RE6/7
The Contract
Drafting the contract
Before the actual transfer of title to property, parties will ENTER INTO A BINDING CONTRACT.
This defines the extent of the land to be sold and sets out the terms on which the seller will sell,
including date of completion.
Title is transferred in the transfer deed upon completion but the terms of the transfer deed are fixed by
the terms of contract.
Seller drafts the contract and two identical copies will be prepared by seller’s solicitor and sent to the buyer’s
solicitor for approval with the rest of the pre-contract package.
Further copy of contract to be retained by seller’s solicitor so as to deal with any amendments proposed
by the buyer.
Contract terms are open to negotiation with the buyer and the seller must be prepared to concede
points in the buyer’s favour.
Drafting contract is the MOST IMPORTANT STAGE OF TRANSACTION and is an exercise in the art of
compromise.
Seller’s solicitor will turn the instructions from client into the contract agreement that has been reached by the
parties.
This includes dealing with aspects particular to the transaction and investigating title.
Seller’s Capacity
When investigating seller’s title CHECK that seller is entitled to sell the whole of the estate in the land which
they intend to sell
A sole owner, who owns the whole of the legal and equitable interest for their own benefit (a ‘beneficial owner’),
will normally have unlimited powers of disposal
HOWEVER, the following circumstances require further consideration
Trustees (incl. co- Second trustee may be necessary to overreach any beneficial entitlement must be dealt with in
owners) the contract.
Second trustee must be a party to the contract OR a special condition may be included in the
contract requiring the seller to appoint a second trustee to be a party to the transfer.
Personal If only 1 proving PR, they can contract on their own to sell the land.
Representatives
HOWEVER, if the grant of representation is made to 2 or more PRs, they should ALL be a party to the
contract as seller.
Mortgage lenders In order to sell the property, the lender must have an express or implied power of sale, and that
power must have arisen and become exercisable.
Seller’s solicitor will normally draft recitals for the contract that recite the details of the mortgage
document, the fact the mortgagee is now in possession of the property and that the mortgagee is
selling under its power of sale.
Companies CA 1985 Company may deal with land, provided the transaction is within the scope of the objects
clause of its memorandum of association
CA 2006 Company will not have an objects clause, but may deal with land unless its power to do so is
restricted by its articles of association.
For registered land, if the company’s powers are limited, an appropriate restriction will be entered
on the proprietorship register buyer’s solicitor should carry out a company search, if the contract
names a company as seller
1
,RE6/7
Persons suffering A contract for the sale or purchase of land entered into by a person who is suffering from mental
from mental incapacity sufficient to deprive them of understanding of the nature of the transaction is VOIDABLE
disability at the option of the incapacitated party, provided they can prove that, at the time of the
transaction, the other contracting party was AWARE of the disability (Broughton v Snook)
Elements of the contract
Any contract for for an interest in land must be in writing, signed by all the parties and contain all its terms, either
expressly or by being incorporated by reference in the contract (s2 of the Law of Property (Miscellaneous Provisions) Act
1989)
ELEMENTS OF A CONTRACT – Contract is made up of:
the particulars of sale
the standard conditions of sale (SCPC)
the special conditions
The This describes the estate in land being sold and the physical extent of that land.
particulars o Freehold/leasehold
of sale May also contain reference to any easements or covenants which benefit the land (not essential) or
have newly been granted to the buyer
On sale of part of land:
o Rights might be granted to buyer - must be included
The aim of the particulars is to give a clear and concise description of the property. If the land has a
regular postal address and clearly marked boundaries then descriptions of these will suffice. If not, a
fuller description and plan may be needed.
Plan must be used on a sale of part of land and may be desirable in other cases, e.g., where the
boundaries of property are not self-evident.
o Plan must be of sufficient size and scale to be useful for purpose (Land Registry has a lot of
specific requirements for plans submitted to it)
If a plan is used then the contract and transfer will need to make reference to it and any
markings/features on it
There should be NO discrepancy between the verbal description of the property and the plan, if
there is then it is a matter of construction which of the two descriptions will prevail
Contract may refer to the plan as:
‘For identification purposes only’ = where there is discrepancy and the plan has been
described as being for identification purposes only, the verbal description of the land will
prevail.
