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WS 4 The Contract
i-tutorial The Contract Prior to exchange of contract, there is no binding commitment. Exchange of contracts is a stressful time and excitement as it is the point of no return as neither can change the terms of the deal without the cooperation of the other. The contract must reflect the agreed terms.
Why do we need a contract Types of contracts How a typical contract is structured How to draft a contract for the sale of registered freehold property
1. Why do we need a contract?
You don't need a contract for every property transaction. After all, the contract can't transfer the land. You need a deed to do that, the contract is just an agreement to transfer the land at a later stage. But why would you want to have a contract? For a variety of reasons:
? Timing - to lock the parties in while finance or removal arrangements are put in place
? Conditionality - there may be an important matter to deal with (e.g. while a planning permission is obtain or building work is completed, planning authorization for the change of use) before the buyer is willing to proceed.
? Non-land issues e.g. chattels, supply contracts
? There is a chain transaction - one party is awaiting to finalise another sale in order to continue with the following and therefore needs a contract to ensure completion is synchronised. In all these situations in order to prevent either party to back out the parties need a contract. The contract thus provides parties with certainty regarding:
? The nature and extent of the property
? The financial terms
? The timetable for completion
? Either party withdrawing from the transaction Once contracts have been exchanged the parties are locked in.
2. The form of contract (types of contract) The seller's solicitor is in charge of drafting the first draft of the contract; he may use:
? A pre-printed version
? A firm-specific version (a pre-contract version issued by his firm) Either way, you may include specific conditions. Moreover, either way a set of standard conditions have to be included in the contract. These standard conditions have been developed by the profession:
1. The standard conditions of sale (5 th edition) (is designed for use in residential conveyancing transactions and some very simple (a straightforward title and a low value) commercial transactions.
2. Standard commercial property conditions (SCPC)(2 nd edition) (to be incorporated into a contract for sale of commercial property or a contract for the grant of a lease of commercial property)
3. The Structure of the Contract The Standard contracts are divided into three parts:
1. On the front page are descriptions of the property and the sale. These are particular to the transaction
2. The second part includes (the middle of both versions) are the "standard conditions" of sale or the SCPC. The detail is included in this section and there are some differences between the two. The terms of the transaction.
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