DRAFTING AND EXCHANGING THE CONTRACTS FOR SALE

Question 1

What is the structure of the Contract for sale?

Answer 1

1. Font page - parties details, the address and particulars of the property, any incumbrances, the price (and deposit) and the relevant dates for transaction.
2. Standard Commercial Property Conditions (SCPC) - These are standard form contracts
3. Special conditions used to amend and/or exclude terms from the standard from contract or create new terms not covered in the SCPC.

Question 2

What issues are dealt with in the Contract for Sale?

Answer 2

1. Specified encumbrances - SCPC 4.1.2
2. Defects in title -The seller should disclose any defects in title in the contract by using a special condition that reveals the nature of the defect and states that the buyer accepts the defect and will raise no objection. This is called a Faruqi clause.
3. Fixtures and Chattels - Fixtures are included in the sale unless they are specifically excluded in the contract for sale. To include chattels in the sale, this can be done by :
   a. use SCPC Special Condition 3 and attach to the contract a list of fixtures excluded from/chattels included as part of the sale
   b. draft a new specifal condition setting out that what the parties intend to be included or excluded in the sale.

Stamp Duty Land Tax is not paid on chattels so separating the price of the property and the price of chattels can give rise to tax savings for the buyer.

You cannot however, apportion an inflated price to chattels so as to reduce the Stamp Duty Land Tax liability as established in the case of Orsman.

4. Indemnity Covenant - SCPC 7.6.5 allows the seller to demand an indemnity covenant in relation to the positive covennat to maintain the fence. The seller could otherwise be bound to perform thi sobligation forever.
5. VAT - Under SCPC 2.1 and 2.2 the seller warrants that the transaction is a taxable supply and the buyer must pay VAT in return for a VAT invoice.

If the parties dont want the transaction to involve VAT they should include a warranty under SCPC Optional Conditin A from the seller that (a) the sale does not constitute a supply that is taxable for VAT purposes and (b) the seller will not elect to waive this exemption.

6. Title Guarantee - Full title, limited title and no title.

Question 3

What case established that you cannot apportion an inflated price to chattels to reduce SDLT?

Answer 3

Orsmamn

Question 4

What is the Formula B approach?

Answer 4

Procedure for exchanging contract.

1. Solicitors confirm they hold the same version of the contract and that their clients have signed it.
2. Completion date is inserted into the contract.
3. Ocer the phone, solicitors confirm to each other that their clients have signed the contract and that they will exchange those contracts via post/in person)
4. Date of exchange is inserted into contract
5. Both parties undertake to send the signed contract to the other and the buyer’s solicitor undertakes to send the deposit to the sellers solicitor.
6. An attendnace notice is filed as a record that exchange has taken place. Contracts are sent via post

Question 5

What are the risks between exchange and completion?

Answer 5

1. Risk of anything happening to property passes onto the buyer upon exchange. Therefore crucial that the buyer insures the property so that such insurance takes effect on the date of exchange.
   * note seller has a duty of care to exercise reasonable care in upkeep of the property.
2. Occupation by buyer before completion - if buyer allowed to occupy property before completion, risk that they may then lose the incentive to complete. The seller may then have to resort to getting a posession order to regain possession.

Recommend that the buyer’s occupation only be as a licensee. THIS SHOULD BE A SPECIAL CONDITION IN THE CONTRACT.

3. Risk of Death
4. Risk of Insolvency

Question 6

How do you draft specified incumbrances?

Answer 6

“Specified Incumbrances: the matters set out at item 1 of the Charges
Register of title number XXXXX”