Contract and exchange Flashcards
What is the City of London Law Society Certificate of Title (CLLS)?
The industry standard for commercial property is the City of London Law Society Certificate of Title.
The format is a series of statement that would be given if the property title is in perfect order and the solicitor completing the certificate must give a disclosure after each statement if it is incorrect.
What are the requirements for a contract for land under LPA 1989, S2?
-Be in writing
-Incorporate all of the terms which the parties have expressly agreed
-Be signed by, or on behalf of, each party to the contract
Does a seller need to disclose any latent incumbrances under the SCS?
Yes, the seller needs to disclose any incumbrances registered at the Land Registry, the Land Charges Registry and at Companies House. If not, they are in breach of SCS 3.1.2(d) & (e).
Does a seller need to disclose any latent incumbrances under the SCPC?
Under the SCPC, the buyer is deemed to buy the property subject to any incumbrances which would be revealed by a prudent buyer’s searches and enquiries. This places the onus on the buyer.
What is full title guarantee and when is it given?
It is the default title guarantee and should be offered unless good reason not to, this means the property is free of all incumbrances other than those disclosed in the contract.
What is limited title guarantee and when is it given?
This means that no incumbrances have been created during the seller’s period of ownership. It is given by sellers with little knowledge of the property, such as executors of the deceased estate.
What is the default completion date and time if not fixed by the parties
The default is 20 working days after the date of the contract at 2pm.
What does ‘time is of the essence’ mean?
This means that the contract must be performed by the specified time, and if not, the non-defaulting party can walk away from the contract and claim damages for the breach.
What do both the SCS & SCPC state in relation to ‘time is of the essence’?
Both SCS and SCPC state that time is not of the essence until a notice to complete is served. This means that if a party fails to complete, the other party can claim damages for the breach but cannot yet walk away from the transaction.
The party who is ready to complete can serve a notice to complete and make time of the essence.
What is the default deposit amount in the SCS & SCPC?
Both SCS and SCPC require the buyer to pay a 10% deposit on exchange of contracts, but this can be varied by special condition to say 5%.
What is the default position regarding how the deposit is held in the SCS & SCPC?
Both SCS and SCPC provide for the deposit to be held as stakeholder, which means that the seller’s solicitor must keep the deposit safe and not pay it to the seller until completion.
What VAT is charged on residential property under SCS?
Usually an exempt supply or a zero rated supply, meaning no VAT is payable by the buyer. Under SCS, the purchase price is inclusive of VAT.
What VAT is charged on commercial property under SCPC?
Standard rated supply, meaning that VAT is payable at 20% on top of the purchase price but there are exceptions, for example if the property is over 3 years old.
The parties should amend SCPC with a special condition.
Once contracts are exchanged, who does the risk pass to under both SCS & SCPC?
The risk passes to the buyer, which means if the property is damaged or destroyed between exchange and completion, the buyer must still complete therefore they should obtain insurance from the date of exchange.
What is default position in respect of indemnity covenants under both SCS & SCPC?
Indemnity covenants are an obligation of the contract if the chain is unbroken.
What is output tax?
Output tax is what a VAT registered business charges to its customers on the sale of goods and services.
What is input tax?
Input tax is the VAT paid by businesses on its purchases of goods and services.
Can a taxable person offset the input tax it has paid against the output tax it has collected?
Yes, provided they are registered for VAT purposes.
What is the VAT compulsory registration threshold?
Any business with a VAT taxable turnover of more than £85,000 a year must register for VAT with HMRC.
Business with a turnover of less than £85,000 a year may voluntarily register.
If a VAT registered business sells property, what type of VAT supply is this?
It is a standard rated supply and must charge VAT on the purchase price-if the business has had to pay input tax in connection with the property it can offset this against the output tax.
What types of property are exempt supplies?
Residential property, except for newly constructed property.
Commercial property over 3 years old and the owner has not opted to tax.
What types of property are zero-rated supplies?
Newly constructed residential property, the buyer doesn’t pay VAT but the seller does and can recover its input from HMRC.
What types of property are standard-rated supplies (20%)?
Newly constructed commercial property less than 3 years old.
Older commercial property is standard rated if the seller has opted to tax.
What is the Law Society Formula B?
It is a formula for exchanging contracts in property transactions by telephone.
