Contract and exchange MCQs Flashcards
A solicitor has just been instructed by a client in connection with the purchase of a commercial property. The solicitor has just received the draft contract, official copies and replies to CPSEs. The buyer’s instructions are that repairs are required to the roof at the property, and that the seller has promised to carry out these repairs prior to the completion date.
Which one of the following best represents the steps that the buyer’s solicitor must now take in connection with the contract?
The buyer’s solicitor should draft a special condition for insertion in the contract specifying that on or before the completion date the seller must repair the roof of the property to the reasonable satisfaction of the buyer.
The buyer’s solicitor should draft a special condition for insertion in the contract specifying that the seller must repair the roof.
The special condition is not required as the SCPC confirms that the property is sold in the state it is in at the date of the agreement between the parties.
A special condition would not be required, as the seller is obliged to transfer the property in good repair.
There is no need for a special condition as the verbal agreement of the seller is sufficient.
The buyer’s solicitor should draft a special condition for insertion in the contract specifying that on or before the completion date the seller must repair the roof of the property to the reasonable satisfaction of the buyer.
This is correct. Special conditions are required to deal with specific matters agreed between the parties. Caveat emptor would mean that in the absence of a special condition, the responsibility for the repairs would fall to the buyer. s2 Law of Property (Miscellaneous Provisions) Act 1989 states that all the terms agreed between the parties must be incorporated in the contract, so the seller’s promise to repair the roof would not be binding without being in the contract.
A contract for sale of an industrial unit incorporates the standard commercial property conditions (‘SCPCs’) and there are no express clauses in the contract varying the standard conditions. Contracts have exchanged and the contractual completion date is next week. Yesterday the unit caught fire and has been practically destroyed.
Which one of the following statements is correct about who assumes risk under the contract from exchange of contracts?
The common law position prevails, meaning that the seller keeps the risk from exchange.
The seller is under no obligation to insure the property; the common law position prevails, meaning that the buyer bears the risk at exchange.
The buyer bears the risk at exchange and if it does not have insurance cover it will not be obliged to complete the purchase on the contractual completion date.
The seller keeps the risk in the property and the buyer does not need to complete the purchase on the contractual completion date.
The seller and the buyer are both under an obligation to insure the property and must both claim on their insurance policies.
The seller is under no obligation to insure the property; the common law position prevails, meaning that the buyer bears the risk at exchange.
This is correct. Since there is no variation to the SCPCs in the contract, under condition 8.1 of the SCPC, risk in the property passes to the buyer on exchange of contracts under common law (even without an express provision). The buyer should therefore be able to claim on its insurance for the damage. If for some reason the buyer does not have insurance cover, it will have to bear its own loss for the damage resulting from the fire and it will be obliged to complete the purchase on the contractual completion date.
You act for the seller of a newly constructed commercial property, and have been instructed to issue a draft contract.
Which of the following describes the best basis for drafting the contract?
A contract incorporating the Standard Commercial Property Conditions, and including the Part 2 A1 conditions as it is not a taxable supply.
A contract incorporating the Standard Conditions of Sale and a special condition dealing with the VAT treatment.
You should first ascertain from replies to CPSE1 whether the seller has opted to tax the property.
A contract incorporating the Standard Commercial Property Conditions, and including the Part 2 A2 conditions as it is a transfer of a going concern.
A contract incorporating the Standard Commercial Property Conditions, but not incorporating any of the Part 2 VAT provisions as it is a standard-rated supply.
A contract incorporating the Standard Commercial Property Conditions, but not incorporating any of the Part 2 VAT provisions as it is a standard-rated supply.
Correct. Newly constructed commercial property is standard rated, and the Standard Commercial Property Conditions will be most appropriate for this.
You act for the buyer of a freehold property registered with Title Absolute. The contract for the sale of the property says the seller is going to sell with limited title guarantee. You explain to your client that it is usual for this type of seller to offer a full title guarantee. Your client asks you what it means for them to getting limited title guarantee. What would your advice to the client be?
Selling with limited title guarantee means the seller covenants that the seller is not aware of any rights having been granted over the property during the period of the seller’s ownership, but the seller doesn’t make any covenant about rights before that.
The client does not need to be concerned about obtaining limited title guarantee as the property has been registered with Title Absolute.
