Drafting

Question 1

Which legislation governs the form of property contracts?

Answer 1

Law of Property Act 1989

Question 2

What are standard form contracts?

Answer 2

Contracts which contain standard conditions and special conditions.

Question 3

Why are standard form contracts necessary?

Answer 3

Because many matters relevant to the sale of land will be common in all transactions.

Question 4

What are the two sets of standard conditions?

Answer 4

Standard conditions of sale -used in residential transactions

Standard commercial property transactions -used in more complex commercial transactions

Question 5

What does SCS stand for?

Answer 5

standard conditions of sale

Question 6

What does the SCPC stand for

Answer 6

standard commercial property conditions

Question 7

What are special conditions?

Answer 7

Used for two things:

1. amend standard conditions in both SCS and SCPC
2. may deal with specifics not covered by standard conditions

Question 8

What are tailor made contracts?

Answer 8

They are the law firm’s precedent contracts.

They are tailor made and are sometimes more suitable for complex commercial property transactions.

The clauses in tailor made contracts may vary or supplement standard conditions.

Question 9

Comment on what should be filled in for the date section of the contract.

Answer 9

Must be left blank until the exchange of contracts takes place.

Once the exchange of contracts takes place, the dates are filled in and it becomes a legally binding document whereby the parties are bound to completion.

Question 10

Comment on what should be filled in for the seller section of the contract.

Answer 10

Get information from title documents.

Must check seller has legal personality.

Seller should be name of individual or company and not a partnership since it doesn’t have legal personality.

Although, there can be a maximum of four individual partners listed as the seller.

Question 11

Comment on what should be filled in for the buyer section of the contract.

Answer 11

• Full names of all the buyers and
• their addresses (max four).

If it is a company then:

• co. name,
• number and -registered address.

Question 12

Comment on what should be filled in for the property section of the contract.

Answer 12

Take description from property register from the full copies and describe rights attaching to land.

Question 13

Comment on what should be filled in for the property section of the contract if it is a:

sale of whole property

sale of a part of property

unregistered land

Answer 13

Sale of whole: provide description as in property register

Sale of part: Refer to title plan

Unregistered: use description of property in previous conveyance

Question 14

Comment on what should be filled in for the title number and root of title section of the contract if:

Registered

Root of title

Answer 14

If registered: take title number from the title documents

If unregistered: find details of the conveyancing constituting the root of title

Question 15

Comment on what should be filled in for the specified incumberances section of the contract.

Answer 15

You would simply write: ‘Specified incumbrances: the matters set out in entry 1 (restrictive covenants) of the Charges Register of title number XXXX’

Basically, you are referring to the restrictive covenants or easements.

Do not note any mortgages on the contract.

Question 16

Comment on what should be filled in for the contract rate section of the contract.

Answer 16

It refers to the interest for late completion.

Usually is between 3-5% per annum. Anything higher must be changed.

*see law society’s interest rate.

Question 17

What happens if you see title problems during the investigation stage?

Answer 17

If it isn’t possible to remedy defect, seller should disclose the problem in the contract using a special condition, revealing the nature of the defect.

This ensures that the buyer excepts the defect and will raise no objection to it. aka Faruqi clause.

Question 18

Comment on what should be filled in for the purchase price section of the contract.

Answer 18

Total sum payable including :

chattles
land
SDLT

Question 19

Comment on what should be filled in for the deposit section of the contract.

Answer 19

10% of purchase price

Question 20

Comment on what should be filled in for the title guarantee section of the contract.

Answer 20

Full means seller has the right to sell the property, and can guarantee that property is free from all charges and encumbrances except:

those already disclosed in the contract s. 6(1) LP MP A 1994

those buyer could not reasonably known about s3(1) LP (MP) A 1994

Limited means no guarantee by seller the property is free from all third parties, but he can guarantee that he has not created any incumberances over the land and is not aware of anyone else doing so. This may be a trustee, personal representative or person who has little knowledge about the property.

No title guarantee: must be stated in special conditions part of the contract.

Question 21

Comment on what should be filled in for the completion date section of the contract.

Answer 21

If left blank, standard conditions of sale provisions will apply.

This means that completion date must happen within 20 working days of the exchange and by 2pm.

Adding a completion date would override this standard provisions.

Question 22

Comment on what should be filled in for the contents price section of the contract.

Answer 22

chattles

This is to separate chattles from the overall price of the property to avoid paying for SDLT on chattles

Question 23

Comment on what should be filled in for the balance section of the contract.

Answer 23

balance=

purchase price less

deposit
contents (chattles)

Question 24

What is the Faruqi clause and when is it used?

Answer 24

It is used to address defects in title where the seller may be missing information or document.

Once the problem is disclosed in the standard conditions and the buyer signs, it means the buyer accepts the defect and takes no objection to it.

