The Contract

Question 1

What happens when contracts are exchanged?

Answer 1

Both parties are bound to complete the transaction on agreed terms.

Question 2

Before exchange, is either party legally bound?

Answer 2

No – either can withdraw for any reason.

Question 3

Why is a contract not strictly needed in property transactions?

Answer 3

Because transfer of land requires a deed, not a contract.

Question 4

When is a contract often bypassed?

Answer 4

When granting a lease – go straight to completion.

Question 5

Why might parties want a contract? (4 reasons)

Answer 5

1. Delay before completion (e.g. finance, removals).
2. To enforce obligations (e.g. building works).
3. To fix terms (property, price, timetable).
4. To stop withdrawal without liability.

Question 6

Who drafts the contract?

Answer 6

Seller’s solicitor.

Question 7

What must every contract include?

Answer 7

Standard conditions (to avoid reliance on open contract rules).

Question 8

Which standard conditions are used for residential/simple commercial?

Answer 8

Standard Conditions of Sale (SC, 5th ed.).

Question 9

Which are used for high-value commercial?

Answer 9

Standard Commercial Property Conditions (SCPC, 3rd ed.).

Question 10

What are the 3 parts of SC/SCPC contracts?

Answer 10

1. Front page – particulars of sale.
2. Middle – standard conditions (Part 1 always; Part 2 if included).
3. Back – special conditions.

Question 11

What are Specified Incumbrances?

Answer 11

Burdens disclosed in title documents and repeated in the contract.

Question 12

What happens if an incumbrance is not disclosed?

Answer 12

Buyer may rescind and/or claim damages.

Question 13

Should mortgages be included as specified incumbrances?

Answer 13

No – they should be discharged on completion.

Question 14

What is the difference between full and limited title guarantee?

Answer 14

Full TG → seller owns whole title, wider covenants.
Limited TG → limited knowledge (e.g. executors, trustees).

Question 15

What 3 covenants are implied under both full and limited TG?

Answer 15

Seller:
1. Has right to dispose.
2. Will do all reasonably can to transfer.
3. Leasehold = lease subsisting, no forfeiture risk.

Question 16

What extra covenant comes with full TG?

Answer 16

Land is free from unknown incumbrances.

Question 17

What is the Contract Rate?

Answer 17

Interest payable on late completion, charged on the purchase price (less deposit).

Question 18

What is the usual rate used?

Answer 18

Law Society rate = Barclays base + 4%.

Question 19

What is the usual deposit amount?

Answer 19

10% of the purchase price.

Question 20

What happens if the buyer defaults?

Answer 20

Seller may forfeit deposit.

Question 21

Under SCPC, how is deposit held?

Answer 21

By seller’s solicitor as stakeholder → cannot use until completion.

Question 22

Under SC, how may deposit be held?

Answer 22

As stakeholder OR as agent (SC 2.2.5 → can use for related purchase).

Question 23

What is the risk if held as agent?

Answer 23

Seller may spend it and not be able to return if transaction collapses.

Question 24

How must deposits be paid?

Answer 24

SCPC → electronic only.
SC → electronic or cheque.

Question 25

Give 3 examples of pre-printed special conditions.

Answer 25

Fixtures/contents, vacant possession/leases, adult occupier consents.

Question 26

Give 3 examples of bespoke special conditions.

Answer 26

Second trustee appointment, covenant insurance, defect disclosure, VAT, deposit variation, indemnity covenant, removal of fixtures.

Question 27

Who bears the risk of damage after exchange?

Answer 27

Buyer (SC 5.1.1; SCPC 8.1).

Question 28

What must the buyer do immediately on exchange?

Answer 28

Arrange insurance (unless lender insures).

Question 29

Is seller obliged to insure freehold property?

Answer 29

No, unless special condition.

Question 30

When might risk remain with seller?

Answer 30

New builds under construction.

Question 31

What happens if both seller and buyer have policies?

Answer 31

Double insurance → claim may be reduced. SC/SCPC = price reduced if proceeds not fully recovered.