Selling with limited title guarantee means the seller is selling the property free from all charges and incumbrances (monetary or otherwise) and free from all rights exercisable by third parties, including those the seller does not and could not reasonably know about.
Selling with limited title guarantee means the guarantee is limited in time to the period for which the buyer owns the property.
Selling with limited title guarantee means the seller is selling the property free from all charges and incumbrances (monetary or otherwise) and free from all rights exercisable by third parties, other than those the seller does not and could not reasonably know about.
Selling with limited title guarantee means the seller covenants that the seller is not aware of any rights having been granted over the property during the period of the seller’s ownership, but the seller doesn’t make any covenant about rights before that.
Correct. The key difference of limited title guarantee from full title guarantee is that the seller is only guaranteeing what has occurred at the property during the seller’s ownership. Note that if the seller inherited or was given the property, then this period extends to the last transaction for value (ie, sale).
You are acting for a buyer client who is purchasing a property which is subject to a mortgage. You exchanged over the telephone with the seller’s solicitor in accordance with Law Society Formula B.
Which statement best describes the undertaking or combination of undertakings the seller’s solicitor would have given to you?
To forward the seller’s part of the contract to you and to send the deposit to the lender to discharge the mortgage and to forward proof of discharge to you on receipt.
To forward the seller’s part of the contract to you and transfer the deposit to your client account.
To forward the seller’s part of the contract to you and to send the deposit to the lender to discharge the mortgage.
To forward the seller’s part of the contract to you and to keep the deposit in general client account.
To forward the seller’s part of the contract to you by DX this evening.
To forward the seller’s part of the contract to you by DX this evening.
Correct. As you are acting for a buyer client, in accordance with Formula B you would have received an undertaking confirming that the seller’s solicitor would send the seller’s part of the contract to you by DX this evening. The outstanding mortgage will be dealt with at completion.
Question 1
A solicitor is acting for a buyer of a freehold property and exchanged contracts last week
using the Standard Conditions of Sale (Fifth edition – 2018 Revision) with no relevant special
conditions. Completion is to take place tomorrow. The seller’s solicitor has just rung to say
that there has been a fire at the property and it has been damaged.
Which one of the following best describes the advice the solicitor should give about the
implications of the fire for the sale and purchase transaction:
A The buyer will have to complete the purchase, but the seller will have to repair the
property and pay damages for the delay in completion.
B The seller is responsible for any damage which they cause, but not if the damage is
caused by others.
C The buyer may rescind the contract and claim back their deposit.
D The risk passes from the seller to the buyer on exchange of contracts and so the buyer
will have to complete the purchase. The buyer can claim on the insurance that they
should have taken out on exchange.
E Completion will be delayed until the seller has received the insurance proceeds and
used them to reinstate the property.
Answer
Option D is correct. Under SC 5, risk passes to the buyer on exchange, which means that that
the buyer must complete the purchase even if the property is damaged or destroyed between
exchange and completion. The buyer is unable to rescind the contract even if the property
is destroyed (so option C is wrong). SC 5 also provides that the seller is under no obligation
to insure a freehold property unless required to do so by a special condition in the contract
and the facts tell us that there were no relevant special conditions in this case (so option E is
wrong and option B is not the best answer). The buyer should have been advised to take out
insurance on the property to come into effect on exchange, so they would be able to make a
claim under the policy (as in option D), rather than look to the seller (as in option A).
Question 2
In which of the following circumstances should a solicitor acting on a sale and purchase
of a commercial property recommend that in the contract the purchase price is
expressed to be inclusive of VAT?
A The solicitor is acting for a buyer which is an insurance company.
B The solicitor is acting for a buyer which is a firm of accountants.
C The solicitor is acting for a seller and the property has been recently constructed.
D The solicitor is acting for a seller and the property is a 1950s office building.
E The solicitor is acting for a seller and the buyer is an insurance company.
Answer
Option A is correct. An insurance company is ‘VAT- sensitive’, ie it makes exempt supplies
and may not be able to recover any VAT it has to pay on the purchase price. By contrast,
a firm of accountants makes mainly standard rated supplies and is unlikely to object to
paying VAT in addition to the purchase price since it will recover it (so option B is not the
best answer).