Question 25

Comment on what you would include for chattles in the special conditions for SCS and SCPC.

Answer 25

In SCS: start a new page and include all contents and a list In SCPC: if you don't amend the pre printed you can create a new special condition to specify purchase price of chattle and detials. then make sure to change price on front page.

Question 26

Comment on what you would include for the occupier special condition in SCS and SCPC. Why is it needed?

Answer 26

The occupier special condition is a document signed by the occupiers (who aren't the sellers) confirming that they agree to waive their interest and agree to vacate on completion. In the SCS this is included in the pre printed section and in the SCPC it must be drafted as a separate document.

Question 27

Comment on what you would include in the special condition if there is a planning permission which needs to be obtained. Why is it needed?

Answer 27

Conditionality on Planning Permission must include: nature of the PP sought whose job it is to apply for it and when Long-stop date if granted, when does completion occur? if denied how to rescind and who gets deposit?

Question 28

What are the five things you need to consider when drafting a contract?

Answer 28

What is the obligation/issue? Who is performing the obligation? (buyer or seller) When is the obligation to be performed by (completion date)? How will be it be performed? Where will this be inserted in the contract?

Question 29

What do you need to consider when drafting conditional clauses in a contract?

Answer 29

Include a timetable for satisfaction Include a trigger for completion and a long stop date (i.e. when the parties can walk away if condition is not satisfied)

Question 30

what is a long stop date?

Answer 30

when parties can walk away if condition is not satisfied.

Question 31

Is VAT payable by the buyer in addition to the purchase price? explain.

Answer 31

It is not payable to the buyer in addition to the purchase price SCS/SCPC 1.4 unless: Building is a new commercial building (less than three years old) Election made by buyer to charge VAT (seller must be VAT registered); and Part 2 condition A1 is expressly incorproated in SCPC; or Contract specifically confirms it is VAT payable SCS ex. the seller confirms that it has not opted to tax VAT on the Property and neither will it do so on or before the completion date

Question 32

Give examples of other points arising from investigation of the official copies or searches which may be included in a special conditions section.

Answer 32

Seller must purchase a restrictive covenant indemnity policy before completion. Seller must obtain missing planning permission/building certificate by completion.

Question 33

What would you add in the special conditions section if you are only selling part of the property?

Answer 33

Sale of part will create new easements and covenants. Include a standard condition on Express easements to benefit or burden, buyer or seller. Include a standard condition on Express covenants that will be imposed on the buyer or seller. Make sure implied easements are excluded.

Question 34

Which SCS/SCPC will allow a seller to demand a special condition in the contract to the effect that a buyer agrees to give an indemnity covenant to the seller (such covenant to eventually be contained in the purchase deed)? Specify which entries in which registers of the official copies for the buyer makes this a reasonable demand by the seller.

Answer 34

SCPC 6.6.4 and SCS 4.6.4 state that in order for a new purchaser to be bound by any existing covenants, the new buyer must give an indemnity covenant. This ensures that the positive covenants in question will be bound to the new buyer even though it doesn't run with the land. The land registry will make an entry on the proprietorship register under the names of the registered proprietors.

Question 35

What is an indemnity covenant?

Answer 35

A seller will remain liable to a positive covenant if he was a) the original coventor or b) he promised to comply when he bought the property. If the seller wants the new buyer to continue complying, then he will request this though an indemnity covenant to be put in the purchase deed and in the proprietorship register. This means that the purchaser will need to pay for any costs to the seller if seller suffers loss resulting from breach.

Question 36

Is value added tax relevant to residential property?

Answer 36

no

Question 37

Is the sale of the freehold of a new commercial building subject to a standard VAT rate?

Answer 37

Yes any building that is 3 years old or less is subject to a standard VAT rate of 20% of the purchase price. Seller must ensure that the price is stated to be exclusive of VAT, otherwise the seller will pay.

Question 38

Is the sale of old commercial buildings and leases subject to VAT?

Answer 38

No it is not payable on the purchase price or any rent if it is a sale of an older free hold building more than 3 years old and if it concerns the granting of a lease.

Question 39

Do owner or tenants of a lease have the option to tax? explain.

Answer 39

For old commercial buildings and leases owners or tenants of a lease can execise the option to tax. This means all supplies in connection with the building is sold subject to 20% standard rate VAT. The price in contract must be expressed exclusive of VAT.

Question 40

Is the seller's obligations to the buyer narrower under SCS and SCPC?

Answer 40

Under the SCPC the seller is not obliged to expressly disclose matters int he contract which would be revealed by searches and enquiries that should have been made by the buyer. Under the SCS any incumbrances revealed by the Land Registry and Central Land Charges Searches and Companies House searches must be expressly disclosed int he contract otherwise seller is liable for breach.