Unit 3: The Contract

Question 1

Who drafts the contract? What happens next?

Answer 1

Contract drafted by seller’s solicitor + sent to buyer’s, then seller’s solicitor to decide whether to use a pre-printed form supplied by law stationers or contract in firm’s preferred style. Both styles need standard conditions, open contract rules derived from statute + common law not always satisfactory.

Question 2

Standard Conditions vs Standard Commercial Property Conditions

Answer 2

SC used for ALL residential transactions + some simple commercial transactions, ie empty properties with straightforward title + relatively low price.

SCPC more suitable for high value commercial properties, more detailed provision for management of occupational leases with which property is being sold. Pre-printed, both divided into 3 parts:

1. Particulars of sale: front page headings relating to description of property + sale terms. Unique to property + particular transaction.
2. Standard conditions: in middle, terms that govern transaction unless specifically agreed otherwise. SCPC has 2 parts, longer Part 1 applies unless excluded and shorter Part 2 applies only if specifically included.
3. Special conditions: in back page, specifically drafted to meet particular requirements. Some pre-printed suggestions at top and blank space for any requirements of parties’ own.

Question 3

Key conditions in SC/SCPC

Answer 3

Front page of pre-printed contract – info about parties, property + financial terms.

Seller’s solicitor will have obtained info about buyer, price, deposit + fixtures/fittings when they took instructions. They should also have info about seller, cross-check with proprietorship register in official copies for registered property or title deed for unregistered. Title docs will have details, address, freehold, benefit of rights ie right of way etc. some include these in description of ‘Property’.

For a registered property, the contract will need to state the title number and the class of title, which is found in the proprietorship register of the official copies. The class of title can either be incorporated into the address by the ‘Property’ heading or typed in brackets after the ‘Title Number’.

An unregistered property is defined in the contract by reference to the root of title. For example: ‘56 Blackhorse Drive, Dorking, Surrey RH4 5JS more particularly delineated and edged red on a plan annexed to a Conveyance dated 25 May 1955 between (1) Mark Phillip and (2) Simon Andrew (“The Conveyance”)’
The root of title will need to be inserted and can be used to define the Specified
incumbrances. For example: Title number/ root of title: The Conveyance
Specified incumbrances: The covenant contained and referred to in the Conveyance

Question 4

Specific incumbrances?

Answer 4

SC 3.1.2 and SCPC 4.1.2 list the following as incumbrances subject to which the property is sold:
* those specified in the contract
* those discoverable by inspection before the date of the contract
* those the seller does not and could not reasonably know about
* public requirements

SC 3.1.2 also includes in its list:
* those, other than mortgages, which the buyer knows about
* entries made BEFORE the date of the contract in any public register, except for those maintained by the Land Registry, the Land Charges Department and Companies House.

SCPC 4.1.2:

• 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.

Question 5

What should the seller’s solicitor do with incumbrances?

Answer 5

Seller’s solicitor must list as Specified incumbrances everything not covered by SC 3.1.2 or SCPC 4.1.2.

2 sets of standard conditions are expressed differently  sellers’ solicitors tend to list all incumbrances revealed by their title investigation (whether or not they think they are covered by SC 3.1.2 or SCPC 4.1.2) so to bring them clearly within category of ‘those specified in the contract’. Non-disclosure of an incumbrance burdening the property might result in the buyer having a right to rescind the contract and/or claim damages.

Incumbrances will be revealed in title documents but must be specified in the contract even though the seller will probably already have deduced title to the buyer at an earlier stage.

For a registered property, incumbrances usually appear in the Charges register of the official copies, but the property register should also be checked as burdens are often hidden away there, perhaps where a right benefiting the property has been given subject to an obligation to pay for it.

Some solicitors do not refer to positive covenants as Specified incumbrances because the burden of a positive covenant does not run to a successor in title as a matter of land law. However, many solicitors will include them, particularly if positive covenants are mixed in with restrictive covenants in an entry in the Charges register.