‘More particularly delineated’ = the plan will prevail over verbal description where the
phrase ‘more particularly delineated’ has been used. This phrase should ONLY be used if the
plan is to scale.
A mistake in the particulars of sale may give the buyer a remedy in misdescription or
misrepresentation.
Markers on a plan:
o Clear and precise
o Land sold in red
o Land retained in blue (normally)
o Other land referred to coloured/hatched
Errors in particulars may give buyer remedy in misdescription/misrepresentation
The Sets out the terms of the sale, the standard conditions are a set of conditions that have been expertly
standard drafted and are common to all transactions - solicitor will be familiar with these.
conditions Usually 2 sets
o Standard Conditions of Sale
o Standard Commercial Property Conditions
The Standard Commercial Property Conditions
o provide standard, binding terms of the contract for complex or high value commercial property
2
, RE6/7
transactions
o not all terms are appropriate in every transaction.
o Part 1: general application will apply in entirety to ANY contract incorporating SCPCs unless
varied by special condition
o Part 2: provisions for VAT, capital allowances, reversionary interest in flats (relevant only for
certain transactions) will only apply if specifically incorporated by special condition
Standard Conditions of Sale
o Less extensive – for use in residential or lower value, straightforward commercial property
transactions
Up to the solicitors advising the parties to decide which of the sets of conditions (if any) to incorporate
into the sale and purchase contract.
The special These are drafted by a solicitor to deal with:
conditions o particular circumstances of the transaction; or
E.g., if the seller had agreed to provide the buyer with defective title insurance to cover
a defect in the property’s title
o to vary a standard condition position.
If a contract incorporates one of the sets of standard conditions and then adds a special condition to the
contrary, the SPECIAL CONDITION WILL PREVAIL.
Purchase price for the property and details of any contents being sold will be dealt with by special
condition. These are peculiar to the transaction and cannot be dealt with by generic standard conditions
The standard conditions
1.1.1(e) SCPC 1.1.1(e) –
Contract rate Defines the “contract rate” which is relevant to the compensation provisions in SCPC 9.3.
The contract rate is the “Law Society’s interest rate from time to time in-force”.
This rate is currently 4% above base.
1.1.4 SCPC 1.1.4:
Application of The conditions in Part 1 SCPC apply EXCEPT as varied or excluded by the contract.
Parts 1 and 2 of The conditions in Part 2 SCPC ONLY apply if expressly incorporated into the contract.
the SCPC
where there is a conflict between a Standard Condition and a Special Condition, the Special Condition
takes precedence.
2.1/2.2 Commercial properties:
VAT (i) sale of a green field site: exempt, but subject to option to tax;
(ii) construction and civil engineering services: standard-rated;
(iii) legal and other professional fees: standard-rated;
(iv) sale of a new freehold building: standard-rated;
(v) sale of an old freehold building: exempt, but subject to option to tax; and
(vi) grant or assignment of a lease; exempt, but subject to option to tax.
SCPC 2.1 - The seller warrants that the sale of the property will constitute a supply CHARGEABLE
TO VAT AT THE STANDARD RATE.
These provisions are therefore inappropriate if the seller does not wish to charge VAT on
sale
A seller who wishes to NOT charge VAT will need to exclude these provisions by a Special
Condition.
Often, a seller who wishes NOT to charge VAT will incorporate (by ticking) SCPC A1 in Part 2:
SCPC A1.1 – “Conditions 2 does not apply”.
SCPC A1.2 – “The seller:
(a) warrants that the sale of the property does not constitute a supply that is taxable for
VAT purposes
(b) agrees not to exercise the option to tax in relation to the property, and
(c) cannot require the buyer to pay any amount in respect of any liability to VAT arising in
respect of the sale of the property, unless condition A1.3 applies.”
Part 2 A1.3 – provides that IF there is a change in the law between signing the contract and
completion which means the sale must be subject to VAT, then the buyer shall pay the seller an
additional amount equal to the VAT.
