Contract Conditions Flashcards
Under the Standard Conditions of Sale (SCS), which incumbrances must the seller disclose?
A. Only those that are visually obvious upon property inspection
B. All incumbrances, regardless of whether they are registered
C. Incumbrances registered at the Land Registry, Land Charges Registry, and Companies House
D. The buyer is responsible for discovering all incumbrances through searches
C. Incumbrances registered at the Land Registry, Land Charges Registry, and Companies House
Explanation: Under SCS 3.1.2(d) and (e), the seller must disclose registered incumbrances, ensuring the buyer is aware of any restrictions or burdens on the property.
How does the Standard Commercial Property Conditions (SCPC) approach disclosure of incumbrances?
A. The seller must disclose all incumbrances
B. The seller must disclose only those they are personally aware of
C. The buyer is responsible for discovering incumbrances through searches
D. Incumbrances are irrelevant unless they affect the seller’s right to sell
C. The buyer is responsible for discovering incumbrances through searches
Explanation: Under SCPC 4.1.2(d), the buyer purchases subject to all incumbrances that would have been revealed by prudent searches and enquiries. This shifts the burden onto the buyer.
What does “time is of the essence” mean in a property contract?
A. Completion must occur by the specified time, or the non-defaulting party can terminate
B. The contract has no fixed completion date
C. The buyer can complete at any time without consequences
D. The seller can delay completion indefinitely
A. Completion must occur by the specified time, or the non-defaulting party can terminate
Explanation: “Time is of the essence” means that if a party fails to complete by the deadline, the other party can terminate and claim damages. However, time is not of the essence under SCS and SCPC until a notice to complete is served.
A buyer agrees to purchase a commercial property, but the seller has chosen not to opt to tax for VAT purposes. What is the VAT implication?
A. VAT is included in the purchase price
B. VAT is automatically payable at 20% on top of the purchase price
C. No VAT is payable unless the property is under three years old
D. The seller must still charge VAT
C. No VAT is payable unless the property is under three years old
Explanation: SCPC assumes VAT is payable unless the property is over three years old and the seller has not opted to tax. If the seller has not opted to tax, VAT is not payable.
When does the risk of damage to the property pass to the buyer?
A. On completion
B. On exchange of contracts
C. 7 days after exchange of contracts
D. When the buyer receives the keys
D. When the buyer receives the keys
Explanation: Risk passes to the buyer on exchange of contracts under both SCS and SCPC, meaning the buyer must insure the property from exchange. However, practically, the buyer may only assume full responsibility when they take possession.
A buyer pays a 5% deposit at exchange, but later defaults on completion. What happens under standard contract conditions?
A. The buyer must immediately pay the remaining 5% to reach the standard 10% deposit
B. The deposit amount is renegotiated based on damages suffered
C. The buyer can reclaim the deposit if they default due to financial difficulties
D. The seller must return the deposit in full
A. The buyer must immediately pay the remaining 5% to reach the standard 10% deposit
Explanation: If a reduced deposit was agreed (e.g., 5%), the buyer must top up to 10% if they fail to complete, unless a special condition modifies this rule.
A property contract states that the deposit is held “as stakeholder.” What does this mean?
A. The deposit is immediately paid to the seller and can be used at their discretion
B. The deposit is held in an escrow account by a third party
C. The seller’s solicitor must hold the deposit and only release it on completion
D. The buyer has the right to request the deposit back at any time before completion
D. The buyer has the right to request the deposit back at any time before completion
Explanation: If the deposit is held as stakeholder, the seller’s solicitor must hold it until completion, protecting the buyer. If the sale falls through, the buyer may be entitled to a refund depending on the contract terms.
A property contract includes a positive covenant requiring maintenance of a shared driveway. What must the buyer do upon completion?
A. Take out an insurance policy to cover future maintenance
B. Require the seller to continue maintenance obligations
C. Enter into an indemnity covenant if the seller previously gave one
D. Ignore the covenant, as positive covenants do not bind future owners
C. Enter into an indemnity covenant if the seller previously gave one
Explanation: Positive covenants do not automatically pass with the land, so an indemnity covenant ensures the buyer continues the chain of liability.
A buyer completes a property purchase and later discovers an incumbrance that was not disclosed in the contract. Under which condition can they hold the seller liable?
A. The seller was aware of the incumbrance and did not disclose it
B. The buyer did not conduct searches that would have revealed the issue
C. The incumbrance was minor and did not affect the property’s use
D. Incumbrances are always the buyer’s responsibility after completion
A. The seller was aware of the incumbrance and did not disclose it
Explanation: If the seller was aware of an incumbrance (e.g., a restrictive covenant) and failed to disclose it, they may be liable for misrepresentation or breach of contract.
A seller’s solicitor includes a special condition allowing the seller to retain insurance on the property until completion. What is the main reason for this?
A. The seller does not want the buyer to be responsible for insurance
B. The building is still under construction and the seller’s policy covers works
C. The buyer cannot obtain insurance before completion
D. The contract does not allow buyers to insure the property
B. The building is still under construction and the seller’s policy covers works
Explanation: Sellers may retain insurance in cases such as ongoing construction to avoid gaps in coverage. A special condition must be included in the contract.
