Property Chapter 3

Question 1

What does the contract do

Answer 1

Define the Land being sold

Sets out agreed terms and conditions ‘found in heads of terms for commerical properties’

Question 2

When the contract is sent to the buyers solicitor what do they check in the contract

Answer 2

• accords with the Heads of Terms; 
  accords with the buyer’s instructions; 
• incluudes clauses which deal with any issues that have arisen from the buyer’s solicitor’s investigation of title (dealt with in Chapter 1 and SGS 1); 
• includes clauses which deal with any issues that have arisen from the results of the buyer’s solicitor’s pre-contract searches (dealt with in Chapter 2 and SGSs 1 and 2); and 
• includes clauses which deal with any issues that have arisen from the seller’s solicitor’s replies to the pre-contract enquiries (dealt with in Chapter 2 and SGSs 1 and 2).

Question 3

Stages of the contract

Answer 3

1) first draft completed by sellers solicitor
2) sent to buyer for approval
3) Checked it according with 5 factors
4) If it doesn’t match, buyer will amend and return to sellers solicitor (keeping copies)
5) once agreed - two copies printed
6) respective clients sign
7) exchange - when date of completion is fixed (legally binding contract established)

Question 4

A binding contract for sale must satisfy what requirements?

According to s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 (‘LP(MP)A 1989’

Answer 4

1) be in writing; 
2)incorporate all the terms which the parties have expressly agreed (either in one document or, if contracts are exchanged, in each document); and 
3)be signed by, or on behalf of, each party to the contract.
WIP (writing/ incorporate/ parties)

Question 5

What are the set of conditions appropriate to commerical transactiosn known as

Answer 5

Standard Commerical Property Conditions (SCPC)

These set the default position

Question 6

What two purposes do special conditions have

Answer 6

1) to amend or exclude any standard conditions

2) to deal with specific matters agreed between the parties

Question 7

Parts of the contract

Answer 7

1) Date
2) Seller
3) Buyer
4) Property (freehold/ leasehold)
5) Specified incumberances
6) Completion date
7) Contract rate
8) Balance
9)

Question 8

Contract- Seller - considerations

Answer 8

1) check who the registered proprietor is
2) the seller must a legal personality
3) Full names and addresses necessary

Question 9

Contract - buyer - considerations

Answer 9

1) must be a legal personality and be able to hold legal title
2) Full names and addresses necessary
3) All buyers names (in accordance with SCPC 1.4 regarding can’t transfer benefit of contract)

Question 10

Contract - property (freehold/ leasehold) - considerations

Answer 10

1) clear description of land
2) if the property is not correctly described, the buyer may have a remedy for misrepresentation
3) on sale of whole the address of the property should reflect the wording in the Property Register
4) for unregistered property the address of the property in the contract will refer to the conveyance

Question 11

Contract - Title Number/ Root of Title - considerations

Answer 11

Registered title

If the property is registered it is necessary to insert the title number for the property. You must delete the words “Root of Title” on the left hand side of the contract.

Unregistered title

You will consider unregistered conveyancing in Chapter 5 and SGS 6. If the title to the property is unregistered, the details of the conveyance which constitutes the ‘root of title’ (see Chapter 5 and SGS 6) will be inserted.

Question 12

Specified incumbrances and sellers common law duty of disclosure

Answer 12

matters that will continue to burden the property once it is sold or may restrict the owner/ occupier from using the land in a certain way or may restrict the abilty to sell freely.

Seller has only a limited duty of disclosure
- the seller is required only to disclose only latent incumbrances (those that are not apparent on inspection) or any defects in title (matters that bring into question sellers ownership of the property/ rights/ burdens - missing title deeds)

Dosnt have to disclose - patent incumbrances/ physical defects

They are set out in the specified incumbrances part of the contract
Drafting: in practice you disclose the latent incumbrances by referring to relvant charges register of the official copy

Question 13

Matters which the buyer is deemed to buy the property subject to under the SCPC

Answer 13

SCPC 4.1.2 contains a list of the incumbrances the property is being sold subject to.

“4.1.2 The incumbrances subject to which the property is sold are:

(a) those specified in the contract (b) those discoverable by inspection before the date of the contract (c) those the seller does not and could not reasonably know about (d) 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 (e) public requirements.”

Question 14

Contract - Completion date - consideration

Answer 14

Filled in on the front page at exchange of contracts.