The buyer’s solicitor must make sure that the seller’s mortgage is not included in the list of
incumbrances to which the sale is subject. This is because the mortgage should be discharged shortly after completion

Question 6

Advising whether to sell with full vs limited title guarantee?

Answer 6

Should sell with full title if they own entire legal and equitable title to property. Limited title guarantee for where seller has limited knowledge of property ie where seller is executor or trustee. Occasionally seller will insist that no title guarantee is given at all, eg where seller is a person appointed following owner’s insolvency.

Question 7

Full vs Limited Title Guarantee - incumbrances?

Answer 7

Full title guarantee implies more comprehensive implied covenants for title than would be the case with limited title guarantee. With both full + limited, seller is impliedly covenanting that:

1. They have right to dispose of the land
2. They will do all they reasonably can to transfer the title.
3. In leasehold land, lease is subsisting at time of disposal + there is no breach of covenant making lease liable to forfeiture.

Full title guarantee ALSO impliedly covenants that land is disposed free from incumbrances other than those that seller does not know about and could not reasonably know about.

S 6 of Law of Property (Miscellaneous Provisions) Act 1994 limits this covenant to exclude matters to which the disposition is expressly made subject, matters about which the buyer knows at the time of the disposition and matters which at the time of the disposal were entered on the registers of title  still a wider covenant than limited title guarantee; seller has not incumbered the property and is not aware that anyone else has done so since the last disposition for value (so a seller who purchased the land for value will only be covenanting that incumbrances have not been created since they acquired the property).

Both sets of standard conditions provide that the seller will sell with full title guarantee (SC 4.6.2 and SCPC 7.6.2) so if the seller does not wish to sell with full title guarantee, a special condition amending the standard conditions will be needed.

Question 8

What is the Contract Rate?

Answer 8

Rate of interest charged if party is late in completing – interest charged on purpose price (less the deposit if buyer is in default).

Rate must be high enough to incentivise party, most opt for Law Society’s interest rate from time to time in force’, which is published weekly in the Gazette, currently 4% above the base lending rate of Barclays Bank plc  SCs and SCPCs already provide this at 1.1.1(e), so if the parties are happy to use this rate, it is not
necessary to fill in the gap on the front page of the contract, but it is common practice to do so.

Sometimes the parties will specify a rate which is a specified percentage above the base rate of a different bank, often the bank used by the seller. The exact percentage above the relevant base rate is a matter for negotiation, with anything between 2– 4% being considered within the normal range.

Question 9

Deposit - SC/SCPC rules?

Answer 9

Deposit = pre-payment of part of purchase price made by buyer to seller.

If buyer fails to complete, SC 7.4 SCPC 10.5, seller may forfeit and keep deposit.

SC 2.2 and SCPC 3.2: deposit of 10% of the purchase price is payable on exchange of contracts + is paid to seller’s solicitor as stakeholder, seller’s solicitor cannot hand it over to seller until completion.

If SC, 2.2.5 allows seller to use deposit as a deposit on a RELATED purchase of a house for the seller.

Parties may arrange to vary:

• Seller may agree to reduced deposit, maybe 5%, should be CLEARLY stated on front of contract. Parties should consider incorporating a special condition requiring buyer to top up deposit to full amount if completion is delayed.
• Buyer may agree that deposit can be held by seller’s solicitor as agent rather than stakeholder; deposit can be released to seller immediately after exchange + can be used by seller for any purpose whatsoever – risk for buyer b/c if parties to not complete, seller may be insolvent + not return deposit

Question 10

Payment of the deposit?

Answer 10

Deposit is paid on exchange of contracts.
SC: deposit can be paid electronically or by cheque drawn on conveyancer’s client account.
SCPC: payment by only electronic means.

Funds must come from account in the name of a conveyancer at a clearing bank in both cases.

