The Contract

Question 1

Can a solicitor act for a borrower and lender ?

Answer 1

Yes this is more common then acting for other parties. But risk of conflict of interest is higher if it is not a standard mortgage or don’t use approved certificate of title.

Question 2

What is the rule for contract races ?

Answer 2

Solicitor is allowed to act as long as the parties are made aware that they are engaged in a race.

Question 3

What is VAT ?

Answer 3

Value added tax - on taxable supplies

Question 4

What is considered taxable supplies in VAT ?

Answer 4

Foods and services provided by a taxable person in course of business.

Question 5

What makes someone a taxable person under VAT ?

Answer 5

Person who’s turnover in past 12 months has exceeded registration limit (£85k)

Question 6

What is the standard rate of VAT ?

Answer 6

20%

Question 7

What is a taxable supply in a property transaction ?

Answer 7

Residential properties are zero-rated but sale of new (3 years old) commercial buildings are standard rated.

Question 8

What is the purpose of a contract ?

Answer 8

Cannot transfer land as deed is required to do that. Merely an agreement to transfer at later stage.

Question 9

What are SCs and SCPCs ?

Answer 9

Standard conditions of sale (SC) for residential transactions and Standard commercial property conditions (SCPC) for high value commercial transactions.

Question 10

What happens if seller doesn’t specify burdens on the property in the contract ?

Answer 10

They may be in breach of the contract.

Question 11

What do SC and SCPC both list the following as encumbrances subject to which the property is sold ?

Answer 11

• Those specified in the contract
• Those discoverable by inspection before date of contract
• Public requirements
• Seller solicitor must list as specified encumbrances in contract everything not covered by SC and SCPC

Question 12

What are specified encumbrances ?

Answer 12

Burdens on the property not included in SC or SCPC that must be included in contract.

Question 13

When is the deposit payed and what are the rules around it ?

Answer 13

Payed upon exchange of contract and buyer fails to complete the seller can keep the deposit.

Question 14

What’s the difference between taking deposit as a stakeholder and an agent ?

Answer 14

As a stakeholder solicitor won’t release funds to seller until after completion. As an agent they can use them once received at exchange of contract.

Question 15

Who has the risk of damage to the property at what stages ?

Answer 15

At exchange of contract the risk of damage switches to the buyer. (Must complete the purchase even if the property is damaged or destroyed

Question 16

What VAT is payable part 1 of SCPC is incorporated on purchase of new commercial building without amendments ?

Answer 16

VAT will be payable on top of purchase of property at standard rate.

Question 17

If conditions 1A part 2 are incorporated into a contract what is true of the contract regarding VAT ?

Answer 17

Unless a change in the law has come into effect between the date of the contract and completion whereby the sale of office building (example) will constitute a supply chargeable to VAT, no VAT will be payable on the purchase price by buyer.

Question 18

As a solicitor acting on a sale and purchase of a commercial property, you should recommend that the purchase price is expressed to be inclusive of VAT when ….

Answer 18

Your client is a buyer and an insurance company, bank or building society which makes only exempt supplies in the course of business.

Question 19

If you have exchanged contracts which incorporates condition A1 part 2 of SCPCs and there is a change in legislation between exchange and completion affecting VAT is now payable ?

Answer 19

The contract provides that your client will be liable to pay VAT in addition to the purchase price.

Question 20

What is SCPC 1A part 2 ?

Answer 20

Sale of commercial building - purchase price is exclusive of VAT but VAT will be chargeable on top in event law change to make exempt supply chargeable at standard rates

Question 21

When is a there a binding contract for seller to purchase property ?

Answer 21

Must be in writing and signed by both parties

Question 22

Under SCPC how is deposit handled ?

Answer 22

10% and held as stakeholder so cannot be handed over until completion

Question 23

What is the contract rate ?

Answer 23

Interest charges if party is late in completing - most opt for law society interest rate