Preparation for and Exchange of Contracts

Property Practice - Chapter 4

Can a contract transfer land? What are the main uses for a contract in a land transaction?

NO - need a deed

A contract is merely an agreement to transfer the land at a later stage - could way to fix the terms of the transaction by exchanging contracts

The contract provides both parties with certainty as to the nature and extent of the property, the financial terms, the timetable for completion and, most importantly - it prevents either party withdrawing from the transaction without being liable to the other for breach of contract.

Who usually drafts the contract?

The seller’s solicitor - sent to buyer’s

What are the two types of form used?

i) pre-printed supplied by law stationers

ii) firm’s preferred style 

*in both need to incorporate a set of ‘standard conditions’

What are the two sets of standard conditions?

1. The Standard Conditions of Sale (SC) 

2. The Standard Commercial Property Conditions (SCPC) 

When are the SCs used?

All residential transactions and some simple commercial transactions

When are the SCPCs used?

High value commercial properties (contain more detailed provisions for the management of occupational leases which the property is being sold)

What are the three parts of the SCs/SCPCs in the contract?

1. ‘Particulars of Sale’ - details unique to the property and terms of sale 

2. Standard conditions - terms of SCs/SCPCs that will govern a transaction unless the parties agree to something else 

3. Special conditions - specifically drafted to meet the particular requirements of this transaction (suggestions at top of page then space to add your own) 

What are the two parts of the SCPCs and when do they apply?

a) Part 1 - will apply unless excluded

b) Part 2 - will only apply if specifically included

What information is provided by the title docs?

Details of the property, including the address and whether the property is freehold or leasehold.

The title documents will also reveal whether the property has the benefit of any rights over adjoining properties, such as a right of way.

*should cross-reference information in the proprietorship register in the official copies for a registered property, or the title deeds for an unregistered property.

In a registered property what does the contract state?

• The title number 

• The class of title (which is found in the proprietorship register of the official copies)

What is a specified incumbrance?

A burden on the property specified in the contract - encumbrances are third party rights which will survive the transfer of the property to the buyer, such as restrictive covenants, easements and obligations to contribute to shared facilities (SC 3.1.1 - he seller sells free of all encumbrances other than those specified in the contract or of a type listed in SC 3.1.2 - equivalent to SCPC 4.1.1 and 4.1.2)

Which encumbrances are listed in SC 3.1.1 and SCPC 4.1.2. to which the property is sold?

• those specified in the contract

• those discoverable by inspection before the date of the contract

• those the seller does not and could not reasonably know about

• public requirements

• those, other than mortgages, which the buyer knows about (SC 3.1.2 - similar in SCPC 4.1.2)

• entries made before the date of the contract in any public register, except for those maintained by the Land Registry, the Land Charges Department and Companies House. (3.1.2)

If not covered by SC/SCPC what should a solictor do regarding an encumbrance? 

List it in ‘specified encumbrances’ - solicitors tend to list all encumbrances revealed by their title investigation - so as to bring them clearly within the category of ‘those specified in the contract’.

Are positive covenants included in specified encumbrances?

Some solicitors do not refer to positive covenants as Specified encumbrances because the burden of a positive covenant does not run to a successor in title as a matter of land law.

However, many solicitors will include them, particularly if positive covenants are mixed in with restrictive covenants in an entry in the Charges register (matter of preference) 

Is a mortgage included in the list of encumbrances?

NO - the buyer’s solicitor must make sure that the seller’s mortgage is not included in the list of encumbrances to which the sale is subject - this is because the mortage should be discharged shortly after completion