SC 2.2.5 if deposit is being used to fund deposit on related purchase, to an account at a clearing bank of a conveyancer nominated by seller’s conveyancer.

Question 11

Purpose and matters of special conditions

Answer 11

Relate to individual characteristics of property + particular transaction circumstances. Back page.

SC 3: fixtures
SC 4: vacant possession/subject to leases or tenancies
SC 5: time of completion by 2pm
SC 6: representations / lack of exclusion of liability for fraud and recklessness - should be left in
SC 7: occupier’s consent where there is a non- owning adult occupier of the property; the occupier is agreeing to the sale and to give vacant possession on completion, and releasing any rights they may have in the property to allow the sale to take place.

Question 12

Special conditions: incorporating new ones?

Answer 12

These pre- printed special conditions need to be individually checked to decide which ones are relevant to a particular transaction.

Space to incorporate new special conditions; parties may require-

• the appointment of a second trustee for the purposes of the transfer
• arranging for the seller to obtain or pay for a restrictive covenant insurance policy
  *disclosing a defect in title
  *the seller selling with limited or no title guarantee
• a deposit of less than 10% and/ or for the deposit to be held as agent rather than stakeholder
• the payment of VAT
• the removal of fixtures by the seller
• the inclusion of an indemnity covenant in the transfer to protect the seller from liability once they have lost physical possession of the property

Question 13

Indemnity covenant?

Answer 13

Indemnity covenant necessary when the 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 ; ongoing liability even after they part with the property and are no longer in a position to ensure compliance with the covenants.

SC 4.6.4 and SCPC 7.6.5 : where the seller has such an ongoing liability in relation to the property, the buyer must give the seller a personal indemnity covenant IN THE TRANSFER, ie they will require a covenant from the buyer to observe the covenants affecting the title and, should the buyer breach them, to indemnify the seller should they be sued as a result under their original covenant.

As this is covered by SC 4.6.4 there is no need to expressly insert a special condition to this effect but some solicitors do so to act as a reminder to check that this term has been included in the transfer. Where the parties have agreed to something more unusual, their solicitors must consider what the contract already says about such matters in either the standard or pre- printed special conditions and whether that is good enough, or a new special condition should be drafted.

Question 14

Insurance and risk?

Answer 14

Risk of damage to the property passes to the buyer on exchange of contracts (SC 5.1.1 and SCPC 8.1) : buyer must complete purchase even if property is damaged or destroyed between exchange + completion. Will need prior warning so insurance arrangements can be put in place at moment of exchange.

Buyer and any lender will need to be satisfied that insurance is adequate re value of property, estimated cost of reinstatement + type of risks covered. Where buyer is financing with mortgage, lender may insure the property on being requested to do by buyer’s solicitor, but if not, buyer will have to take out new insurance policy. Buyers with several properties may already have ‘block policy’ to which new property can be added.

SC 5 + SCPC 8 provide that seller is under no obligation to insure a freehold property unless required to do so by a special condition in contract. Appropriate for parties to agree that risk should remain with seller eg on new build property in course of construction.

If agreed, SC 5.1.3 and SCPC 8.1.2 require seller to maintain policy until completion and if property suffers damage prior to completion to hand insurance proceeds over to buyer or assign to buyer all seller’s rights under policy.

Even in those cases where risk does pass to the buyer on exchange, the seller will probably not cancel their policy in case the buyer fails to complete or because it is a term of their mortgage that the policy is maintained.

Where there are two policies in place on the same property, there is a danger that when a claim is made, the buyer’s insurer will reduce the proceeds because another policy exists. SC 5.1.5 and SCPC 8.2.4(b) therefore provide that if this happens and the buyer is unable to recover the full amount of the proceeds, the purchase price is reduced accordingly.

Question 15

Basics of VAT for residential contract

Answer 15

Not normally chargeable in residential transactions.

Seller’s solicitor will usually choose SC 1.4 – purchase price + contents price inclusive of any VAT – expected that no VAT will be charged or paid.

