Drafting the contract and exchange of contracts

Question 1

In order to be a binding contract of sale of land, what must be satisfied and how?

Answer 1

s.2 Law of Property (Miscellaneous Provisions) Act 1989 must be satisfied:

• be in writing
• incorporate all the terms which have been expressly agreed by the parties
• be signed by, or on behalf of, each party to the contract

Question 2

What two types of conditions are there in the Standard Commercial Property Conditions and what is the difference?

Answer 2

• ‘Standard conditions’ - standard clauses - the default position
• ‘Special conditions’ - amend or exclude standard conditions e.g. SCPC 3.2.1 dealing with deposit amount etc can be excluded and varied to lower deposit amount etc
• deal with specific matters agreed between parties - require drafting from scratch

Question 3

What does SCPC 1.5 deal with and what other document does the substance of this provision need incorporating into?

Answer 3

Excludes the Contracts (Rights of Third Parties) Act 1999.

You must draft a similar provision into the transfer deed!:

11.2 A person who is not a party to this transfer will
not have any rights under or in connection with it by
virtue of the Contracts (Rights of Third Parties) Act
1999.

Question 4

What should be drafted into part 11 of the TR1 as a matter of course?

Answer 4

A person who is not a party to this transfer will
not have any rights under or in connection with it by
virtue of the Contracts (Rights of Third Parties) Act
1999.

Question 5

What else may need to be drafted into part 11 of the TR1?

Answer 5

Indemnity covenant clause:

The Transferee covenants with the Transferor to
observe and perform the covenants contained or referred
to in entry number 1 in the Charges Register of title
number BM302735 and to indemnify the Transferor against
any liability for any future breach or non observance of
the covenants.

Question 6

What special conditions needed to be drafted for Elton Hall?

Answer 6

Essentially those things the buyer requires remedying e.g. breach of positive covenants, or being assured of in order to complete:

• the seller will obtain listed building consent in order to remove crest
• listed building and planning consent - seller will repair fence
• obtain restrictive cov insurance
• obtain regularisation cert
• handover declaration of waiver
• stipulation to include ref to indemnity cov in TR1

Question 7

When is the date filled in on a contract for sale?

Answer 7

It remains blank until exchange, at which point it becomes legally binding.

Question 8

What mus the seller ‘be’ and how is this set out in the contract?

Answer 8

The seller must have legal personality and be able to hold legal title. (i.e. not be mentally incapacitated

In event of non-ltd liability all partners would need to sign….

Remember registered prop may not be the seller!

Full names and addresses should be in contract.

Question 9

Buyer must also be legal personality and able to hold title…but what must you ensure when drafting contract?

Answer 9

SCPC 1.4 states that the buyer cannot transfer the benefit of the contract so you must ensure ALL buyers names are in the draft contract as seller could refuse to add post exchange.

Question 10

What must the contract say regarding the property itself?

What does s.62 of the LPA 1925 say?

What does the SCPC provide in event not properly described?

Answer 10

Must have a clear description of the land - otherwise could be void for uncertainty.

s.62 states that the land, everything attached to and benefiting it will pass automatically on sale w/o having to be set out in the contract and transfer deed.

SCPC 10.1 provides that buyer may have a remedy for misrepresentation and breach.

Question 11

What describes the property in unreg and reg land?

Answer 11

Registered: should reflect wording in Property Register

Unreg: will refer to earlier conveyance in epitome of title

Question 12

Title number vs root of title - discuss.

Answer 12

Title number is required to be entered in registered land - make sure to delete ‘root of title’.

In unreg - delete ‘title number’ and put details of conveyance that constitute root of title. e.g. ‘A conveyance of the Property dated 24 April 1963 and made between ‘name’ (1) and ‘name/s’ (2)

Question 13

How is the seller’s common law duty of disclosure demonstrated/ fulfilled in a contract?

Answer 13

SCPC 4.1.2 encompasses the incumbrances that a buyer would need to ensure they have properly investigated, but the ‘specified incumbrances’ clause on the front page enables those that they do have a duty to disclose are seen to have been.

i.e. ‘Latent incumbrances’ such as pos and neg covenants and ‘defects in title’ such as lost title deeds (insurance would be obtained for this).

The clause should be something like:

‘The Property is sold subject to the matters contained or referred to in entry 1 of the Charges Register of title number ‘…..’’

Question 14

What must the buyer ensure is NOT included in the specified incumbrances?

What SCPC ensures the buyer buys free of the seller’s mortgage?

Answer 14

Any inclusion of a mortgage should be removed e.g. if specified incumbrances drafted to refer to a charge in the register that describes a mortgage this has to be remedied so as to not mention it!

4.1.2(d) matters, other than mortgages, disclosed or which would have been….

Question 15

Should you forget to add in the completion date will the contract be void?

Answer 15

No because 9.1.1 states that completion will occur 20 days after exchange.

Question 16

What is the contract rate?

Which SCPC also provides for this?

Answer 16

The contract rate is the percentage of the sale price at which compensation payable is calculated for late completion.

Usually 3/4 or 5% above the base rate of a clearing bank.

SCPC 1.1.1(e) provides that Law Society rate will apply where none stated.

Question 17

What is likely to be the case with commercial sellers and VAT?

Answer 17

During pre-contract enquiries the seller should usually confirm VAT position.

