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drafting the contract and the exchange of contracts
Terms in this set (46)
who drafts the contract?
the seller solicitor
what does the buyer solicitor check once it receives the contract?
- contract accords with the heads of terms
-the buyer's instructions
-clauses which deal within any issues that arose in the investigations
-clauses which deal with any issues that have arisen from the seller's solicitors replies to the CPSEs
what does s2 Law of property (Miscellaneous Provisions) Act 1989 set out?
a contract must be in writing
-incorporate all terms expressly agreed by both parties
- be signed by, on behalf, of each party
what set of rules govern the standard conditions?
Standard Commercial Property conditions 2018 Revision (third edition)
what does SCPC 1.4 state?
SCPC 1.4 states that the contract is personal to the buyer,
which means the buyer cannot transfer the right to buy the
property to a third party.
what is the purpose of special conditions?
- to amend or exclude any standard conditions
-to deal with specific matters agreed between the parties.
what are the key matters to bear in when when filling in the date on the contract?
the date should NOT be filled in until exchange of the contracts. This is the date contracts becomes legally binding.
what should be borne in mind when filling the seller on the front of the standard contract?
- the seller's full name and full address.
(this should be the current seller - the name listed on the registered proprietorship will not always be the legal owner)
- the seller must have a legal personality i.e. a non-limited liability partnership is not binding so a maximum of four individuals will need to be named on this section.
what should be borne in mind when completing the buyer on the front of the contract?
- the full name of the buyers and their addresses
-SCPC 1.4 sets out that the buyer cannot transfer the benefit of the contract which means that the property can only be purchased by the buyers listed on the contract.
-you should therefore make sure that all the buyers are listed on the draft contract as this cannot be changed following exchange
What should be borne in mind when filling the 'Property - freehold/leasehold' section?
Remember to delete the irrelevant selection freehold/leasehold.
SCPC 10.1 sets ouf that the buyer may a remedy for misrep if property is not correctly described.
what should be borne in mind when completing the property section and adding the address when filling out the contract for registered land?
address as listed on the property register of the official copy of the register.
what should be borne in mind when completing the 'property section and adding the address when filling out the contract for unregistered land?
address will need to copied from the 'root of title' that will be the most recent conveyance.
as an example:
All that property situate at and known as 26 Park Road, Wesley Vale, Wesley,
Broadshire BE2 4XY as the same is more particularly described in a
conveyance dated 5 May 1952 made between A K McNally (1) H and P
Wilkinson (2) (the 'Conveyance') together with the rights set out in the
what should be borne in mind when completing the title section when filling out the contract for registered land?
insert the title number and the words root of title will need to be removed
what should be borne in mind when completing the title section when filling out the contract for unregistered land?
details of the root of title will need to be set out and the words 'title number' to be deleted.
A conveyance of the Property dated 24
April 1963 and made between George
Freeman (1) and Michael Anderson and
Janet Anderson (2)
what is the seller's duty to disclose?
the seller has a duty to disclose latent incumbrances (further details set out in SCPC 4.1.2)
like defects in title (the buyer will need to ensure that insurance on any defects on title).
there is no duty to disclose
-patent incumbrances (those discovered on inspection)
what should be borne in mind when completing/drafting the 'specified incumbrances' section?
disclose latent incumbrances by referring to the relevant entries in the charges register of the official copies
"Specified Incumbrances: the matters set out at entry 1 of the Charges
Register of title number XXXXX"
should the seller's mortgage be made reference to in the specified incumbrances?
this is to reinforce the SCPC 4.1.2(d) which sets out that the buyer will buy the property free from mortgage.
what should be borne in mind when calculating the completion date?
- THIS should be left blank
-this should only be filled in at exchange of the contracts.
what happens if the parties forget to fill in the completion date?
SCPC 9.1.1 kicks in, this sets out that completion will take place 20 working days from the date of the exchange. the contract will not automatically become void.
what is the contract rate and what do you use it calculate?
