The Law Society has compiled a list of ‘Standard Conditions of Sale’ that need to be included in contracts that are drawn up during the sales process. It is an exhaustive document that details clauses that serve as a precaution to every aspect and probable eventuality of the deal.
A conveyancing solicitor is not mandated by law to integrate these standard conditions into every sales contract, but very rarely do you find property lawyers neglecting to do so. So, in the event of contingencies such as delay in completion of sale, doubts over insurance responsibility, occupation of house before sale completes etc, you always have the standard conditions to fall back on.
Currently, most conveyancers use the 5th edition – the latest release of the Standard Conditions of Sale.
1 GENERAL
1.1 Definitions
This section explains different terms used in the contract. These notes give you a better understanding of the Standard Conditions of Sale.
1.2 Joint Parties
According to the Standard Conditions of Sale 5th edition, if there are two or more buyers in a sale, all obligations enforced within the contract shall be imposed on them either individually or mutually. For instance, if the buyers go back on the contract after the exchange, they are liable to forfeit the deposit given to the seller. In case the deposit was not paid in full on the date of exchange, the seller can file a case against any of the buyers for the entire sum due, instead of proceeding with a case against every buyer for their share in the sale.
1.3 Notices and Documents
The Standard Conditions of Sale 5th edition also has rules that apply to the timely dispatch of notices and documents to relevant parties during a sales process. A notice can be sent in person or by DX post, fax and royal mail.
Bottom line: It has to be provided in writing and not verbally. It can even be sent via email if you have the updated email ids of the buyer, seller or conveyancer, but you risk an automated ‘out of office’ reply which deems the notice ‘not served’.
If a notice is acknowledged on a holiday or after 4 p.m. on a regular day, it will be considered to have been received on the next functioning day. In the absence of proof to the contrary, the notices will be considered received according to the conditions stipulated in the Standard Conditions of Sale, 5th edition:
- If mailed by DX: The notice should be received before 4 p.m. on the 1st working day after it is made available for collection.
- If mailed through 1st class post: The notice should be received before 4 p.m. on the 2nd working day after it is posted.
- If sent by 2nd class post: The notice should be received before 4 P.M on the 3rd working day after it is posted.
- If faxed: The notice should be received after one hour of dispatch
- If e-mailed: The notice should be received before 4 p.m. on the 1st day after it is sent.
Note: When a notice is e-mailed, ensure you receive a ‘read’ receipt, not just a ‘delivery’ receipt. If it is faxed, always -keep a delivery report.
1.4 VAT
As per the Standard Conditions of Sale 5th edition, all the amounts quoted in the contract will be subject to VAT. Any person obliged to pay the amounts in the contract, is also obliged to pay the proportional VAT. However, this clause is not relevant for residential contracts, as VAT is not enforced on residential property dealings.
1.5 Assignment and sub-sales
This clause makes it clear that after the exchange of contracts the purchaser is not permitted to propose another person to take his/her place in the contract.
2. FORMATION
2.1 Date
When contracts are exchanged in person, the day of the actual exchange is marked as the date of contract. On the other hand, if it is exchanged via post, the contract will be dated as per the date on which it is posted, as previously agreed to by both conveyancers over the telephone. it is posted. i
2.2 Deposit
As per the Standard Conditions of Sale 5th edition, on the previous day or the day of exchanging contracts the buyer’s conveyancer will send a cheque or wire the money amounting to 10% of the purchase price to the seller’s conveyancer. If the cheque bounces or the wire transfer does not go through, the seller can withdraw from the contract without the penalty, within a week of the default.
The seller can use some or all of the deposit money to purchase another property, but only on the condition that his seller’s solicitor will hold the money as a stake holder. The remainder of the deposit will by held by his own conveyancer. Property lawyers are considered stakeholders because they are deputed to hold the money until the transaction is completed or till the deposit is forfeited. Only then will it be credited to the seller.
If the property is bought at an auction or if the seller is insured under the NHBC scheme, the property solicitor can act as an agent for the seller and release the deposit money before completion of the sales process. The Standard Conditions of Sale vary when it comes to contracts for new builds.
In the case of connected sales, the deposit could be less than 10% of the purchase amount as the value of the seller’s property may be less than the value of the property he plans to buy. Here, the second seller need not accept less that 10% as deposit, but in order to redeem the full amount he would have to sue the buyer, which would put a spoke in the sales transaction. In such cases, the conveyancers can agree to move ahead without a deposit and arrange for the exchange and completion to happen on the same day when the entire purchase amount is paid. This gives the buyer no lee-way to default on the payment.