Question 16

VAT - commercial contracts? 3 possibilities?

Answer 16

Contracts for sale and purchase of commercial property should deal with whether the buyer will have to pay VAT in addition to the purchase price. VAT is payable when the property is less than three years old, or because the seller has exercised the option to tax.

(a) The purchase price is exclusive of VAT and VAT will be added on top SCPC 2 – have to EXPRESSLY incorporate this (seller opts not to tax, unless change of law, risk to buyer), or draft a special condition (any vat payable inclusive, less agreeable to seller, to be negotiated)

• Appropriate for standard rated supply of a commercial building within three years of construction where seller has NO CHOICE but to charge VAT.
• Also appropriate for the sale of an old commercial property where the seller needs to opt to tax to recover VAT paid on refurbishment and/ or professional costs and the buyer is not VAT- sensitive. SCPC 2 is appropriate contract term:

Buyer always wants it to be inclusive of VAT not seller

(b) The purchase price is inclusive of VAT so that VAT, if any, cannot be added on top SC 1.4 OR SPECIAL CONDITION IN SCPC

• If supply is standard rated, supplier will have to account to HMRC for VAT out of purchase price. NOT appropriate for sale of new building or one where seller has exercised option to tax.
• Might be appropriate for supply of old commercial building where seller does not have input VAT to recover – eg seller hasn’t carried out refurbishment – so has no reason to opt to tax  popular option with VAT sensitive buyers who cannot recover VAT paid on purchase price.
• Still risk on seller as law might change and supply of land that used to be exempt becomes standard rated: seller will have to take VAT out of agreed purchase price

(c) 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 at the standard rate, but the seller is contractually obliged not to opt to tax. SCPC Part 2, Condition A1.

• Appropriate for supply of old commercial building where seller does not have input VAT to recover so does not need to opt to tax but is not willing to take risk that there would be change in tax regime between exchange + completion that would turn originally exempt supply into taxable supply + buyer is VAT-sensitive or would rather not pay VAT as cash-flow delay in recovering VAT on purchase price.
• In this case, parties should use SCPC contract but incorporate one of the optional standard conditions in Part 2 Condition A1 – disapplies SCPC 2 and provides instead that seller will not opt to tax supply of property before completion, but will have right to charge VAT in addition to purchase price if between exchange + completion there is a change in law.

Question 17

Requirements of lender

Answer 17

Lender will do valuation + check property is good security for loan, creditworthy buyer - document to buyer setting out terms of loan: ‘mortgage offer’ for simple loans but commitment letter with facility agreement for more complex ones.

Set out loan amount, interest rate, term, initial repayments + conditions (ie repair).

most will want first legal mortgage - deed, reg, s101, express power, standard form for lender ts and cs, borrower’s solicitor must explain consequences of default

Question 18

What VAT conditions are appropriate:
* standard rated supply of a commercial building within three years of construction where seller has no choice but to charge VAT.
* Also for the sale of an old commercial property where the seller needs to opt to tax to recover VAT paid on refurbishment and/ or professional costs and the buyer is NOT VAT- sensitive.

Answer 18

(a) The purchase price is exclusive of VAT and VAT will be added on top SCPC 2 – have to EXPRESSLY incorporate this (seller opts not to tax, unless change of law, risk to buyer), or draft a SPECIAL condition (any vat payable inclusive, less agreeable to seller, to be negotiated)

Buyer always wants it to be inclusive of VAT not seller

Question 19

What VAT conditions are appropriate:

• supply of old commercial building where seller does not have input VAT to recover – eg seller hasn’t carried out refurbishment – so has no reason to opt to tax  popular option with VAT sensitive buyers who cannot recover VAT paid on purchase price.
• Still risk on seller as law might change and supply of land that used to be exempt becomes standard rated: seller will have to take VAT out of agreed purchase price
• If supply is standard rated, supplier will have to account to HMRC for VAT out of purchase price. NOT appropriate for sale of new building or one where seller has exercised option to tax.