3
The Contract
Drafting the contract
Before the actual transfer of title to property, parties will ENTER INTO A BINDING CONTRACT.
This defines the extent of the land to be sold and sets out the terms on which the seller will sell,
including date of completion.
Title is transferred in the transfer deed upon completion but the terms of the transfer deed are fixed by
the terms of contract.
Seller drafts the contract and two identical copies will be prepared by seller’s solicitor and sent to the buyer’s
solicitor for approval with the rest of the pre-contract package.
Further copy of contract to be retained by seller’s solicitor so as to deal with any amendments proposed
by the buyer.
Contract terms are open to negotiation with the buyer and the seller must be prepared to concede
points in the buyer’s favour.
Drafting contract is the MOST IMPORTANT STAGE OF TRANSACTION and is an exercise in the art of
compromise.
Seller’s solicitor will turn the instructions from client into the contract agreement that has been reached by the
parties.
This includes dealing with aspects particular to the transaction and investigating title.
Seller’s Capacity
When investigating seller’s title CHECK that seller is entitled to sell the whole of the estate in the land which
they intend to sell
A sole owner, who owns the whole of the legal and equitable interest for their own benefit (a ‘beneficial owner’),
will normally have unlimited powers of disposal
HOWEVER, the following circumstances require further consideration
Trustees (incl. co- Second trustee may be necessary to overreach any beneficial entitlement must be dealt with in
owners) the contract.
Second trustee must be a party to the contract OR a special condition may be included in the
contract requiring the seller to appoint a second trustee to be a party to the transfer.
Personal If only 1 proving PR, they can contract on their own to sell the land.
Representatives
HOWEVER, if the grant of representation is made to 2 or more PRs, they should ALL be a party to the
contract as seller.
Mortgage lenders In order to sell the property, the lender must have an express or implied power of sale, and that
power must have arisen and become exercisable.
Seller’s solicitor will normally draft recitals for the contract that recite the details of the mortgage
document, the fact the mortgagee is now in possession of the property and that the mortgagee is
selling under its power of sale.
Companies CA 1985 Company may deal with land, provided the transaction is within the scope of the objects
clause of its memorandum of association
CA 2006 Company will not have an objects clause, but may deal with land unless its power to do so is
restricted by its articles of association.
For registered land, if the company’s powers are limited, an appropriate restriction will be entered
on the proprietorship register buyer’s solicitor should carry out a company search, if the contract
names a company as seller
1
,RE6/7
Persons suffering A contract for the sale or purchase of land entered into by a person who is suffering from mental
from mental incapacity sufficient to deprive them of understanding of the nature of the transaction is VOIDABLE
disability at the option of the incapacitated party, provided they can prove that, at the time of the
transaction, the other contracting party was AWARE of the disability (Broughton v Snook)
Elements of the contract
Any contract for for an interest in land must be in writing, signed by all the parties and contain all its terms, either
expressly or by being incorporated by reference in the contract (s2 of the Law of Property (Miscellaneous Provisions) Act
1989)
ELEMENTS OF A CONTRACT – Contract is made up of:
the particulars of sale
the standard conditions of sale (SCPC)
the special conditions
The This describes the estate in land being sold and the physical extent of that land.
particulars o Freehold/leasehold
of sale May also contain reference to any easements or covenants which benefit the land (not essential) or
have newly been granted to the buyer
On sale of part of land:
o Rights might be granted to buyer - must be included
The aim of the particulars is to give a clear and concise description of the property. If the land has a
regular postal address and clearly marked boundaries then descriptions of these will suffice. If not, a
fuller description and plan may be needed.
Plan must be used on a sale of part of land and may be desirable in other cases, e.g., where the
boundaries of property are not self-evident.
o Plan must be of sufficient size and scale to be useful for purpose (Land Registry has a lot of
specific requirements for plans submitted to it)
If a plan is used then the contract and transfer will need to make reference to it and any
markings/features on it
There should be NO discrepancy between the verbal description of the property and the plan, if
there is then it is a matter of construction which of the two descriptions will prevail
Contract may refer to the plan as:
‘For identification purposes only’ = where there is discrepancy and the plan has been
described as being for identification purposes only, the verbal description of the land will
prevail.