2.3 Auctions
In the Standard Conditions of Sale 5th edition, there is a separate provision for sales through auction. The seller must set a reserve value. Bids can be accepted or refused at the auctioneer’s discretion. The seller can also place bids, but the amount cannot exceed the reserve value. These conditions are associated with auctions and not with general sales. The norms related to buying property in auctions are explained in another chapter.
3. MATTERS AFFECTING THE PROPERTY
3.1 Freedom from Encumbrances
Encumbrances are a charge or liability that is attached to a property. It may sometimes affect the clarity of the title deed or even affect the value of the property. As per the Standard Conditions of Sale 5th edition, the belongings are subject to the following encumbrances:
- Those that are referred in the contract particularly.
- Those that are revealed on examination of the land before the exchange. For instance, if the property contains a lake which is used by the public for fishing, or if there is a tenant residing in the property, who has not confirmed to vacate etc.
- Any reasonable claims which the seller should have known, but is not aware of
- Entries made in any community register prior to the date of contract, apart from those upheld by the HM Land Registry or Land Charges department (except the land charges kept by local authorities) and Companies Houses.
- Public Requirements.
There will be a separate section called “Specified Encumbrances” on the contract that defines the specific charges subjected to the sales. It generally follows a basic format such as, “All matters contained or referred to in the registers of title number ABC123456”.
But it is always safe to make two modifications to this declaration. The first is to add the date and time to it. This will help you ensure that the charges mentioned in the contract were there in the official copies, prior to the inspection.
The next is to add the words “except for financial charges”. This will save you from any existing financial liabilities on the property. In certain cases, the seller might include the words “except for financial charges created by the seller”. Agreeing to this statement may pose a risk, if there are other financial liabilities on the property that were not created by the seller.
If the seller comes across any issues related to the property after the exchange, he/she should inform the buyer about this in writing. All other liabilities or charges on the property, including any outstanding public requirement, should be covered by the buyer.
3.2 Physical State
The onus lies on the buyer to conduct a detailed inspection about the physical condition of the property. He/she should make sure that there are no other damages to the property, other than those detailed in the contract. This clause is not applicable to new properties, as they will have proper insurance coverage. In case it is a leasehold property, the buyer is supposed to follow the terms and conditions mentioned in the lease. Any changes in these conditions should be made prior to exchange.
3.3 Leases affecting the property
The seller is supposed to give detailed information about the lease, soon after the exchange. For example, he/she should explain each term in the lease, lease application, the lease periods, renewal procedures etc.
All expenses in this regard should be covered by the buyer, after the exchange. The seller should not make any amendments to any terms in the lease without the buyer’s consent. In case the tenant makes a claim against the landlord after the completion of the registration, the responsibility should be taken up by the buyer. If he is not the registered owner, he will not have the right to enforce the claim. In such cases, he/she should compensate the seller for the same.
The seller is not obliged to take any responsibilities regarding the rent or any legislation associated with the lease. Hence, the buyer should closely examine each detail in the lease and point of charge, before the exchange of contracts.
3.4 Retained Land
UPDATE: The Standard Conditions of Sale 5th edition doesn’t have a clause relating to retained land.
4 TITLES AND TRANSFER
This section targets auctions, though it can be used as a reference for all cases.. In auctions, a conveyancer will never proceed with an exchange without inspecting the title.
It is the seller’s responsibility to provide proof that he/she is the real owner of the property and has the right to sell. If the property is registered, the seller should produce the official copies and all associated documents including title, (except the documents, which will generally be removed on completion like the mortgages). In case the property is unregistered, then a summary of all the papers showing the chain of ownership from root to the present should be produced. Along with this, the copies of all documents which are related to the property should be attached. When copies are produced, the seller should agree to produce the original or scrutinized abstract of these copies, on the completion date.
In case the seller sells the property under probate, he is supposed to produce an official copy of the grand of probate. Similarly, in case the property was held by two or more tenants and one among them is deceased, the copy of death certificate should be produced before moving forward with the sales.
4.2. Requisitions
If the seller has produced all the documents perfectly, before the exchange, then the buyer is not supposed to raise any complaints or enquiries related to the title of the property thereafter.
