Contract Conditions

Contract conditions

Key terms governing the sale of property including incumbrances, title guarantee, completion, deposit, VAT, risk, and indemnities

Specified incumbrances

Rights or burdens affecting land (easements, covenants, rights of way) that bind the buyer

SCS 3.1.2 incumbrances

Includes those specified in contract, discoverable by inspection, unknown to seller, known to buyer, and entries in public registers (excluding Land Registry/Land Charges/Companies House) plus public requirements

SCPC 4.1.2 incumbrances

Includes those specified, discoverable, unknown to seller, and those revealed by prudent buyer’s searches and enquiries plus public requirements

Key difference SCS vs SCPC (incumbrances)

SCS places duty on seller to disclose certain matters;

SCPC places burden on buyer to discover via searches

Title guarantee

Seller’s promise as to ownership and absence of incumbrances

Full title guarantee

Seller confirms right to sell and that property is free from incumbrances except disclosed or unknown ones

Limited title guarantee

Seller only guarantees no incumbrances created during their ownership

No title guarantee

Seller gives no assurance as to title or incumbrances; buyer has no remedy

Completion date

Date agreed for finalising transaction; defaults to 20 working days after contract if not specified

Completion time

2 pm under SCS and SCPC

Time is not of the essence

Failure to complete on time does not automatically end contract unless notice to complete is served

Notice to complete

Formal notice making time of the essence and requiring completion within a set period

Time is of the essence

Contract must be performed on time or innocent party may terminate and claim damages

Contract rate

Interest payable by defaulting party for delayed completion

Deposit

Usually 10% of purchase price paid on exchange (can be varied by special condition)

Reduced deposit consequence

If buyer defaults, they must top up deposit to full 10% upon notice to complete

Deposit (SCS payment)

Can be paid by solicitor’s client account cheque or electronically

Deposit (SCPC payment)

Must be paid electronically

Stakeholder (deposit)

Seller’s solicitor holds deposit until completion and cannot release it early

Agent (deposit)

Seller’s solicitor can release deposit to seller immediately

Default deposit position

Held as stakeholder under both SCS and SCPC

VAT (residential property)

Usually exempt or zero-rated; no VAT payable

VAT (SCS position)

Purchase price is inclusive of VAT

VAT (commercial property)

Generally standard-rated (20%) and payable on top unless exception applies

Option to tax

Seller’s election making commercial property subject to VAT

Risk passes on exchange

Buyer bears risk of damage from exchange, even before completion

Insurance obligation

Buyer should insure property from exchange

Seller insurance (exception)

Seller may retain insurance if agreed by special condition

Indemnity covenant

Buyer promises to comply with positive covenants and indemnify seller against breaches

Chain of indemnity covenants

Successive buyers pass on liability for positive covenants

Indemnity covenant obligation

Applies only if seller previously gave such covenant

Special condition (indemnity)

Contract clause requiring buyer to observe covenants and indemnify seller

Transferor

Seller in the transfer deed

Transferee

Buyer in the transfer deed

Special conditions

Custom terms added to amend or supplement SCS or SCPC

Purpose of SCS and SCPC

Standardise and simplify property contracts while allowing flexibility through special conditions