This is the annual rate of interest at which compensation for late completion is
3,4,5% will be added above the base rate of the bank
"3% above the base rate of Barclays Bank plc from time to
what is done if the contract rate is left blank?
the law society's interest rate applies. This published weekly in the law society's gazette. It is currently '4% above the base rate from time to time of Barclays bank plc'
what should be borne in mind when completing the Purchase price?
- price should be checked against the heads of terms
remember to make and check reference to whether VAT is opted into or excluded
what should be borne in mind when considering VAT?
-check if the property sale is standard rated (SCPC 2 applies by default)
- that is the property is new commercial building (less than 3 years)
-the seller has opted to tax
if this applies, the buyer pays the purchase price plus VAT.
if the property is sale is not standard rated (i.e. if the property is an old commercial property or if the seller has not opted to tax)
- the words 'exclusive of VAT' should be deleted
-condition A1 will need to be incorporated into the contract by checking the box. doing this means SCPC 2 does not apply
- the supply is not taxable
-the seller does not exercise the option to tax
-the buyer will only be liable to pay any amount in respect of VAT if there is a change in law.
what should be born in mind when fiilling in the deposit?
-deposit is required on the exchange of contracts
-SCPC 3.2.1 - the buyer usually pays 10% of the purchase price but check that this percentage has not been change i.e. to 5%)
-assume no VAT is payable on the deposit
what are the different capacities a deposit can be held?
-stakeholder (SCPC 3.2.2) (seller's solicitor is custodian of the deposit for
both parties; the deposit may not be released to the seller until completion)
agent for the seller - 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
what should be borne in mind when completing the balance section?
this the amount of the purchase price minus the deposit. Remember to check the special conditions to see if the deposit was less than 19% of the purchase price.
what is the default position regarding title guarantee and what governs this position?
the seller will give full title guarantee
what does 'full title guarantee' mean and does anything need to be done to the contract?
this a guarantee on the part of the seller that he has the right to sell the property. the property is free from all charges and incumbrances and other rights exerciseable by third parties other than those which are
-disclosed in the contract as specified (s6(1) LP(MP)A 1994
-it did not, and could not reasonable have known about (s3(1) LP(MP)A 1994)
nothing need to be done to the contracts as it is imputed by SCPC 7.6.2
what does limited title guarantee mean? and who gives it
Sellers who give limited title guarantee usually have little relevant knowledge of
the property, or have a limited interest in the property, such as:
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.
- you need to check box 3
what about sellers offering different title guarantees?
this is dealt with by way of special condition? box 3 is not checked
- a buyer from a sole surving tenant in common will need title guarntee to be given by the second trustee on completion.
example to include:
The Seller will appoint a second trustee (the 'Second Trustee') to receive
(along with the Seller) the balance of the completion monies on the
Completion Date. Special Condition 7.6.2 shall be amended to add the
words "and the Second Trustee will sell with limited title guarantee" after
the words "full title guarantee".
what about if no title guarantee is given? and what circumstances will this be?
- where the land is gift
-where the land has been repossessed by a lender.
remove SCPC 7.6.2 and box 3 is not checked.
how do I address where the property will be sold subject to vacant possession?
if the property is not subject to leases tick the first box 4
if it is subject to leases you will need to tick the second box and include a list of all the leases (first box 4 is left blank)
what should be borne in mind in relation to sale of the property containing contents?
how is this dealt with?
f the seller is selling contents and apportioning the price, the first box at special
condition 5 should be "checked" and a list of contents attached.
(SDLT is not payable on the purchase of contents)
what should be borne in mind in relation to sale of the property containing fixtures? how is this dealt with?
