Drafting Contract Flashcards
After the exchange of contracts, are both the buyer and seller legally bound to complete the transaction on the agreed terms?
Yes
Who typically drafts the contract?
Seller’s solicitor
What are the 2 ‘standard conditions’ used for the contracts in property transactions?
(1) Standard Conditions of Sale (SCS)
(2) Standard Commercial Property Conditions (SCPC)
What 2 types of property transactions are the Standard Conditions of Sale (SCS) used for?
(1) Residential
(2) Simple commercial
What type of property transactions are the Standard Commercial Property Conditions (SCPC) used for?
High-value commercial
What is an INCUMBRANCE? - ‘Any (a), (b) or (c) that (d) Affects a Property’s (e) or (f)?
Any BURDEN, INTEREST or RIGHT that ADVERSELY AFFECTS a Property’s USE or VALUE
What is a ‘SPECIFIED INCUMBRANCES’?
INCUMBRANCES that the Buyer ACCEPTS the property with (i.e. BINDS buyer)
(1) Under the SC the seller must DISCLOSE in the CONTRACT what 2 types of ‘Incumbrances’?
(2) What example of an Incumbrance should NOT be included in the contract?
DISCLOSE in Contract INCUMBRANCES:
(1) Registered at LR (registered), LCR (unregistered) and Companies House
(2) LATENT INCUMBRANCES - (NOT discoverable on Inspection)
(3) Mortgages
(1) Under the SCPC, the seller must DISCLOSE in the CONTRACT what 1 type of INCUMBRANCE?
(2) What example of an Incumbrance should NOT be included in the contract?
(1) LATENT INCUMBRANCES - (NOT discoverable on Inspection)
(2) Mortgages
When drafting the CONTRACT it is best practice under both the SC and SCPC to include ALL ‘Specified Incumbrances’ (even if not required under SC and SCPC) to avoid a claim for Misrepresentation.
(1) In REGISTERED LAND, where will these Incumbrances generally be found?
Charges Register (DO NOT include ‘Mortgages’)
What is the difference between the SCS and SCPC re Incumbrances?
SCPC harsher on buyer than the SCS
Who gives a ‘Title Guarantee’ and to whom?
Seller to Buyer
When a Seller gives a ‘Title Guarantee’ they make 2 COVENANTS. What do each of these Covenants relate to?
Covenant:
(1) RIGHT TO SELL property
(2) EXTENT property FREE FROM INCUMBRANCES
What are the 3 types of Title Guarantee?
(1) Full
(2) Limited
(3) No
Under a ‘FULL TITLE Guarantee’, the Seller makes 2 Covenants what are these?
(1)
(2) Seller covenants that that property is FREE FROM ALL INCUMBRANCES aside from those:
(a)
(b)
(1) Seller Covenants RIGHT to Sell Property
(2) Seller COVENANTS the property is free from all INCUMBRANCES aside from those:
(a) DISCLOSED in CONTRACT and
(b) Seller does NOT KNOW ABOUT / could NOT REASONABLY have known about
What type of seller will normally give a ‘Full Title Guarantee’?
Owner-occupier
Under a ‘LIMITED TITLE Guarantee ‘, the Seller makes 2 Covenants what are these?
(1) Seller Covenants RIGHT to Sell Property
(2) Seller covenants that since the last DISPOSITION BY VALUE (I.E TRANSFER) they have not created / allowed to be created any INCUMBRANCES
What type of seller will normally give a ‘Limited Title Guarantee’?
Personal Representative / Trustee
Under the SCS and SCPC what is the standard Title Guarantee that will be given by the seller?
Full
(1) What is the ‘Contract Rate’?
(2) What is this under the SCS and SCPC?
(1) The rate of INTEREST charged if a party is LATE completing
(2) Law Society’s interest rate - 4% above Barclay’s base rate
Under the SCS and SCPC
(1) What Deposit is paid by the buyer on the exchange of contracts?
(2) How is this held?
(1) 10% purchase price
(2) Stakeholder
A deposit can be held as a ‘Stakeholder’ or an ‘Agent’ by the SELLER’s solicitor.
(1) What does each term mean?
(2) What is preferable for the buyer?
(1)
Stakeholder - seller’s solicitor CANNNOT give deposit to seller until AFTER COMPLETION
Agent - seller solicitor can give the deposit to the seller AFTER EXCHANGE
(2) Stakeholder (why? - may not be able to recover deposit e.g. if seller goes bankrupt)
(1) Under the SCS and SCPC from whom to whom does the RISK OF DAMAGE pass between on the exchange of contracts?
(2) In response to this, what should be done?
(1) From seller to buyer
(2) Buyer to take out INSURANCE from exchange onwards
Is the seller of a property required to insure the property?
No UNLESS agreed in contract
(1) Is VAT generally payable on RESIDENTIAL property?
(2) Under the SC will the purchase price be inclusive of VAT?
(1) No - ‘Exempt’ (‘zero-rated’ for New Build residential)
(2) - Yes - INCLUSIVE of VAT (i.e. no VAT paid on top)
(1) What is a ‘New commercial property’?
(2) What rate of VAT is charged?
(3) Under SC and SCPC, the purchase price be inclusive or exclusive of VAT?
(1) Completed 3y ago or less
(2) Standard-rated - 20%
(3) EXCLUSIVE of VAT
(1) What is a ‘Old commercial property’?
(2) What rate of VAT is charged and what is the exception to this?
(1) Completed more than 3 years ago
(2) Exempt (0%) UNLESS option to tax is exercised (standard-rated 20%)