Commercial sellers will opt to tax to recover VAT bills incurred over course of running business there.

Thus the front page will state the purchase price and the words ‘exclusive of VAT’ - meaning that VAT must be calculated on top of the purchase price.

Question 18

What should you ensure is deleted on the front page and filled in in the contract if the seller opts not to tax?

i.e. an old commercial building or residential….

Answer 18

The words ‘exclusive of VAT’ on the front page need to be deleted and Condition A1 needs to be incorporated into the contract by ticking the box on the final page.

Question 19

What constitutes an ‘old’ commercial building.

Answer 19

At least 3 years old - not taxable!

Question 20

What monetary aspect of the contract does SCPC 3.2.1 deal with?

Who holds this sum?

Answer 20

States that the buyer pays 10% deposit of purchase price on exchange of contracts.

Under 3.2.2 the seller’s solicitor holds the deposit as stakeholder for both parties, only to be released on completion.

Question 21

What is the position under SCPC 7.6.2 regarding title guarantee??

Answer 21

That the owner/occupier gives full title guarantee which means:

• the seller has the right to sell
• the property is free from charges, incumbrances and all rights exercisable by 3rd parties other than those which are disclosed as specified incumbrances and those which the seller did not and could not reasonably have known about. (LP(MP)A 1994 s.6(1) and s.3(1))

Question 22

If sold with ltd title guarantee what does this mean?

What box need to be checked in special conditions?

Answer 22

The guarantee only extends to the seller guaranteeing that SINCE THE LAST SALE they nor anyone else has created any incumbrances over the land.

Box 3 needs to be checked.

Question 23

In the event that the property is sold via a surviving trustee appointing a second trustee in order to overreach the beneficial interest of the late tenant, what needs to be done?

Answer 23

Seller would need to be drafted like the following:

[name and address of surviving tenant in common] (‘seller 1’) and [name and address of second trustee] (‘seller 2’)

A special condition would need to be drafted per the following:

“In SCPC 7.6.2 the words ‘seller 1 transfers the property with full title guarantee and seller 2 transfers the property with ltd title guarantee’ shall replace the words ‘the seller is to transfer the property with full title guarantee’”

Question 24

In what scenario would no title guarantee be given?

Answer 24

Where land is being gifted or where lender is exercising power of sale due to breach of terms of mortgage by mortgager.

Question 25

What does box 4 deal with?

Answer 25

Vacant possession.

If sold with leases second box of 4 will be checked and list of leases provided.

Question 26

Discuss what needs to be borne in mind with contents and fixtures?

Answer 26

Contents can be sold with the property and reduce the amount of SDLT through apportioning out of the purchase price. Special condition 5 and list needed.

Since fixtures naturally form part of the property per s.62 LPA if the seller wishes to remove then the buyer should ask for a clause to make good on any damage caused in the removal.

Question 27

What time of day is completion per SCPC 9.1.2? Can it be altered in the special conditions?

Answer 27

9.1.2 specifies 2pm.

Box 7 is checked if time needs to be different.

Question 28

Which boxes can you ignore for the purposes of the LPC?

Answer 28

A2, B and C can be crossed out.

Question 29

What is best practice if requiring a non-owning occupier to vacate in commercial practice?

Answer 29

Obtain a separate document of waiver from the non-owning occupier and cross-refer to it in a special condition e.g.:

The seller will hand to the buyer on the completion date the original of the declaration of waiver, in the form attached to this contract, signed by …and dated at the date of this contract.

Due to commercial ‘sensitivity’ the parties would not want the non-owner to be privy to the contract.

Question 30

How should you go about making a ‘free draft’ of a clause? Use only Who, What and When in this example.

Answer 30

Loosely draft the three ws:

The seller [who] shall fix the fence [what] before completion [when].

Then ensure defined terms are included:

The Seller shall fix the fence before the Completion Date.

Then reflect and redraft for certainty, do what exactly? (bearing in mind use words whose meaning is widely agreed - no need to over explain things i.e. ‘repair’ would be interpreted objectively) and which fence?:

On or before Completion Date the Seller shall repair the fence on the northern boundary of the Property as required by the covenant in entry [x] of the Charges Register of Title Number [ABC]

Question 31

List what needs to be ensured by buyer sol before agreeing to exchange contracts.

Answer 31

Buyer’s solicitor:

Raise questions and check satisfactorily dealt with such as:

If LLC1 reveals planning permission was given for works ask for copy of original doc and confirm any attached conditions were complied with.

Confirm that breached pos covs will be acted upon prior to completion and clause to that effect will be in contract.

Clarify if any 3rd party rights have arisen via prescription - church car park in Elton Hall.

Building regs - LLC1/ Con29 - confirm original Confirmation Certificate will be handed over and provide copy of Completion Cert.

Financial arrangements:

Deposit - cleared funds in buyer’s sol client account?
Price? same if not speak with lender!
Is Mortgage finance in place? ‘Report on title’ called ‘Certificate of Title’ provided to lender - in draft format. Final form sent to lender on day of completion which triggers mortgage advance to be released.

Draft financial statement for completion funds from buyer.

Title Report to client! Explain contract and enclose report on title. Ensure contract reflect’s clients instructions.

Obtain instructions on agreed completion date and obtain authority to exchange.