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Chapter 3 – Drafting the Contract and Exchange of ContractsSGS 3 – Drafting the Contract, Exchange of Contracts and Post Exchange Issues
The Contract
Purpose The contract sets out –
The extent of the land being sold
The full terms of the transfer
The date of completion (filled out at exchange)
Procedure The contract is prepared as follows –
1. Buyer and seller agree on key terms and conditions in Heads of Terms
2. Seller’s solicitor prepares first draft and sends it to the buyer for approval
3. Buyer’s solicitor makes amendments (by considering the following) and returns it to the seller
(a) Contract accords with Heads of Terms
(b) Contract accords with buyer’s instruction
(c) Contract includes clauses which deal with any issues that have arisen from –
(i) Investigation of title
(ii) Pre-contract searches and enquiries
4. Buyer and seller negotiate and agree on final terms of contract
5. Seller’s solicitor prepares copies of the agreed contract
6. Buyer and seller sign a copy of the contract
7. Contracts are exchanged
Formalities The contract must meet the following requirements under Land of Property (Miscellaneous
Provisions) Act (LP(MP)A) 1989, s.2 –
Be in writing;
Incorporate all the agreed terms; and
Be signed by (or on behalf of) each party to the contract
Forms 1. Tailor made (or bespoke) contract
2. Standard form contract – will incorporate Standard Commercial Property Conditions (SCPC)
3. Open contract – may not incorporate SCPC, relies on common law to imply terms and
conditions
Standard conditions Contract rate 1.1.1(e) Law Society’s interest rate
Assignment 1.4 Buyer cannot transfer right to buy to a third party
Third party rights 1.5 Contracts (Rights of Third Parties) Act 1999 does not apply to
contract
VAT 2.2 Buyer is to pay VAT
Deposit 3.2.1 10% of purchase price
Incumbrances 4.1.2 Incumbrances the property is deemed sold subject to
Full title guarantee 7.6.2 Full title guarantee
Indemnity from buyer 7.6.5 For indemnity chain, requires buyer to give indemnity to seller
Risk 8.1 Property is at risk of buyer from the date of the contract
Completion date 9.1.1 20 working days from date of exchange
Completion time 9.1.2 2:00pm on the completion date
Notice to complete 9.8 Serve notice to complete, time of the essence after service
Misrepresentation 10.1 Remedies for misrepresentation
Late completion 10.3 Remedies for late completion
Special conditions Special conditions have two purposes –
1. To amend or exclude any standard conditions
2. To deal with specific matters agreed between parties
Risk and insurance The property is at the risk of the buyer from the date of the contract to completion (SCPC 8.1)
The seller is not required to insure the property
Advise the buyer to get insurance cover in place from exchange at pre-exchange meeting
Contract Drafting Checklist
Use correct numbering
Use the defined terms consistently
Comply with client’s instructions
Make clauses easier for client to comply with (while still being commercially reasonable)
Use active voice
Date Leave blank – written in by hand at exchange of contracts
Seller Fill in full names and addresses (with postcode) of all legal owners –
1
, Chapter 3 – Drafting the Contract and Exchange of Contracts
SGS 3 – Drafting the Contract, Exchange of Contracts and Post Exchange Issues
‘Anbel Limited whose registered address is 5 Centre Way, London W3 5RT (registered
company number 0673883)’
The seller must –
Have legal title to the property
Have a legal personality (e.g. for partnerships, fill in maximum four names of partners)
Where the seller is a company –
Ensure to use the current name (obtained through company search)
Insert company number
Buyer Fill in full names and addresses (with postcode) of all buyers –
‘Amsidall Limited whose registered address is 5 The Walk, Birmingham B4 9KM (registered
company number 09242568)’
The buyer must –
Be able to hold legal title to the property
Have legal personality
NB: property may only be purchased by the buyers set out in the contract, no assignment (SCPC 1.4)
Property Cross out the irrelevant word – cross out ‘leasehold’
For registered title: fill in full address and postcode –
‘40 The High Street, Wadingham, Surrey KT4 6TM’
For unregistered title: fill in address with reference to a conveyance in the epitome of title –
‘All that property situated at and known as 26 Park Road, Wesley Vale, Wesley, Broadshire
BE2 4XY as the same is more particularly described in a conveyance dated 5 May 1952 made
between A K McNally (1) H and P Wilkinson (2) (the ‘Conveyance’) together with the rights
set out in the Conveyance.’
NB: buyer may have remedy for misrepresentation and breach of contract if erroneous (SCPC 10.1)
Title number For registered title: cross out ‘Root of Title’ and fill in title number – ‘WSX 13578’
For unregistered title: cross out ‘Title Number’ and fill in root of title –
‘A conveyance of the Property dated 24 April 1963 and made between George Freeman (1)
and Michael Anderson and Janet Anderson (2)’
Specified Seller is required to disclose –
incumbrances 1. Latent incumbrances and
2. Any defects in title
Seller is not required to disclose –
1. Patent incumbrances and
2. Physical defects (e.g. damp or subsidence)
‘Incumbrances’ burdens the land and restricts the way in which it may be used or how freely it may
sell
‘Latent incumbrances’ are those not apparent on inspection, such as –
Positive covenants (e.g. obligation to maintain a fence)
Restrictive covenants (e.g. obligation not to cause a nuisance)
Easements burdening the land (e.g. neighbour’s right to use pipes under land)
‘Patent incumbrances’ are discoverable upon inspection (the definition has been interpreted
narrowly)
‘Defects in title’ questions the ownership of the seller or rights and burdens of the property, such as –
Missing title deeds (e.g. one which contains a restrictive covenant)
NB: may obtain insurance against liabilities arising from lost title deeds
‘Physical defects’ should be ascertainable by structural survey and physical inspection
List latent incumbrances and defects in title –
‘Entry number 1 of the Charges Register of Title Number WSX 13578’
NB: make no reference to seller’s mortgage to reinforce the position in SCPC 4.1.2(d) below
The property is deemed sold subject to the following incumbrances (SCPC 4.1.2) –
(a) Those specified in the contract
(b) Those discoverable by inspection before the date of the contract
(c) Those the seller does not and could not reasonably know about
(d) Those disclosed (or would have been) by searches and enquiries which a prudent buyer
would have made before entering into the contract (except for mortgages)
(e) Public requirements
NB: SCPC 4.1.2(d) means the buyer will buy free of any mortgage the seller has on the
property
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