Preparation for Exchange of contracts- FS

Question 1

What is the purpose of the “particulars of sale” in a property contract?

Answer 1

The particulars of sale provide a clear and concise description of the property and the key components of the transaction, including the estate, extent of land, the parties involved, and any relevant easements or covenants.

Question 2

What must be established before exchange of contracts can take place in a property transaction?

Answer 2

Several preliminary steps must be completed, including drafting the contract, confirming the particulars of sale, and addressing any conditions precedent that must be satisfied before exchange.

Question 3

What are standard conditions of sale, and why are they used?

Answer 3

Standard conditions of sale are pre-drafted legal terms that standardise conveyancing procedures in residential and commercial property transactions, making contracts more consistent and legally efficient.

Question 4

Which standard conditions typically apply to commercial property transactions?

Answer 4

Commercial transactions typically use the Standard Commercial Property Conditions (SCPCs).

Question 5

What standard conditions are typically used in residential conveyancing?

Answer 5

Residential conveyancing usually incorporates the Standard Conditions of Sale, which serve a similar function to the SCPCs but are tailored to non-commercial transactions.

Question 6

Can additional terms be added to a property contract that incorporates standard conditions?

Answer 6

Yes. Parties may add special conditions, which are bespoke terms that supplement or override the standard conditions.

Question 7

What is one common special condition relating to possession of the property?

Answer 7

A common special condition is a requirement for the seller to provide vacant possession, ensuring that any tenants or occupants have moved out prior to completion.

Question 8

How is the completion date usually handled in the contract?

Answer 8

The date and time for completion may be set as a special condition to ensure clarity and mutual agreement on when legal ownership will transfer.

Question 9

What kind of condition might relate to planning in a property transaction?

Answer 9

A special condition may state that completion is conditional on the buyer obtaining planning permission, particularly in development transactions.

Question 10

What is the role of the contract in relation to exchange?

Answer 10

The contract serves as the legal framework for the transaction and must be finalised and agreed upon by both parties before the exchange of contracts can take place.

Question 11

What happens at exchange of contracts in a property sale?

Answer 11

At exchange, both parties become legally bound to complete the transaction, and failure to do so can result in legal and financial consequences.

Question 12

Why is it important to review the standard and special conditions before exchange?

Answer 12

Because these conditions govern the rights and obligations of both parties, and any oversight could result in disputes or unintended liability post-exchange.

Question 13

Under the standard conditions, how is the deposit typically held following exchange of contracts?

Answer 13

By default, the deposit is held by the seller’s conveyancer as stakeholder, meaning it cannot be released to the seller until completion.

Question 14

What does it mean for the deposit to be held “as stakeholder”?

Answer 14

It means the seller’s solicitor holds the deposit in trust, and the seller cannot access it until the transaction completes.

Question 15

Can the parties agree to vary how the deposit is held?

Answer 15

Yes. The parties may agree through a special condition that the deposit be held as agent for the seller, allowing earlier access by the seller.

Question 16

What is the buyer’s usual preference regarding how the deposit is held?

Answer 16

Buyers typically prefer the deposit to be held as stakeholder, ensuring the seller cannot use the funds until the buyer takes ownership on completion

Question 17

Why might a buyer avoid allowing the deposit to be held as agent for the seller?

Answer 17

Because the seller could spend the deposit after exchange but before completion, increasing the risk for the buyer if completion fails.

Question 18

What is the default percentage of the deposit under the standard conditions of sale?

Answer 18

The default is 10% of the purchase price, as set out in both the standard residential and commercial conditions.

Question 19

Where is the deposit held when the standard commercial property conditions apply and no variation is made?

Answer 19

It is held by the seller’s solicitor as stakeholder, consistent with the default position under the standard commercial property conditions.

Question 20

What happens to the deposit if the transaction is not completed and the buyer is in default?

Answer 20

What happens to the deposit if the transaction is not completed and the buyer is in default?

Question 21

Can a buyer insist on stakeholder status even if the seller proposes agent status?

Answer 21

buyer may negotiate for stakeholder status, but it must be mutually agreed. Otherwise, the default applies based on the standard conditions.

