What are the three possibilities for VAT to be payable under SCPC 2.2?
- Default position: purchase price exclusive of VAT, 2. Alter default: purchase price inclusive of VAT, 3. Transfer exempt: seller hasn’t made election for VAT.
Can VAT be added on top if there is a change in law between exchange and completion?
Yes, if the law changes to make an exempt supply chargeable at the standard rate, but the seller is contractually obliged not to opt to tax.
What are the requirements of a lender?
Buyer creditworthy, property is good security for the loan.
What factors should a buyer consider when choosing a lender?
Amount they can borrow, interest rates available, and particular products on offer.
What is a mortgage offer?
Offer made to the buyer by the lender, setting out the terms of the loan.
What is a commitment letter?
Letter with a terms sheet and facility agreement, detailing lender terms for complex loans.
What types of loans are residential and simple commercial loans?
Mortgage offers.
What type of loans are complex loans?
Loans with commitment letters and facility agreements.
What is the purchase price in relation to VAT under SCPC 2.2?
Default position: exclusive of VAT.
What is the purchase price in relation to VAT if the default is altered?
Inclusive of VAT.
What is the purchase price in relation to VAT if the seller hasn’t made an election for VAT?
Transfer exempt: seller hasn’t made election for VAT.
Can VAT be added on top if there is a change in law between exchange and completion?
Yes, if the law changes to make an exempt supply chargeable at the standard rate, but the seller is contractually obliged not to opt to tax.
What should one be cautious of with VAT sensitive buyers?
Beware of VAT sensitive buyers.
What is a legal mortgage?
Lender’s first mortgage on borrower’s property.
What power does a mortgage made by deed have?
Implied power of sale under s 101 of Law of Property Act 1925.
What happens if the borrower cannot repay the loan?
Loan is paid first out of proceeds of sale.
Can a solicitor act for both lender and borrower?
Yes, if there is a substantial common interest and safeguards are in place.
What type of mortgage has standard terms?
Residential mortgage.
Are the terms of a commercial mortgage standard?
No, they have to be negotiated and agreed.
Why does the lender need to know about good title?
To ensure the property can be sold in the future if needed.
What is a certificate of title?
Document disclosing any problems with the property to the lender.
If u add something w later it isn’t true then u don’t remove it but rather add a clause in the disclosure section revealing the new reality
What does the certificate of title confirm to the lender?
No legal problems, ownership details, and completion date.
When is a more detailed certificate of title needed?
In commercial transactions.
When is the certificate of title given?
Immediately prior to completion of the loan.
When are drafts of the certificate of title provided?
At earlier stages in the transaction.
What happens before the buyer’s solicitors exchange contracts?
Lender must be satisfied with the certificate and disclosures.
What is a power of sale?
The ability to sell the property to recover the loan.
What is a mortgage deed?
A deed that creates a legal mortgage.
What is a substantial common interest?
Shared interest between lender and borrower.
What is a good and marketable title?
Title to the property without any legal problems.
What is the purpose of a mortgage?
To provide security for a loan.
What is the role of the buyer’s solicitor?
To prepare the certificate of title and disclose any problems.
What is the role of the lender’s advisors?
To review the drafts of the certificate of title.
What is a precontract report?
Summary of pre-contract searches and title investigation.
What disclaimers are included in the precontract report?
Solicitor cannot advise on property value or structure.
What is included in the report to the client?
Pre-contract report, terms of contract, and mortgage offer.
What does the buyer’s solicitor report to the lender?
Good and marketable title for loan security.
What needs to be ensured regarding deposit funds?
Cleared funds ready to send to seller’s solicitor at exchange.
What needs to be checked regarding the mortgage offer?
In place, accepted, and buyer has sufficient funds to complete.
What arrangements need to be in place for insurance?
Immediately following exchange.
What needs to happen for the contract to be signed?
Each party of the transaction signs their copy.
What needs to be negotiated and agreed before exchange?
Completion date.
What does the seller need to do before exchange?
Prepare final versions of contract and obtain authority to exchange.
What does the buyer need to do before exchange?
Check certificate of title is approved and obtain authority to exchange.
What are the three ways to exchange contracts?
In person, by post, or over the telephone.
When is Law Society Formula A used?
When one solicitor holds both parts of the contract duly signed.
What is the process for Law Society Formula A?
Solicitors agree to exchange contracts by phone and send the signed part to the other solicitor.
What are undertakings?
Solicitor sending signed contract to other side.
What are buyer’s undertakings?
Sending deposit and signed contract to other side.
What is Law Society Formula B used for?
When each solicitor holds their own client’s signed contract.
What is the process for Law Society Formula B?
Agree contracts by phone, sign parts, and send to other side.
What can be used instead of Formula C?
Release method.
What does the buyer need to send in Formula C?
Client’s signed contract and deposit.
What does the seller need to send in Formula C?
Client’s signed contract.
What should be done if there is a variation in undertakings?
Agree and make a record.
What does Formula A and Formula B both contain?
Undertaking for buyer’s solicitor to send deposit.
What needs to be done if the deposit is sent electronically?
Vary the formula by agreement between solicitors.
What is Law Society Formula C used for?
Chain transactions in residential property.
What is the aim of Formula C?
Synchronize exchanges in the chain to avoid owning multiple properties.
What is the process for Law Society Formula C?
Agree to release contracts for exchange for a limited period.
What consent is needed for Formula C?
Other party’s irrevocable consent due to undertakings.
What should be recorded in the record of exchange?
Date, time, formula, variation, completion date, deposit, solicitors’ identities.
What are the consequences of exchange?
Binding contract, legal title retained by settler, beneficial interest held by seller, seller continues to pay outgoings.
What information should be included in the file note?
Date, time, formula, variation, completion date, deposit, solicitors’ identities.
What is the purpose of recording the exchange?
To document the details of the exchange for future reference.
What happens after exchange?
Parties are legally bound to complete the transaction.
Who retains legal title until completion?
The settler.
Who holds the beneficial interest after exchange?
The seller on behalf of the buyer.
What must the seller continue to pay until completion?
Outgoings such as community charges or business rates.
Who should be informed immediately after exchange?
Respective clients and estate agent.
Cert of title
Addressed to lender and buyer, soemtimes just buyer
Drafts can be prepared between prties at earlier stages but final cert of title give before completion date.