Answer 19

(b) The purchase price is inclusive of VAT so that VAT, if any, cannot be added on top SC 1.4 OR SPECIAL CONDITION IN SCPC

Question 20

• old commercial building where seller does not have input VAT to recover so does not need to opt to tax but is not willing to take risk that there would be change in tax regime between exchange + completion that would turn originally exempt supply into taxable supply + buyer is VAT-sensitive or would rather not pay VAT as cash-flow delay in recovering VAT on purchase price.
• In this case, parties should use SCPC contract but incorporate one of the optional standard conditions in Part 2 Condition A1 – disapplies SCPC 2 and provides instead that seller will not opt to tax supply of property before completion, but will have right to charge VAT in addition to purchase price if between exchange + completion there is a change in law.

Answer 20

(c) 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 at the standard rate, but the seller is contractually obliged not to opt to tax. SCPC Part 2, Condition A1.

Question 21

Acting for the lender

Answer 21

Once it has sent mortgage offer to borrower, lender will instruct solicitors to act on its behalf on mortgage of property.

Even where lender is separately represented, common for the buyer’s solicitor to report to the lender on the results of the title investigation and the pre- contract searches and enquiries. The lender needs to know the borrower will have good title to the property just as much as the buyer, wants to know it can sell the property in the future if it needs to enforce the security. The buyer’s solicitor will be asked to prepare a CERTIFICATE OF TITLE to disclose to the lender any problems with the property.

The lender’s solicitor can then help the lender decide what action it wants to take in relation to any problems disclosed. Alternatively, the lender’s solicitor will obtain copies of title and searches etc. from the borrower’s solicitor and report to the lender direct, with the borrower paying the costs.

The lender’s requirements must be met before the conveyancer will be in a position to request the release (draw down) of the mortgage funds and this will be the case irrespective of whether the buyer wishes to proceed to complete. Should a conflict of interest or instructions arise between the instructions of the buyer and the requirements of the lender the solicitor will be unable to proceed to purchase using the mortgage lender’s funds until the conflict of interest is resolved to the lender’s satisfaction.

Question 22

UK finance?

Answer 22

UK Finance collates and provides the instructions for individual member lenders and makes these available to view online in the UK Finance Mortgage Lenders’ Handbook for Conveyancers. Handbook provides comprehensive instructions for the conveyancer re covering the matters a specific lender will lend on, the type of searches required by the lender through to what circumstances indemnity insurance for defects in title can be accepted.

Part 1 applies to all lenders using the Handbook, Part 2 is where individual lenders set out specific requirements that are different to Part 1. Part 3 sets out standard instructions to be used where a conveyancer is representing the lender but not the borrower.

Question 23

Issuing certificate of title to lender

Answer 23

Lender will want to make sure property good and marketable title

In residential transactions, lender will usually require certificate of title in the form approved by Law Society + UK Finance which aims to reduce risk of conflict of interest when solicitor acts for both lender and borrower.

Certificate confirms:
- No legal problems with property – good and marketable title – so lender can safely lend against it.
- Who will complete property once sale completed
- Completion date when funds are needed

In commercial transactions, lender likely to require a more detailed certificate of title, such as the one produced by the City of London Law Society -report about a property, a summary of the information which has been ascertained by a solicitor in the title investigation and the pre- contract searches and enquiries. It is prepared by the buyer’s solicitor based on information from their pre- contract investigations: sometimes it will be addressed to the buyer and the lender, sometimes just the lender.

Certificate is structured as a series of statements about the property, eg ‘There are no mortgages, charges or liens, legal or equitable, specific or floating, affecting the Property’.

If this is not the case, then any such mortgages etc are disclosed immediately below the statement, eg ‘The Property is subject to a mortgage dated 1 February 2013 in favour of Barclays Bank PLC’.

