This is an extract of our Drafting And Exchange Of Contracts document, which we sell as part of our Property Law and Practice Notes collection written by the top tier of Cambridge And Oxilp And College Of Law students.
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Drafting and Exchange of Contracts Procedure
1. It is the seller's solicitor who drafts the contract.
2. The buyer's solicitor then checks the contract and returns to seller's solicitor with any amendments.
3. Once the contract is agreed the parties will sign.
4. When both parties are read to proceed, the contract will be exchanged, at which point the date for completion of purchase is fixed and the parties have a legally binding agreement.
Form of the contract There are standard form contracts for residential and commercial transactions. These both contain 'Standard Conditions' and 'Special Conditions'. Standard contracts are generally for residential transactions. The Special conditions are used to amend standard conditions and can also be used to incorporate specific conditions.
Drafting the Contract NB: beware of drafting errors (e.g. misspelt or incorrect parties/incorrectly named property) Front page (i.e. agreed terms)
* PROPERTY: requires a clear description of the land. State whether it is freehold/leasehold and register/unregistered. o
If a sale of part then include a plan.
SPECIFIED INCUMBRANCES: allows seller to discharge duty of disclosure. There is no duty to disclose patent incumbrances (i.e. those obvious on inspection) or physical defects but MUST disclose: o
Latent incumbrances: something which burdens the land and restricts the owner in some way. This includes easements and existing mortgages. The best way to disclose is to refer to the entries in the Charges Register.
Defects in title: these are matters bringing into question the seller's ownership of the property. If it isn't possible to remedy the defect, the seller should include a special condition revealing the nature of the defect and that the buyer accepts it (known as a Faruqi clause).
NB: if a residential transaction, any incumbrances revealed by the Land Registry or by normal searches must be expressly disclosed in the contract or the seller will be liable for breach.
TITLE GUARANTEE - ss.2-3 LP(MP)A - the guarantee of the seller's quality of title to the property. DO NOT CONFUSE with class of title: o
Full title guarantee - expect this - a GUARANTEE that the seller has the right to sell the property and that the property is free from charges/incumbrances OTHER THAN those disclosed in the contract (s.6(1) LP(MP)A) or those the seller couldn't have reasonably known about (s.3(1) LP(MP)A).
Limited title guarantee - there is no guarantee property free from all 3rd party incumbrances. Instead, there is a guarantee the seller hasn't created any incumbrances since the last sale and is unaware anyone else has. This should be used if seller has limited knowledge of the property.
NB: unless the contract says otherwise, SCS 4.6.2 states the seller has full title guarantee. Same under SCPC 6.6.2 except there is no pre-printed provision on the front.
DEPOSIT - SCS 2.2.1 and SCPC 2.2.1 say this is 10% purchase price. SCS 6.8.3 if a lesser deposit has been accepted and the buyer fails to complete, he must pay the full 10%. It may include chattel payment. o
SCS 2.2 and SCPC 2.2 state the deposit must be paid to the seller's solicitor as stakeholder. He may also hold as agent for the seller.
Under SCS 2.2.5 (not SCPC) if the seller is buying another house he may use the deposit money to fund the purchase.
CONTRACT RATE - should be about 3-5% per annum
PURCHASE PRICE - the agreed amount for the property. o
SDLT rates apply to this:
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