Drafting contract

Question 1

Seller’s Duty of Disclosure

Answer 1

Allows seller to discharge duty of disclosure

Seller has very limited duty of disclosure - CAVEAT EMPTOR. Only must disclose:

LATENT INCUMBRANCES
= those which buyer could not have discovered on a reasonable inspection of the property. (e.g. covenants!)
- normally disclosed by reference to the relevant entries in the Charges Register

DEFECTS IN TITLE
= matters that bring into question toe seller’s ownership of the property.
- If not possible to remedy a defect in title (e.g. if a deed contianing restrictive covenants is missing) - Special Condition whereby Buyer states that he accepts the defect and will raise no objection to it (FARUQI clause_

• thus, no duty on seller to disclose physical defects of patent incumbrances.

Question 2

Specified Incumbrances

Answer 2

MUST EXCLUDE THE SELLER’S EXISTING MORTGAGE from the specified incumbrances - otherwise, Buyer will take property subject to it!!!

Residential - SCS 3.1.2 - sale subject to incumbrances:

(a) specified in the contract (latent incumbrances + defects in title)
(b) discoverable by inspection
(c) which the seller does not know and could not reasonably know about
(d) those, other than mortgages, which the buyer knows about
(e) entries made in any public register (except LR, LCS, and CH - have to be expressly disclosed)
(f) public requirements (e.g. public rights of way)

• if seller fails to disclose, buyer would still take property subject to charges etc., but difference is that buyer will have remedy against seller in damages (for non-disclosure).

COMMERCIAL - SCPC 4.1.2

(d) is different:
‘matters, other than mortgages, disclosed or which would have been disclosed by the searches and enquiries which a PRUDENT buyer would have made before entering into the contract.

• thus, onus on buyer to do the searches!

Question 3

VAT

Answer 3

No VAT on residential transactions

In commercial: no VAT if:

• ‘old commercial building’ - means more than 3 years old, and
• seller has not exercised option to tax.

Default position under SCPC is that VAT is payable - so if not VAT is being paid, need to expressly incorporate Part 2 Para A1 of the SCPC.
- TICK SPECIAL CONDITION IN BOX 9!

Question 4

When purchasing from unusual sellers, what do you need?

Answer 4

If purchasing from sole surviving tenant in common, need:

• official copy of death certificate of deceased tenant
• deed of appointment of 2nd trustee

If purchasing from sole surviving joint tenant, need:
- death certificate of deceased JT

If purchasing from personal representatives, need:
- Grant of Representation of the deceased sole owner.

Question 5

Other points:

Answer 5

• Typos, incorrect parties, property incorrectly defined etc.
• Title guarantee
• Contract rate (reasonable)
• Contents Price / Purchase price separate?? - possible SDLT saving but beware of fraud on HMRC

SPECIAL CONDITIONS

• vacant possession (tick box)
• contents or chattels included and/or fixtures being removed? - 2 methods: either remove pre-printed condition and add your own - stating that the amount is additional to the purchase price; OR, add the amount to the purchase price and deposit, and amend the pre-printed special condition accordingly.
• time for completion?
• VAT - assumed payable, if exempt, Part 2 Para A1 must be expressly incorporated - tick Box 9 of Special Conditions
• Occupiers other than sellers - get to sign deed of waiver - agree to vacete (see SC 7 in SCS for example wording)
• Indemnity covenant to be signed: include wording of what will appear in the transfer - SCPC 7.6.5 covers this - but exact wording to be put in the TR1 should be made a special condition
• Exclude C(RTP)A 1999 - covered in SCPC 1.5, but should be repeated as express provision - borrow the wording from SCPC 1.5, but don’t forget!

Then, any other Special Conditions that may be necessary after you’ve carried out the searches - things like:

• restrictive covenant insurance to be purhcased by seller/buyer
• seller to fix fence before completion
• seller to obtain building regularisation certificate by completion, missing planning permission
• make contract conditional on buyer obtaining PP for change in use?
• seller to allow buyer access pre-completion for decoration etc.

Question 6

Wording of indemnity covenant

Answer 6

Put as special condition:

‘The transfer to the Buyer shall contain the following provision:

“The Transferee covenants with the Transferor to observe and perform the covenants contained or reffered to in the entry number 1 of the charges register of title number XXXX and to indemnify the Transferor against any liability for any future breach or non observance of the covenants”.’