A seller should never be advised by its own solicitor to make the purchase price inclusive of
VAT (so options C, D and E are wrong). This is because if the supply is standard- rated (as
with a new building), or it wants to opt to tax in order to recover VAT paid on refurbishment
(as with the 1950s building), or the law changes the VAT status of the sale between
exchange and completion, the seller will be unable to add the VAT to the agreed price. The
sale proceeds will be reduced by the amount of VAT payable to HM Revenue and Customs.
Of course the seller may have to agree to a VAT inclusive purchase price as part of the
commercial terms for the transaction, in which case, the seller’s solicitor must draw their
client’s attention to the possible financial consequences of that decisio
Question 3
A solicitor acts for a buyer who is buying a property from the executor of a deceased
owner. The title to the property is currently unregistered. The executor is described in the
contract as the seller. The solicitor is explaining to the client the concept of ‘limited title
guarantee’ referred to in the contract.
Which of the following is the best advice to the buyer about the seller selling with
limited title guarantee?
A The seller should be selling the property with full title guarantee if the grant of probate
appointing the executor has been granted, rather than limited title guarantee.
B Limited title guarantee means that there is an implied covenant that the seller has not
incumbered the title to the property and the seller is not aware that anyone else has
done so since the last disposition for value.
C Limited title guarantee means that once the title to the Property is registered, the class
of title in the proprietorship register will be Possessory Title.
D Limited title guarantee means that there is an implied covenant that the property is
disposed free from incumbrances other than those the seller does not know about and
could not reasonably know about.
E Limited title guarantee means that once the title to the property is registered, the class
of title on the proprietorship register will be Qualified Title.
Answer
Option B is the best answer as it is the correct definition of limited title guarantee. Option
A is not the best answer as you would expect an executor to sell with limited title guarantee
because they will have limited knowledge of the property. Option D describes full title
guarantee. Options C and E are not the best answers as title guarantee for the purpose of the
contract does not link to the class of title in registered land (see 2.3.2(b)); the property may
still be registered with Absolute Title even though it has been sold to the buyer by a seller only
offering limited or no title guarantee. Title guarantee is about the seller; class of title is about
the property.
Question 1
A solicitor is acting for the buyer on the purchase of a residential freehold property with a
registered title. Title has been deduced, searches and enquiries have been carried out and
contracts have been exchanged.
Is the solicitor required to carry out a search at the Land Registry prior to completion?
A Yes, because it is a part of the investigation of title.
B Yes, because the results will reveal whether there have been any changes to the
register since the date of the official copies obtained prior to exchange of contracts.
C Yes, because it is needed to check that the seller is the registered proprietor.
D No, because the buyer will be protected by the priority period created when the official
copies were issued.
E No, because new entries cannot be made on the registers of title without the consent of
the seller.
Answer
Option B is correct. Options A and C are not the best answers because the solicitor will have
already investigated title and checked that the seller is the registered proprietor before
exchange of contracts. The purpose of the pre- completion search is two- fold: first, to see if
there have been any changes to the register since the date of the official copies obtained
prior to exchange of contracts and second, to obtain a priority period in which to register
the buyer as new proprietor (and to register any lender as new chargee). Option D is wrong
as this priority period is created by the issue of the Land Registry search result (OS1R), not
by the issue of the official copies. Option E is wrong as third parties can apply for unilateral
notices to be entered on the charges register without the consent of the registered proprietor
(see 2.5.10).
Question 2
A solicitor is acting for a lender that has advanced money for the purchase of a registered
freehold property. The borrower and purchaser of the property is a limited company. The
money advanced by the lender is secured by a first legal charge over the property. An
official search of whole (OS1) was carried out against the property in the name of the
lender prior to completion. Both the transfer of the property and the legal charge have
been completed.
Which of the following best describes what steps (if any) the lender’s solicitor should
take after completion to protect the legal charge?
A The legal charge automatically binds any subsequent purchasers and lenders and so
no further steps are required to protect it.
B The legal charge must be registered at Companies House within 14 days of its creation
and at the Land Registry within the priority period conferred by the OS1 search result.
C The legal charge does not need to be registered at Companies House, but must be
registered at the Land Registry within the priority period of the OS1 search.
D The legal charge must be registered at Companies House within 21 days of its creation
and at the Land Registry within two months of completion of the purchase.
E The legal charge must be registered at Companies House within 21 days of its creation
and at the Land Registry within the priority period conferred by the OS1 search result.