‘More particularly delineated’ = the plan will prevail over verbal description where the
phrase ‘more particularly delineated’ has been used. This phrase should ONLY be used if the
plan is to scale.
A mistake in the particulars of sale may give the buyer a remedy in misdescription or
misrepresentation.
Markers on a plan:
o Clear and precise
o Land sold in red
o Land retained in blue (normally)
o Other land referred to coloured/hatched
Errors in particulars may give buyer remedy in misdescription/misrepresentation
The Sets out the terms of the sale, the standard conditions are a set of conditions that have been expertly
standard drafted and are common to all transactions - solicitor will be familiar with these.
conditions Usually 2 sets
o Standard Conditions of Sale
o Standard Commercial Property Conditions
The Standard Commercial Property Conditions
o provide standard, binding terms of the contract for complex or high value commercial property
2
, RE6/7
transactions
o not all terms are appropriate in every transaction.
o Part 1: general application will apply in entirety to ANY contract incorporating SCPCs unless
varied by special condition
o Part 2: provisions for VAT, capital allowances, reversionary interest in flats (relevant only for
certain transactions) will only apply if specifically incorporated by special condition
Standard Conditions of Sale
o Less extensive – for use in residential or lower value, straightforward commercial property
transactions
Up to the solicitors advising the parties to decide which of the sets of conditions (if any) to incorporate
into the sale and purchase contract.
The special These are drafted by a solicitor to deal with:
conditions o particular circumstances of the transaction; or
E.g., if the seller had agreed to provide the buyer with defective title insurance to cover
a defect in the property’s title
o to vary a standard condition position.
If a contract incorporates one of the sets of standard conditions and then adds a special condition to the
contrary, the SPECIAL CONDITION WILL PREVAIL.
Purchase price for the property and details of any contents being sold will be dealt with by special
condition. These are peculiar to the transaction and cannot be dealt with by generic standard conditions
The standard conditions
1.1.1(e) SCPC 1.1.1(e) –
Contract rate Defines the “contract rate” which is relevant to the compensation provisions in SCPC 9.3.
The contract rate is the “Law Society’s interest rate from time to time in-force”.
This rate is currently 4% above base.
1.1.4 SCPC 1.1.4:
Application of The conditions in Part 1 SCPC apply EXCEPT as varied or excluded by the contract.
Parts 1 and 2 of The conditions in Part 2 SCPC ONLY apply if expressly incorporated into the contract.
the SCPC
where there is a conflict between a Standard Condition and a Special Condition, the Special Condition
takes precedence.
2.1/2.2 Commercial properties:
VAT (i) sale of a green field site: exempt, but subject to option to tax;
(ii) construction and civil engineering services: standard-rated;
(iii) legal and other professional fees: standard-rated;
(iv) sale of a new freehold building: standard-rated;
(v) sale of an old freehold building: exempt, but subject to option to tax; and
(vi) grant or assignment of a lease; exempt, but subject to option to tax.
SCPC 2.1 - The seller warrants that the sale of the property will constitute a supply CHARGEABLE
TO VAT AT THE STANDARD RATE.
These provisions are therefore inappropriate if the seller does not wish to charge VAT on
sale
A seller who wishes to NOT charge VAT will need to exclude these provisions by a Special
Condition.
Often, a seller who wishes NOT to charge VAT will incorporate (by ticking) SCPC A1 in Part 2:
SCPC A1.1 – “Conditions 2 does not apply”.
SCPC A1.2 – “The seller:
(a) warrants that the sale of the property does not constitute a supply that is taxable for
VAT purposes
(b) agrees not to exercise the option to tax in relation to the property, and
(c) cannot require the buyer to pay any amount in respect of any liability to VAT arising in
respect of the sale of the property, unless condition A1.3 applies.”
Part 2 A1.3 – provides that IF there is a change in the law between signing the contract and
completion which means the sale must be subject to VAT, then the buyer shall pay the seller an
additional amount equal to the VAT.
3