SCPC 9.1.1 wouldn’t be void if they didn’t enter, stating a completion date of 20 working days form the date of exchange

Question 15

Contract - Contract rate - consideration

Answer 15

Annual rate of interest which compensates for late completion as a right.
usually interest rate inserted into the contract (if added it will be a specific figure and a specific banks base rate.
If left bank Law Societys interest rate will apply.

Question 16

Why might a sale of the property be standard rated for VAT purposes?

Answer 16

It is the sale of the freehold of a ‘new’ commercial building (one that is less than three years old), or the seller has opted to tax.

If the sale is standard rates, SCPC 2 applies by default and the buyer will have to play purchase price plus VAT.

Question 17

What if the sale is not standard rated:

Answer 17

1) the words ‘exclusive of VAT’ on the front page should be deleted; and 
2) Condition A1 will need to be incorporated into the contract by “checking” the box on the final page of the contract. In doing so, standard commercial property condition 2 is stated not to apply and the seller agrees: o the supply is not a taxable one; o not to exercise the option to tax; and o the buyer will only be liable to pay any amount in respect of VAT if there is a change in the law

Question 18

Contract - Deposit - considerations

How much/ how is it held

Answer 18

The seller has to pay the deposit upon exchange.
SCPC 3.1 the buyer pays a deposit of 10% this can be varied by special condition.

SCPC 3.2.2 the deposit is paid to the seller’s solicitor to be held as a stakeholder (becomes a custodian of the deposit for both parties)

Alternatively, and unusually, the deposit may be held by the seller’s solicitor as agent for the seller, which means that the deposit is available to the seller from the moment of exchange. As the buyer may have difficulties in recovering the deposit if the seller defaults (particularly if the seller has become insolvent), the buyer will prefer the deposit to be held as stakeholder.

Question 19

Contract - Balance - considerations

Answer 19

Amount of the purchase price minus the deposit - remember to check special conditions for variation in deposit

Question 20

Incorporating the standard conditions

Answer 20

The standard-form contract incorporates the SCPC (Third Edition) and confirms that if you use any of the terms from the SCPC in the special conditions, they will have the same meaning.

Question 21

SCPC - Representations

Answer 21

Special condition 2 = only written representations can be relied on

Question 22

SCPC - Title guarantee

Answer 22

The seller will give only a very limited guarantee to the buyer. This guarantee, known as ‘title guarantee’, is simply a guarantee of the seller’s quality of ownership (title) to the property, and implies certain covenants or obligations on the part of the seller, which are set out below.

Title guarantee is governed by the Law of Property (Miscellaneous Provisions) Act 1994 (‘LP(MP)A 1994’), and the seller is able to offer full title guarantee, limited title guarantee, or no title guarantee. The default position under SCPC 7.6.2 is that the seller will give full title guarantee.

In the event of a breach of any of the terms of the title guarantee, the buyer is able to sue the seller for the breach

Question 23

Explain the different types of title:

Answer 23

Full: Full title guarantee is a guarantee on the part of the seller that:  the seller has the right to sell the property, and  the property is free from all charges and incumbrances and other rights exercisable by third parties other than those which: - are disclosed in the contract as ‘Specified Incumbrances’ (s.6(1) LP(MP)A 1994); and - it did not, and could not reasonably, have known about. (s.3(1) LP(MP)A 1994).

Limited: Limited title guarantee is similar in nature and extent to full title guarantee; there is, however, no guarantee by the seller that the property is free from all third party rights, charges and incumbrances. Instead, this is replaced by a guarantee that the seller has not since the last sale created any incumbrances over the land (such as covenants/easements burdening the land) and is not aware that anyone else has done so since the last sale

No title guarantee: This is where the seller is giving no title guarantee whatsoever, which means that, if there is a difficulty with the title following completion of the sale, the buyer will have no remedy in this regard against the seller. Where land is being gifted to someone or where a lender is exercising its power of sale because the buyer has breached the terms of its mortgage, usually no title guarantee will be give

Question 24

Contents

Answer 24

The seller is entitled to take all its contents with it on completion as they do not form part of the property.

Stamp duty land tax (‘SDLT’) is payable by the buyer on the purchase of a property. However, SDLT is not payable on the purchase of contents. If the seller chooses to sell some (or all) of the contents to the buyer, the cost of those contents can be apportioned out of the purchase price and SDLT liability reduced.

HMRC has confirmed that the apportionment has to be “just and reasonable” and has issued guidance as to what it will not normally regard as “contents”

Question 25

Fixtures

Answer 25

.62 LPA 1925 confirms that the sale of a property includes the sale of “all buildings, erections, fixtures …”.

