Exchange Flashcards
Why would a contract for exchange be used?
It is an agreement to transfer land at a later stage.
Also, used to organise aspects that may not be explicitly relevant to the transfer, e.g.:
- Obligation to repair;
- Completion dates;
- Insurance that differs from the standard conditions etc.
What are standard conditions?
They are conditions added to the contract if it is silent, e.g. the effect of VAT, insurance etc.
Whoever drafts the contract may amend/cancel the effect of the standard conditions as necessary in their transaction.
What are the four key conditions in the SC and the SCPC?
(1) Specified Incumbrances:
Necessary to include all third party rights in the contract that will subsist after the transfer, e.g. a restrictive covenant. Must include everything not covered in the conditions (e.g. no need to include incumbrances the party knows about)
(2) Title Guarantee:
Full or limited title guarantee should be provided, no guarantee if there is no knowledge;
(3) Contract Rate
The rate of interest charged on lateness; can be amended as necessary.
(4) Deposit
Under SC and SCPC, the deposit is 10% and held as a stakeholder.
Parties can amend for a 5% deposit and for the deposit to be held as agent.
What are special conditions?
These pertain to specific aspects of the property, e.g. if it includes contents, whether the property is subject to vacant possession, if the time for completion has been amended, etc.
Can special conditions be added?
Yes. E.g:
- A condition regarding VAT;
- Removal of fixtures;
- Appointment of a second trustee for the transfer etc.
What are the basic VAT provisions in the SC?
Assumed that the purchase and contents price are inclusive of any VAT.
What are the basic VAT provisions in the SCPC? (Under 3 year old building)
VAT is charged:
- Purchase price can be exclusive of VAT
- Purchase price can be inclusive of VAT
What are the basic VAT provisions in the SCPC? (More than 3 years old building)
VAT is not charged. However, the seller can opt to tax on the sale to recover VAT paid - whilst it’s an option it is not the default position.
The contract must confirm the provisions of VAT if it isn’t charged on a standard basis.
What is a certificate of title?
Confirms to the lender :
- There are no legal problems with the property;
- who will own the property upon sale completion;
- completion date for when funds are needed
Essentially clarifies the process and confirms the property is a good security
What are the steps for Law Society Formula B for exchange?
- Each solicitor holds their own client’s signed part of the contract;
- each solicitor sends the signed part of the contract via 1st class post, DX, or hand;
- the buyer’s solicitor will send to the other side a cheque/draft of the agreed deposit
What is the consequence of exchange?
The parties are legally bound to complete the transaction.
The seller retains legal title but will face ramifications if they fail to exchange.
The buyer also becomes liable to insure the property.