Question 22

Under the default standard conditions with no special terms, what is the key restriction on the seller’s access to the deposit?

Answer 22

The seller cannot access the deposit funds until completion has occurred, due to the stakeholder arrangement.

Question 23

At what point does the risk in the property pass to the buyer under the standard conditions of sale?

Answer 23

The risk passes to the buyer on exchange of contracts, even though legal title remains with the seller until completion.

Question 24

Who holds the legal title to the property between exchange and completion?

Answer 24

The seller retains legal title to the property during this interim period.

Question 25

What kind of interest does the buyer acquire at the point of exchange of contracts?

Answer 25

What kind of interest does the buyer acquire at the point of exchange of contracts?

Question 26

According to the standard conditions, who is responsible for maintaining the insurance on the property after exchange?

Answer 26

The seller remains responsible for maintaining the insurance policy in force until completion.

Question 27

What obligation does the seller have under the standard conditions if the property suffers damage after exchange but before completion?

Answer 27

The seller must pay to the buyer any insurance monies received that cover the loss or damage.

Question 28

What is the default insurance position under the standard commercial property conditions?

Answer 28

The risk passes to the buyer on exchange, but the seller must maintain existing insurance, and pass on any insurance proceeds to the buyer if applicable.

Question 29

If the seller does not have an insurance policy in place at exchange, is there an obligation to obtain one under the standard conditions?

Answer 29

No. The obligation to maintain insurance only applies if the seller already has a policy in place at the time of exchange.

Question 30

What practical step should a buyer consider following exchange of contracts to protect their interest?

Answer 30

The buyer should consider arranging their own insurance policy to ensure full protection, even if the seller has coverage in place.

Question 31

Why is the distinction between legal and beneficial ownership important between exchange and completion?

Answer 31

Because it determines who bears the risk—the beneficial owner (the buyer) does, while the legal title (the seller) continues administrative control until completion.

Question 32

Can the default position on risk and insurance under the standard conditions be varied?

Answer 32

Yes. The parties can vary the default rules through special conditions in the contract if they wish to allocate risk differently.

Question 33

What is the VAT position for the sale of newly built residential property?

Answer 33

New residential properties are zero-rated for VAT, meaning VAT is chargeable at 0%, allowing recovery of input tax but not requiring the buyer to pay VAT

Question 34

Does VAT normally apply to the sale of residential property?

Answer 34

No. VAT does not normally apply to residential property sales, as these transactions are typically not made in the course of a business.

Question 35

What is the VAT position for commercial properties less than three years old?

Answer 35

Commercial properties that are less than three years old are standard-rated for VAT, meaning VAT is chargeable at the current standard rate.

Question 36

What is the VAT position for commercial property older than three years?

Answer 36

Sales or leases of commercial property over three years old are generally exempt from VAT, unless the seller opts to tax.

Question 37

What is the default VAT position under the Standard Commercial Property Conditions (SCPCs)?

Answer 37

The default position under the SCPCs is that VAT does apply, unless the parties agree otherwise via a special condition or election.

Question 38

How can a seller under the SCPC disapply the default VAT assumption?

Answer 38

By ticking Box A1 on Part 2 of the SCPC contract, the seller can elect that VAT will not apply to the transaction.

Question 39

In commercial property contracts, how is the VAT position commonly amended?

Answer 39

The VAT position is amended by special condition or by using contractual options such as Box A1 in the SCPCs.

Question 40

Why is it important for parties to clarify the VAT position in commercial property contracts?

Answer 40

Because VAT liability affects the total price, and failing to address it could result in unexpected tax obligations for the buyer.

Question 41

If no special condition is added to the contract, and the SCPCs are incorporated unamended, what is the VAT treatment?

Answer 41

VAT will apply by default, as this is the starting position in the SCPCs unless amended.

Question 42

What should a solicitor acting for a buyer in a commercial conveyance check regarding VAT?

Answer 42

The solicitor should check if VAT has been expressly disapplied via special condition or Box A1, or if standard SCPC terms (i.e., VAT applies) are still in force.