If the seller is going to remove fixtures, this has to be dealt with by way of special condition. The second box at special condition 5 should be “checked” and a list of fixtures attached.

The removal of fixtures may cause damage to the property so the buyer should ensure a special condition is drafted in which the seller agrees to “make good” any damage caused before completion.

Question 26

Payment by the buyer from an account other than its solicitor’s bank account

Answer 26

If payment is being made from an account other than the one belonging to the buyer’s conveyancer, the account details should be specified in the contract.

This will give the seller’s solicitor time to complete any money laundering checks it needs to carry out before completion

Question 27

Non-owning occupiers

Answer 27

It is common for a buyer to raise a pre-contract enquiry asking the seller to confirm whether or not there are any occupiers (apart from the seller) at the property.

If there are any such occupiers, in commercial practice it is common to use a separate document signed by the occupier(s), confirming they agree to: (1) waive any possible interest in the property; and (2) vacate on completion

Question 28

Pre-exchange: buyers solicitor

Answer 28

Issues: Check all documents received and results of searches. Raise questions or observations on any issues and check these have been satisfactorily dealt with

Financial arrnagements

a) deposit - is this agreed?
b) price - check if there has been a reduction?
c) mortgage finance - signed/ dated/ final form certificate of title
d) completion money from the buyer - draft financial statement

Report to client

Question 29

Pre-exchange: sellers solcitor

Answer 29

a) existing loan - obtain redemption figure
b) reply to enquires and agree any amendments to the contract -
c) preparation for exchange - preparing engrossments of the contract and obtain the signatures of his or her respective clients
and obtain instructions on the agreed completion date and obtain the clients authority to exchange

Question 30

Who can sign a contract?

Answer 30

It may be necessary for your client to appoint a third party under a power of attorney to sign documents in their absence. It is possible for a property owner to appoint their co-owner as attorney.

A client can authorise the solicitor to sign on their behalf without using a power of attorney.

If acting for a company, any officer of the company can sign the contract provided the company has authorised the transaction.

If acting for a partnership, one member of the partnership can sign the contract
on behalf of all, provided that the relevant transaction has been authorised by
the whole partnership. However, all of the partners who will hold the legal title
(up to a maximum of four) will need to execute the purchase deed

Question 31

Three methods of exchange

Answer 31

1) in person
2) by post
3) by telephone

Question 32

What is an undertaking

Answer 32

In practice, the undertakings given at exchange are not usually expressly stated;
instead, they are implied by the individual fee earners who carry out the exchange agreeing that they have exchanged pursuant to the relevant Law
Society Formula (subject to any variations they may agree).
It is important to understand the implications of the undertakings which are given (even if not expressly spoken or written) when using these formulae. Failure to comply even with an implied undertaking can result in disciplinary action and/or enforcement of the undertaking by the SRA or the court, and payment of
compensation

Question 33

Explain the risk/ insurance elements post exchange:

Answer 33

Under SCPC 8.1, the property is at the risk of the buyer from the date of the
contract.
a) Seller’s duty of care
Under the common law, the seller owes a duty of care to the buyer to exercise reasonable care to keep the property in the same state as at exchange of contracts, even if the seller is not retaining the risk. If the
seller deliberately damages the property, or negligently permits damage,the buyer may be able to claim damages for breach of this duty.
b) SCPC 8.1
The seller is under no obligation to insure the property unless either the contract specifically provides for this (see SCPC 8.2.1), or where the seller is required to insure the property for another reason (e.g. the seller may be selling only part of its property and will maintain the insurance policy hich covers the whole site). In such cases or SCPC 8.2.2 and 8.2.3 will
apply. These provisions simply set out sensible guidelines to be followed where a seller is insuring.
Where you are acting for the buyer, it is important to remember to advise your client to get insurance cover in place from exchange if there is no obligation on the seller to insure from this point. This should be discussed at your pre-exchange meeting with the buyer and you should remind them of this as soon as contracts have been exchanged.

Question 34

Occupation by the buyer before completion

Answer 34

Occasionally, the buyer will request permission from the seller to occupy the property prior to completion, either to carry out works or to start using the
property for its intended purpose.
The potential problem with this situation is that, once in occupation, the buyer may lose its incentive to complete the purchase. The open contract position, if
completion does not take place, is that the seller may have to resort to obtaining
a possession order from the court to regain possession of the property.
To avoid such a situation, the buyer’s occupation should be as licensee. There is no standard condition under the SCPC making provision for this so
arrangements such as hours of access and the return of the keys to the seller will have to be negotiated and included as a special condition in SCPC contracts.