On the other hand, if an issue is revealed after the exchange, the buyer has the right to raise a requisition within a period of six days. If he fails to raise the requisition within the given time period, he loses the right to do so. For instance, this can be applicable when other additional charges that were not mentioned at the time of exchange come up.
4.3 Timetable
Each action has specific time limits as per the Standard Conditions of Sale 5th edition. This is not of much practical importance, as in most cases the title is delivered and related issues are settled, prior to the exchange. However, this is useful in certain rare situations such as auctions.
The seller should submit the proof of title, immediately after the exchange, to the buyer. The buyer can pose any enquiries inside six days of exchange or after receiving the proof of title, whichever occurs later. The seller is supposed to respond to the requisitions within four days. The purchaser again gets three days to review the seller’s reply.
The sketching and approving of the transfer will run parallel to these activities, and are not bound by time. The buyers have to send a draft at least 12 days before the completion. This should be either approved or revised by the seller within four days of receiving it.
If the transfer is revised by the seller, then all buyers should supply an engrossment copy. This should reach the seller at least, five days before completion. If the period between the exchange and completion is lesser than 15 days, the time limit of every procedure will reduce on a pro rata basis. For example, if the time limit is confined to 10 days, then the purchaser will get, only four days for raising his queries.
4.4 Defining the Property
As per the Standard Conditions of Sale 5th edition, the seller is not obliged to mark the correct boundaries of the property, neither is he responsible to give details about the boundary walls. He/she is not obliged to find divisions of the property that come under separate titles. However, if the buyer requests any information, the seller is supposed to provide that. These actions should be completed prior to the exchange.
UPDATE: As per the Standard Conditions of Sale 4th edition, it was the responsibility of the seller to pay for a statutory declaration, about the boundaries, on demand of the purchaser. This section is removed in the Standard Conditions of Sale 5th edition.
4.5 Rents and Rent charges
This portion of the Standard Conditions of Sale 5th edition is self-explanatory. However, it would beneficial to refer to the Charges Register of the “Official copies” to understand the rent charges in detail.
4.6 Transfer
Even though, the buyer is supposed to draft and supply the transfer, he has the right to pose enquiries about the same. The seller is required to sell the property with full title guarantee, except the encumbrances mentioned in the document. In case the seller mentions a ‘no title’ or ‘limited title’ guarantee in the contract, this will prevail over the Standard Conditions of Sale.
To get a detailed idea about the title guarantee refer to “Contract for Conveyancing”. If there was any covenant in the transfer, which was disclosed to the buyer before the exchange, then the seller is liable for the same. The buyer is supposed to indemnify the trader for any future liabilities (provided there is no other clause against this in the transfer). If a covenant has been entered by the buyer, then the he /she should provide a duplicate copy of the transfer, which should be duly completed by the seller.
UPDATE: – If the property is leasehold, a declaration should be incorporated in the transfer. The seller is not legally responsible for any violation of the occupant’s covenant, connected to the material assets in the leasing. It means that the seller, who sells the property with a full title guarantee, is not liable to the violations, associated with the physical state of the property. As per the Standard Conditions of Sale 5th edition, it is no more mandatory to include this as a particular condition.
4.7 Membership of a Company
UPDATE:- This is a new article in the Standard Conditions of Sale 5th edition.
This clause is generally applicable for leaseholds. For instance, suppose the freehold of the company is possessed by a management company and the company is owned by the occupant. In such cases the seller will be bound to be an associate of that company. It can also happen with a freehold property that has a park or landscaped area in it.
According to this clause, no matter whether the seller is a member of the management or not, he /she must produce all the documents, necessary for the buyer to have a membership with the management. The entire expense related to this should be shouldered by the seller; i.e., the seller should provide the membership certificate and apparently the fee for the registration.
On the other hand, if the company is limited by shares, the seller is not clearly obliged to take any action in this regard. Here it is left to the buyer to decide whether to become a shareholder or remain as a member. Most management companies are limited by shares, hence this can be considered as a slip by the draughtsman. Conventionally, the expenses related to the membership had to be borne by the buyer. This clause is expected to alter this. However, the seller’s conveyancing solicitors can include a special condition, to avoid these expenses.
5 PENDING COMPLETION
5.1 Responsibility for the Property
Update: -The points existed in the Standard Conditions of Sale 4th Edition, are in effect reversed under this section.