Answer
Option E is correct. As the borrower is a company, the legal charge must be registered at
Companies House within 21 days of its creation to ensure constructive notice of it is given
to other creditors of the company. Options A and C are wrong because further steps are
necessary and the legal charge does have to be registered at Companies House. Option B
is wrong as it refers to the wrong time limit of 14 days.
The legal charge must also be registered at the Land Registry to ensure the lender has a
legal interest that binds those subsequently dealing with the property. Option D is not the
best answer as registration at the Land Registry should be completed within the priority
period conferred by the OS1 search result to ensure the lender has priority over any other
applications, rather than within two months of completion.
Question 3
A solicitor acts for the buyer of a freehold property. The contract for the purchase of the
property incorporates Part 1 of the Standard Commercial Property Conditions (‘SCPC’)
without amendments. Contracts have been exchanged and the completion date is
tomorrow. The seller’s solicitor contacted the solicitor yesterday to confirm that they are
ready for completion.
The solicitor has been contacted by the buyer today. The buyer has requested that
completion be delayed for a week due to some funding issues.
Which of the following statements best describes the consequences of the delayed
completion?
A Only the buyer can be liable to pay compensation under the SCPC.
B The buyer and the seller can be liable to pay compensation for late completion under
the SCPC.
C The contract rate will be applied to the full purchase price to calculate the amount of
compensation to be paid.
D If the seller has any actual loss resulting from the delayed completion, they will be able
to claim for breach of contract and keep this in addition to any compensation paid
under the SCPC.
E The seller can immediately terminate the contract.
Answer
Option A is correct. In a contract incorporating the SCPC, SCPC 10.3 only requires the buyer to
pay compensation to the seller in the event of late completion and there is no corresponding
requirement for the seller to pay, so option A is correct and option B is wrong.
The contract rate is applied to an amount equal to the purchase price less the deposit in
order to calculate the amount of compensation, so C is incorrect.
The seller can receive damages for breach of contract, but these are reduced by the amount
of any compensation paid, so option D is wrong.
Finally, the seller can terminate the contract, but only when they have served a notice to
complete and the buyer has failed to complete by the expiry of the notice. Time is not of the
essence until the notice to complete is served on the buyer, so option E is wrong.
A woman is buying a freehold property. She chose the property because it included a large detached garage which would be ideal for storing her collection of five vintage cars.
Contracts incorporating the Standard Conditions of Sale (Fifth Edition - 2018 Revision) (SCS), unamended, were exchanged last week. The woman has discovered that there was a fire at the property last night. Although the house is unaffected the garage has been destroyed. The woman is uncertain whether she wishes to proceed with the purchase because the garage will take six months to rebuild. She is concerned about any additional costs this might involve and does not know where her cars will be stored in the interim.
The woman asks her solicitor for advice.
What should the solicitor advise the woman?
A. She is contractually bound to complete the purchase. There will be no reduction in the purchase price because the risk passed to her on exchange.
B. She cannot be compelled to complete the purchase as an important part of the subject matter of the contract has been destroyed.
C. She is contractually bound to complete the purchase. The SCS required the woman to purchase a policy of insurance and she must use any proceeds to reinstate the garage.
D. She is contractually bound to complete the purchase. The risk remains with the seller who must reinstate the garage in order to fulfil his obligations under the contract.
E. She can decide whether or not she will proceed. If she does proceed, she can require the seller to reinstate the garage to the condition it was in at the date of the contract.
A - She is contractually bound to complete the purchase. There will be no reduction in the purchase price because the risk passed to her on exchange.
Three friends own a registered, freehold property together as beneficial tenants in common in equal shares. The property is subject to restrictive covenants.
One of the friends has died. The executors of his estate have recently obtained a grant of probate.
The property is being sold to a buyer. She will hold the property on trust for herself and her adult son.
The contract for the sale has been exchanged. This incorporates the Standard Conditions of Sale (Fifth Edition – 2018 Revision) with no relevant amendments.
The transfer is being drafted in readiness for execution.
Who, if anyone, must execute the transfer in addition to both of the surviving friends?
A. No one.
B. Only the executors.
C. Only the buyer.
D. Only the executors and the buyer.
E. The executors, the buyer and the adult son
C - Only the buyer.
