Drafting Contract

Question 1

After the exchange of contracts, are both the buyer and seller legally bound to complete the transaction on the agreed terms?

Answer 1

Yes

Question 2

Who typically drafts the contract?

Answer 2

Seller’s solicitor

Question 3

What are the 2 ‘standard conditions’ used for the contracts in property transactions?

Answer 3

(1) Standard Conditions of Sale (SCS)
(2) Standard Commercial Property Conditions (SCPC)

Question 4

What 2 types of property transactions are the Standard Conditions of Sale (SCS) used for?

Answer 4

(1) Residential
(2) Simple commercial

Question 5

What type of property transactions are the Standard Commercial Property Conditions (SCPC) used for?

Answer 5

High-value commercial

Question 6

What is an INCUMBRANCE? - ‘Any (a), (b) or (c) that (d) Affects a Property’s (e) or (f)?

Answer 6

Any BURDEN, INTEREST or RIGHT that ADVERSELY AFFECTS a Property’s USE or VALUE

Question 7

What is a ‘SPECIFIED INCUMBRANCES’?

Answer 7

INCUMBRANCES that the Buyer ACCEPTS the property with (i.e. BINDS buyer)

Question 8

(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?

Answer 8

DISCLOSE in Contract INCUMBRANCES:

(1) Registered at LR (registered), LCR (unregistered) and Companies House

(2) LATENT INCUMBRANCES - (NOT discoverable on Inspection)

(3) Mortgages

Question 9

(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?

Answer 9

(1) LATENT INCUMBRANCES - (NOT discoverable on Inspection)

(2) Mortgages

Question 10

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?

Answer 10

Charges Register (DO NOT include ‘Mortgages’)

Question 11

What is the difference between the SCS and SCPC re Incumbrances?

Answer 11

SCPC harsher on buyer than the SCS

Question 12

Who gives a ‘Title Guarantee’ and to whom?

Answer 12

Seller to Buyer

Question 13

When a Seller gives a ‘Title Guarantee’ they make 2 COVENANTS. What do each of these Covenants relate to?

Answer 13

Covenant:
(1) RIGHT TO SELL property
(2) EXTENT property FREE FROM INCUMBRANCES

Question 14

What are the 3 types of Title Guarantee?

Answer 14

(1) Full
(2) Limited
(3) No

Question 15

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)

Answer 15

(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

Question 16

What type of seller will normally give a ‘Full Title Guarantee’?

Answer 16

Owner-occupier

Question 17

Under a ‘LIMITED TITLE Guarantee ‘, the Seller makes 2 Covenants what are these?

Answer 17

(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

Question 18

What type of seller will normally give a ‘Limited Title Guarantee’?

Answer 18

Personal Representative / Trustee

Question 19

Under the SCS and SCPC what is the standard Title Guarantee that will be given by the seller?

Answer 19

Full

Question 20

(1) What is the ‘Contract Rate’?
(2) What is this under the SCS and SCPC?

Answer 20

(1) The rate of INTEREST charged if a party is LATE completing

(2) Law Society’s interest rate - 4% above Barclay’s base rate

Question 21

Under the SCS and SCPC
(1) What Deposit is paid by the buyer on the exchange of contracts?
(2) How is this held?

Answer 21

(1) 10% purchase price
(2) Stakeholder

Question 22

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?

Answer 22

(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)

Question 23

(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?

Answer 23

(1) From seller to buyer

(2) Buyer to take out INSURANCE from exchange onwards

Question 24

Is the seller of a property required to insure the property?

Answer 24

No UNLESS agreed in contract

Question 25

(1) Is VAT generally payable on RESIDENTIAL property? (2) Under the SC will the purchase price be inclusive of VAT?

Answer 25

(1) No - 'Exempt' (‘zero-rated’ for New Build residential) (2) - Yes - INCLUSIVE of VAT (i.e. no VAT paid on top)

Question 26

(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?

Answer 26

(1) Completed 3y ago or less (2) Standard-rated - 20% (3) EXCLUSIVE of VAT

Question 27

(1) What is a 'Old commercial property'? (2) What rate of VAT is charged and what is the exception to this?

Answer 27

(1) Completed more than 3 years ago (2) Exempt (0%) UNLESS option to tax is exercised (standard-rated 20%)