- if there is removal of a fixture, this has to dealt with by way of a special condition. The second box (5b) should be checked and lost of fixtures attached.
if the fixture cause damage the buyer will need to ensure the special condition 5(which does not include the wording on 'making good' is checked.
examples of special condition amended:
the removal of the fixture(s) in which the seller agrees to "make good"
any damage caused before completion.
what should be borne in mind with the payment account?
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.
box 6 needs to be checked and the account details provided.
what should be borne in mind in relation to the time of completion?
SCPC 9.1.2 specifies 2:00pm as the time for completion. The buyer and seller
can agree an earlier or later time for completion. (i.e. of the solicitor knows that one of the parties will be liable.
If this time is going to changed, box 7 is checked (only) with the new time added.
what do we do with special conditons 8?
Nothing, not covered on the module
what special condition deals with VAT?
special condition 9
condition A1 should be ticked
Condition A2, B,C will always be blank.
when might additional special conditions need to be filled?
recording matters specifically agreed between the parties (for example if
the seller has agreed to provide restrictive covenant insurance);
amending/overriding the standard conditions;
to make good damage caused by removing fixture(s);
agreeing the wording of the indemnity covenant the buyer will give the
seller on completion;
if the seller is a sole surviving co-owner, the seller may include a special
condition agreeing to appoint a second trustee on completion; or
dealing with non-owning occupiers.
how should non-owning occupiers of the land be dealt with?
If there are any such occupiers, in commercial practice it is common to use a
separate document (often called a declaration of waiver) signed by the
occupier(s), confirming they agree to:
(1) waive any possible interest in the property; and
(2) vacate on completion.
example as a separate document:
I, [name of occupier] declare that I have no legal or equitable interest in
[address of the property] and I will vacate the property on or before [time]
on [the completion date].
selecting special condition 4 is not enough
what should you add when free drafting a contract?
1.Who is to perform the obligation?
2. What is the obligation to be performed?
3. When is the obligation to be performed?
i.e. for the drafting of a requirement to fix a fence before completion?
"On or before the 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
what is the exchange of contracts?
Exchange of contracts is the point at which the buyer and seller become legally
bound by the terms of the contract.
what are the pre-exchange duties of the buyer solicitor?
- check that all docs have been received and results of searches. raise any questions or observations on any issues
-financial arrangements i.e. deposit (are cleared funds in the buyer solicitor's account), price (if there is to be reduction is this in the contract and the lender informed)
mortgage finance (confirmation from the lender) and completion money (draft financial statement prepped outling the costs of the transactions including the relevant fees)
How do you go about confirming a mortgage finance from the lender? what steps must be followed? in general
- check the offer of mortgage has been received.
-check if there is a requirement for the buyer to formally accept the offer (terms and conditions)
-provide a draft certificate of title (i..e a report on title the same information provided to the buyer). This is checked by the buyer's lenders to ensure the property title is good, marketable, and acceptable)
How do you go about confirming a mortgage finance from the lender in commercial contracts?
buyer's solicitor will submit its certificate of
title in a draft form to the buyer's lender's solicitors before contracts are
exchanged and will not, ordinarily, commit the buyer to exchanging
contracts until the lender's solicitors have confirmed that the required
funds will be advanced on the proposed completion date. If this step is
delayed until after exchange of contracts, there is a danger that the buyer
is committed to the contract without having its mortgage funds
guaranteed! The signed, dated, final form certificate of title is normally
sent by the buyer's solicitor to the lender/their solicitors on the day of
completion, which acts as a trigger for the mortgage advance to be
released to the buyer's solicitor.
If the property is a commercial property, the certificate of title does not
have to be in any prescribed form but generally the precedent prepared
by the City of London Law Society (the 'CLLS Certificate') is used. This is
a standard form of certificate and can be adapted by the solicitor as
necessary for the particular property concerned
what are seller solicitor's duties pre-exchange?
- existing loan - Obtain a provisional redemption figure from the existing lender to ensure the
proceeds of sale will be sufficient to pay off all loans/mortgages over the
- reply to any enquiries to the contract
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