Pre-exchange & Exchange of Contracts Flashcards
What is a contract in a property transaction?
Agreement to transfer the land at a later stage ie. does not transfer land!
Prevents either party from withdrawing from the transaction without being liable for breach of contract
What are the 3 parts of a contract for sale?
- Particulars of sale
- Standard conditions
- Special conditions
What are the two sets of standard conditions which may be incorporated into a contract?
The Standard Conditions of Sale
- Used for all residential & some simple commercial property transactions
The Standard Commercial Property Conditions
- Better for high value commercial properties
Under the SC & SCPC, which incumbrances does the seller not sell free of?
- Incumbrances specified in the contract
- Incumbrances discoverable by inspection before date of contract
- Incumbrances the seller does not & could not reasonably know about
- Public requirements
- Matters/Incumbrances, other than mortgages, which would have been disclosed by the searches & enquiries of a prudent buyer
What is the difference between full & limited title guarantee?
Full: guaranteeing they own the entire legal & equitable title to the property
Limited: where seller has limited knowledge of the property (eg. they are an executor or a trustee)
What is the contract rate?
The rate of interest payable by a party late in completing
What is the default contract rate under the SC & SCPC?
‘The Law Society’s interest rate’ on the purchase price
(published weekly in the Gazette, currently 4% above base lending rate of Barclays)
What is the default deposit under the SC & SCPC?
10% of purchase price, payable on exchange of contracts to the seller’s solicitor as stakeholder
If buyer fails to complete, the seller may forfeit & keep the deposit
What is the difference between the seller’s solicitor holding the deposit as a stakeholder & as an agent?
Stakeholder: solicitor can’t hand over the deposit to their client until completion
v.
Agent: The deposit can be released to seller immediately after exchange & used by the seller for any purpose
How is the deposit held by the seller’s solicitor under the Standard Conditions of Sale?
10% deposit held by seller’s solicitor as a stakeholder
Seller can use deposit as a deposit on a related purchase (SC only)
How is the deposit held by the seller’s solicitor under the Standard Commercial Property Conditions?
Deposit of 10% purchase price held by seller’s solicitor as stakeholder
(Unlike SC, seller cannot use deposit as a deposit on a related purchase)
Can the parties accept a deposit lower than 10%?
Yes - so long as have agreed to vary & it is clearly stated on front of contract
On exchange of contracts, can the seller’s solicitor hold the deposit as an agent?
Yes, so long as parties have agreed to vary
Default under SC & SCPC is stakeholder
Under the Standard Conditions for Sale, how can the deposit be paid on exchange of contracts?
By electronic means or by cheque drawn on the conveyancer’s client account
Electronic means: This usually means a bank transfer from the buyer’s solicitor’s client account to the seller’s solicitor’s client account. It’s instant, secure, and traceable
Cheque: This means a solicitor’s client account cheque, not a personal cheque.
Under the Standard Commercial Property Conditions, how should the deposit be paid on exchange of contracts?
By electronic means only
(Only SC allows payment by cheque)
What are the Special Conditions in the contract?
On the back page - includes some pre-printed special conditions but also space to incorporate anything else specific to the property & transaction
Does the burden of risk change on exchange of contracts?
Yes - risk of damage to the property passes to the buyer on exchange of contracts
ie. buyer must complete even if property damaged/destroyed between exchange & completion
Who does the risk of damage to the property pass to on exchange of contracts?
To the buyer (must have insurance arrangement in place)
Unless altered by agreement of the parties
Does the seller have to insure their property after exchange?
No obligation to do so
unless required to do so by a special condition in the contract (where parties have agreed that risk remains with seller)
If the parties agree that the risk should remain with the seller until completion, is the seller obliged to insure?
Yes - & must maintain the policy until completion
Where the parties have agreed that the risk remains with the seller until completion, what happens if the property is damaged pre-completion?
If the property is damaged pre-completion the seller must give the insurance proceeds to the buyer to fix the damage OR assign the buyer the seller’s rights under the policy
What is the default position regarding VAT in the Standard Conditions for Sale?
Purchase price is inclusive of VAT
- Residential: because expected no VAT will be charged/paid
- Non-residential: means that VAT cannot be added on top - used for sale of old commercial property where seller does not have input VAT to recover
What is the default position regarding VAT in the Standard Commercial Property Conditions? (SCPC 2)
The purchase price is exclusive of VAT & VAT will be added on top
Used for:
- Sale of new commercial building (because seller must charge VAT)
- Sale of old commercial property were seller must opt to tax to recover VAT paid on eg. refurb & buyer not VAT-sensitive
Nb. There is another way of doing VAT in the SCPC (Part 2 Condition A1)
What is the optional position on VAT set out in the Standard Commercial Property Conditions? (SCPC Part 2, Condition A1)
Purchase price is exclusive of VAT - VAT can be added on top if law changes (to make exempt supply chargeable) but seller is contractually obliged not to tax
Used for: sale of old commercial building where-
- Seller does not have input VAT to recover; and
- Seller not willing to risk change in tax rules between exchange & completion; and
- Buyer is VAT-sensitive or does not want to pay VAT