If the information in the certificate is wrong, the lender can sue the firm which gave the certificate because there are warranties as to the correctness of the information contained within it. For example, the firm warrants that ‘Subject to any Disclosures, in our opinion, subject to due registration at the Land Registry of the transfer of the Property from the seller to the Company, the Company has a good and marketable title to the Property…’

The certificate is given IMMEDIATELY PRIOR to completion of the loan. Drafts will be provided to the buyer/ lender’s advisors at earlier stages in the transaction so they will have early warning of any major issues. The buyer’s solicitors will not exchange contracts until they know the lender is satisfied with the certificate and any disclosures.

Often you will send it with drafts as it is being revealed.

Question 24

Buyer’s solicitor - pre contract steps

Answer 24

The following steps should be taken in preparation for exchange of contracts:
(a) Report to client
The buyer’s solicitor should report to the buyer in writing, explaining the results oftitle investigation, searches and enquiries and the terms of the contract and the mortgage offer.
(b) Report to lender
The buyer’s solicitor should report to the lender, who will need to know the property is
good security for the loan and has ‘good and marketable title’.
(c) Ensure deposit funds are available
The deposit funds should be available to the buyer’s solicitor in cleared funds, ready to
send to the seller’s solicitor at exchange of contracts.
(d) Check the mortgage offer is in place and that the client has sufficient funds to complete
The buyer needs to have the mortgage offer in place (and accepted it) and to have
complied with any conditions attached to the mortgage offer (or be in a position to do
so). The buyer’s solicitor should also check that the buyer has the funds to proceed with
the purchase at completion.
(e) Ensure arrangements are in place for insurance immediately following exchange
In most cases the contractual position is that risk passes to the buyer on exchange and
therefore the buyer needs to have insurance in place from exchange. These arrangements
need to have be made in advance of actual exchange so the insurance takes effect
immediately.
(f) Contract signed
Both solicitors need to ensure that their client has signed their copy of the contract.
In many cases a client will sign in ‘wet ink’, although a 2019 Law Commission report
concluded that an electronic signature can lawfully be used to execute a document
provided the person signing the document intends to authenticate it and any execution
formalities are satisfied. A solicitor can sign the contract on their client’s behalf if they
have the client’s express authority to do so.
(g) Completion date
Both solicitors will need to discuss this with their client and the other side in advance of
exchange of contracts.

Question 25

What should both solicitors do immediately before exchange?

Answer 25

, both solicitors must obtain their client’s authority to exchange – should be obtained in signed writing and a note made on the file (w/o express/implied authority – negligence claim). Clients should be made aware of the consequences of exchange, ie they can no longer withdraw from contract.

Main requirements for creating a binding contract for the sale of land are set out in s 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989: must be in writing; it must incorporate all the agreed terms; these must be contained in one document, or where contracts are exchanged, in each copy of the contract;
must be signed by the parties.

It is usual in most transactions to exchange identical copies of the contract, rather than rely on a single document, so that each of the parties has something in their possession to which they can refer. Each copy is either signed by all the parties or, commonly, each party signs only their own copy of the contract, which is then physically exchanged for the copy signed by the other party.

Question 26

Ways to exchange contracts?

Answer 26

1. In person, by one solicitor attending the other’s office and handing the contract over.
2. By post, with each solicitor sending their client’s part of the contract by post to the other
   solicitor’s office.
3. Over the telephone.

Exchanging contracts in person has advantage of certainty but rarely have time, instructing agent adds to cost. Postal system may be unreliable.

Quickest, cost-effective and reliable way is over telephone to agree that they are exchanged – only works if there are arrangements in place to ensure that each solicitor forwards their client’s part of the contract to the other + seller’s solicitor receives buyer’s deposit.

Question 27

Formula A protocol

Answer 27

Where ONE solicitor holds BOTH parts of contract duly signed; one of the solicitors will have already sent their client’s signed part of the contract to the other side prior to exchange of contracts.

