The contract

Question 1

What is the purpose of a contract prior to completion?

Answer 1

A contract can fix the terms of the transaction and prevents the other party from backing out/changing the price without being at breach of contract.

Question 2

What are the Standard Conditions of Sale?

Answer 2

Standard conditions which are designed to work with all residential and some simple commercial transactions.

Question 3

What are the Standard Commercial Property Conditions?

Answer 3

Standard conditions used in high value commercial property transactions. They contain more detailed provisions for the management of occupational leases with which the property is being sold.

Question 4

What are key conditions within the Standard Conditions of Sale and Standard Commercial Property Conditions?

Answer 4

All specified incumbrances must be noted
Title guarantee should be included
Contract interest rate if completion is late
Deposit ramifications for the buyer

Question 5

What are special conditions in a contract?

Answer 5

Conditions which relate to the individual characteristics of the property and the circumstances of the transaction.

Question 6

What is a covenant for title?

Answer 6

Implied promises, which statute implies into a transfer where the seller agrees to give ‘full title guarantee’ or ‘limited title guarantee’.

Question 7

What types of special conditions could be added to the contract?

Answer 7

Appointment of a second trustee for transfer, disclosing a defect in title, seller selling with limited or no title guarantee, payment of VAT.

Question 8

What are the standard kinds of special conditions you would see in a contract?

Answer 8

Special condition 3 - whether the sale includes any fixtures

Special condition 4 - if the property it to be sold with vacant possession

Special condition 5 - where time for completion has been altered by agreement

Special condition 6 - parties should not rely on representations that have not been made in writing.

Special condition 7 - where there is a non-owning adult occupier of the property

Question 9

What is an indemnity covenant?

What do the SC and SCPC state in relation to these?

Answer 9

Where a title is burdened with covenants and the seller is either the original covenantor or has given an indemnity covenant to their seller when they acquired the property.

The SC and SCPC state where there is an ongoing liability, the buyer must give the seller a personal indemnity covenant.

Question 10

When should insurance provisions be put in place during a transaction?

Answer 10

They should be put in place at the moment of exchange, because the risk of damage to the property passes to the buyer upon exchange of contracts in both residential and commercial transactions.

Question 11

What happens if there is an overlap of insurance policies between exchange and completion?

Answer 11

The SC and SCPC provide that should this happen, the buyer is unable to recover the full amount of the proceeds and the purchase price will be reduced accordingly.

Question 12

What are the three options for VAT on the sale or purchase of a commercial property?

What special conditions should be included to incorporate these?

Answer 12

The purchase price is exclusive of VAT and VAT will be added on top - Special Condition 2 should be added to the contract.

The purchase price is inclusive of VAT so no VAT can be added on top - Special Condition 1.4 should be added to the contract

The purchase price is exclusive of VAT, so VAT can be added on top in the unlikely event that the law changes to make an exempt supply chargeable - Conditions within Part 2 A1 should be added to the contract

Question 13

What does the buyer’s solicitor report to the lender?

Answer 13

The buyer’s solicitor will report to the lender on the results of the title investigation and pre-contract searches. The buyer’s solicitor will prepare a certificate of title to disclose any problems with the property.

Once they are satisfied they can request a drawdown of mortgage funds.

Question 14

What does the certificate of title to the lender certify?

Answer 14

That the property has ‘good and marketable’ title.

There are no legal problems with the property

Who will own the property once the sale has completed

The completion date when funds are needed.

Commercial transactions will require more complex detail.

Question 15

When is the certificate of title provided to the lender?

Answer 15

Immediately prior to the completion of the loan.

Question 16

What does the buyer’s solicitor report on to their client prior to exchange of contracts?

Answer 16

The buyer’s solicitor will send the buyer a pre-contract report summing up the results of the pre-contract searches and the investigation of title.

It will also explain the terms of the contract and the mortgage offer

Question 17

What are the steps in preparation for exchange of contracts?

Answer 17

1. Report to the client
2. Report to the lender
3. Ensure deposit funds are available
4. Check mortgage offer is in place and the client has sufficient funds to complete
5. Ensure arrangements are in place for insurance following exchange
6. Ensure the contract is signed
7. Set a completion date

Question 18

How can contracts be exchanged?

Answer 18

In person

By post

Over the phone

Question 19

How are the Law Society Formula set out on a contract?

Answer 19

The Law Society Formula must be noted on the contract with the time and date, depsoit amount and the identities of the solicitors.

LSF A = where one solicitor holds both parts of the contract duly signed
LSF B = where each solicitor holds their own client’s signed part of the contract
LSF C = usually in residential chain transactions to synchronise exchange

Amended LSF A = if you see anything digital

Question 20

What is a contract rate?

Answer 20

The amount of interest that is charged on the deposit should a buyer withdraw from the contract.

This is 4% above the base rate of Barclays Bank Plc