Contract conditions Flashcards

1
Q

What does caveat emptor mean?

A

`buyer beware’. The buyer is responsible for checking the property. However, the seller must disclose latent incumbrances and defects in title.

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2
Q

What are latent incumbrances?

A

Rights burdening the property that are not apparent on inspection.

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3
Q

What are defects in title?

A

issues that cast doubt on the seller’s ownership of the property.

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4
Q

What do the standard conditions do in relation to the duty that the seller must disclose latent incumbrances and defects in title?

A

Both sets of standard conditions amend this duty and list incumbrances which the seller need not disclose.

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5
Q

Under SCS what are the incumbrances subject to which the property is sold?

A

a) those specified in the contract

b) those discoverable by inspection of the property before the date of this contract

c) those the seller does not and could not reasonably know about

d) those, other than mortgages, which the buyer knows about

e) entries made before the date of the contract in any public register except those maintained by the Land Registry or the Land Charges Department or by Companies House

f) public requirements

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6
Q

Under SCPC what are the incumbrances subject to which the property is sold?

A

a) those specified in the contract

b) those discoverable by inspection of the property before the date of this contract

c) those the seller does not and could not reasonably know about

d) matters, other than mortgages, disclosed or which would have been disclosed by searches and enquiries which a prudent buyer would have made before entering into the contract

e) public requirements

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7
Q

What is different between the SCS and SCPC in relation to specified incumbrances?

A

Under the SCS the seller needs to disclose incumbrances registered at the Land Registry, the Land Charges Registry (for unreg land) and at CoHo. If they do not, the seller is in breach of this condition.

Under SCPC, the buyer is deemed to buy the property subject to incumbrances which would be revealed by a prudent buyer’s searches and enquiries. This places the onus on the buyer to carry out all relevant searches and enquiries.

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8
Q

What is title guarantee?

A

This is an exception to caveat emptor in that the seller can offer two types of guarantee as to the quality of title of the property.

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9
Q

What is full title guarantee?

A

This is the default SCS and SCPC, and should be offered unless there is good reason not to. This means the property is free from all incumbrances other than those disclosed in the contract, and those which it didn’t and couldn’t reasonable have known about.

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10
Q

What is limited title guarantee?

A

given by sellers with little knowledge of the property, such as executors of a deceased estate.

This means that no incumbrances have been created over the property during the seller’s period of ownership.

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11
Q

What is no title guarantee?

A

The seller does not guarantee the seller’s right to sell the property or that the property is free from incumbrances.

The buyer has no remedy against the seller if a title issue arises after completion.

An administrator or liquidator selling property may offer no title guarantee.

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12
Q

What is the default completion date and time under SCS and SCPC?

A

The date that is 20 WORKING DAYS after the date of the contract.

The time for completion is 2pm.

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13
Q

What does `time is not of the essence’ mean under SCS and SCPC?

A

Time is not of the essence until a notice to complete is served. This means that if a party fails to complete by the specified time, the other party can claim damages for breach, but cannot yet walk away from the transaction.

However, the party who is ready to complete can serve a notice to complete and make time of the essence. By making time of the essence it means that the contract must be performed by the specified time, and if not, the party can walk away from the contract and claim damages for breach.

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14
Q

What is the contract rate?

A

This sets the interest that is payable by the defaulting party for the delayed completion.

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15
Q

Under SCS and SCPC how much deposit is the buyer required to pay?

A

10%

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16
Q

What happens if the parties agree to lower the deposit but the buyer does not complete on time?

A

If the seller serves notice to complete, the buyer must immediately pay the balance of the 10% deposit unless this provision has also been amended by a special condition.

17
Q

Under SCS how must the deposit be paid?

A

By cheque from the buyer solicitors client account or electronically.

18
Q

Under SCPC how must the deposit be paid?

A

Must be paid electronically.

19
Q

What does it mean if the solicitor holds the deposit as stakeholder?

A

Sellers solicitor must keep the deposit safe and not pay it to the seller until completion.

Both SCS and SCPC require the deposit to be held as stakeholder.

However, as a residential seller may need the deposit for a related transaction, SCS provides that part or all of the deposit may be used for the deposit on that transaction. Any remaining deposit is still held as stakeholder.

20
Q

What does it mean if the solicitor holds the deposit as agent?

A

The seller may demand the deposit immediately after exchange.

Mostly buyers will not accept this as there is a risk of loss to the deposit if the seller is unable to complete.

21
Q

What VAT is payable on residential property?

A

It is 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.

22
Q

What is the VAT position in relation to commercial property?

A

VAT always needs to be considered with commercial property.

The default position under SCPC is that the property is a standard rated supply, meaning that VAT is payable at the normal rate (currently 20%) on top of the purchase price.

There are exceptions. For example, if the property is over three years old, and the seller has not made an option to tax, then there will be no VAT to pay.

The parties should amend SCPC with a special condition.

23
Q

When does risk pass to the buyer?

A

It passes once contracts are exchanged. Therefore, the buyer’s solicitor should advice the buyer to obtain insurance quotes before exchange.

24
Q

Why is insurance needed?

A

The lender may want confirmation that insurance is in place before advancing completion funds.

In some cases, it may be better for the seller to keep the insurance policy going in which case a special condition is needed.

25
Q

What are indemnity covenants?

A

The burden of positive covenants can be passed by a chain of indemnity covenants.

If the chain is unbroken, then the seller can require the buyer to give an indemnity covenant and continue the chain.

Both SCS and SCPC make this an obligation of the contract.

However, if the seller did not give an indemnity covenant, then this obligation does not apply.