Undertakings are that solicitor holding both signed parts of the contract will that SAME DAY send their client’s signed part of contract to other side by 1ST CLASS POST through DOCUMENT EXCHANGE, or by HAND.

Buyer’s solicitor also undertakes, that day, to send to the other side a banker’s draft or client account cheque for the agreed deposit, with their client’s signed part of the contract if it is the buyer’s solicitor who holds both parts.

Question 28

Formula B protocol

Answer 28

Used where solicitor holds their own client’s signed part of contract. Quicker as does not require one of the solicitors to send their client’s signed part of contract to the their side before an exchange can take place.

Undertakings = each solicitor holds their own client’s signed part of contract; each solicitor will same day send the signed part of contract that they are holding to the other side by first class post, document exchange or by hand duly dated; buyer’s solicitor, together with the signed part of the contract, will that day also send to the other side a banker’s draft or client account cheque for the agreed deposit.

Formula A and Formula B both contain the undertaking that the buyer’s solicitor will send to the seller’s solicitor a banker’s draft or client account cheque. If the deposit is to be sent electronically (as permitted by the SC and required by the SCPC), the relevant formula will have to be varied accordingly by agreement between the two solicitors.

Question 29

Formula C protocol

Answer 29

mainly in residential property work when there is a chain transaction, where there are two or more properties being sold - aim is to synchronise all the exchanges in the chain so that nobody ends up owning two properties, their own and the one that they are buying, or no property at all.

Little used in practice because it is so complex.

In each case, the solicitors should record the exchange. Conventionally, details of the time of exchange and the formula used are often written by the respective solicitors in the top corner of the front page of the contracts being exchanged. This is done at the time of the phone call exchanging contracts. A file note is also made recording the fact of exchange with the following information:
* the date and time of exchange;
* the formula used and the exact wording of any agreed variation to the formula;
* the completion date;
* the deposit to be paid; and
* the identities of the solicitors involved in the exchange.

Question 30

Consequences of exchange?

Answer 30

Following exchange, a binding contract exists from which neither party may withdraw without incurring liability for breach. The seller retains the legal title in the property until completion, but holds the beneficial interest on behalf of the buyer. During this period, the seller is entitled to remain in physical possession of the property (although it is possible for the parties to agree that the buyer can occupy the property as licensee (SC 5.2.2)).

The seller must pay the outgoings, such as the community charge or business rates, until completion.

Unless the contract provides otherwise, the buyer bears the risk of any loss or damage to the property,
hence the need to ensure that insurance of the property is in place and effective from the moment of exchange.

Immediately after exchange, the solicitors should inform their respective clients and the estate agent that exchange has taken place and, if the exchange has taken place over the telephone, comply with the undertakings in the relevant Law Society Formula.

Question 31

PP exclusive of VAT (and added on top) SCPC 2 expressly incorporated or special condition

Answer 31

• new commercial building
• old commercial building with refurb + non VAT- sensitive buyer.

Question 32

PP inclusive of VAT so cannot be added on top, SC 1.4 or special condition in CPC.

Answer 32

• old commercial building w/o input VAT to recover and VAT-sensitive buyer.
• risk on seller as supply of land exempt may become standard rated and seller will have to take VAT out of purchasese price so not appropriate for new building or option to tax.

Question 33

PP exclusive of VAT so VAT can be added on top if law changes to make exempt supply chargeable @ standard rate, SCPC A1.

Answer 33

• old commercial building w/ no input tax/no opting to tax but willing to take risk
• seller contractually obliged not to tax
• risk of change in tax regime: buyer VAT-sensitive or does not want to delay purchase.

Question 34

When is certificate of title given to the lender/buyer?

Answer 34

The certificate is given IMMEDIATELY PRIOR to completion of the loan. Drafts will be provided to the buyer/ lender’s advisors at earlier stages in the transaction so they will have early warning of any major issues. The buyer’s solicitors will not exchange contracts until they know the lender is satisfied with the certificate and any disclosures.