Contradictory to the 4th, in this edition, the buyer has to shoulder all the responsibilities related to the property from the time of exchange (i.e., even before the completion).
The seller is not even obliged to insure the property in general. However, the seller is supposed to maintain the insurance under certain circumstances. For instance, if the tenancy contracts or the terms of mortgage have any charges under it, the seller will have to pay the insurance charges.
If the property is insured by the seller, it is his duty to check whether the insurance remains till the date of conclusion and is not nullified. He should also make it a point to cancel it on completion of the sale.
As per this provision, the buyer is indebted to complete the sales, even if anything happens to the possessions after the exchange. Hence, it is always safe for the buyer to insure the property unless the seller is obliged to insure the property.
5.2 Occupation by the Buyer
The buyer can reside in the property in the period between the exchange and the completion, only if he/she takes a license. This is not similar to tenancy, as tenancy may give additional rights to the buyer. The license is provided on the following conditions:-
- The buyer does not have the right to transfer the license to live in the property, to anyone else.
- Only the close kith or kin of the buyer is allowed to dwell in the property.
- The buyer is to pay for all outgoings and expenses associated with the property.
- The buyer is to pay an amount to the seller as a fee, almost equal to the interest charged for late completion, under the bond. For computing the amount, the chattels cost is added to the purchase cost , from which the deposit really paid as opposite to be detained to order is subtracted. The sum thus received is divided by contract rate multiplied with 100 by 365. This charge is to be paid on a daily basis until the completion.
- The buyer is not supposed to bring any physical alterations to the property other than fair depreciation.
- The buyer must leave the property on the end of the license.
This clause doesn’t apply, if the buyer gets on the property for some kind of work and doesn’t live in the property. The license will end on the date of completion or rescinding on the agreement or after 5 functioning days, subsequent to a notice agreed by the seller, which ever comes first. If the buyer stays in the property even after the completion of the license period, he /she will have to pay the fee mentioned above till the date of completion.
6. COMPLETION
6.1 Date
As per the Standard Conditions of Sale, the completion is to be done after 20 functioning days from the date of exchange. But practically this is not considered; as an alternative, a completion date is fixed by both parties before the exchange so that the residential conveyancing solicitors get enough time to finish the pre-completion procedures. This will be inserted to the contract. The date will be generally a working day which is suitable for all the purchasers and sellers in the sequence.
If the seller’s solicitor receives the money after 2 p.m. on the date of completion, it is considered to be received on the next working day. If the seller’s conveyancer have received the money before the close of business, the seller does not have the right to withhold the property.
At times, the seller could find himself in an unfavorable situation where his residential property lawyer would have received the money from the buyer, but he is unable to make payment to an onward purchase. In such a situation, the seller will have to vacate his property to the buyer, and will not be able to posses the property he intended to buy. Solutions to this will be discussed in detail in the chapter of completion.
The seller often amends the time of completion if he has an onward purchase. If for both the deals the time is fixed at 2 p.m., he runs the risk of being unable to pay for the onward purchase.. If the buyer pays the money by 1.59 p.m., the buyer is not in breach. However, the seller will not be able to proceed with the onward transaction within the minute, and hence he/she will be in breach of completion. In order to avoid such complications it is always better to fix a time like 12 p.m. or 1 p.m. for the buyer, allowing the seller enough time for further transactions.
Even if the money is not paid on the agreed time, no action will be taken. However, the seller is supposed to provide a notice, if there is a breach,
6.2 Arrangements and Time
According to the Standard Conditions of Sale, the completion generally takes place in the seller’s property lawyer’s office. It could also be done in any other location inEnglandorWalesas directed by the seller’s property solicitor. Earlier, both the property lawyers used to meet in person and exchange the deeds and cash, which is very rare these days. This section is hence practically redundant.
6.3 Apportionments
As per the Standard Conditions of Sale 5th edition, any amount that is to be paid or received in advance, regarding the property should be apportioned before the completion. The council tax, utilities, etc doesn’t come under this category as those are apportioned by the Companies directly. In case the possessions are tenanted, the tenant might have paid the rent in advance. In case the completion happens before the due, the amount, from the day of completion to the next due, should be paid to the buyer. In such a case, the amount is reduced form the purchase cost by the buyer.
On the other hand, if the belongings are leasehold, the seller might have paid the annual lease. In this case, the buyer is supposed to calculate the amount from the time of completion, to the end of that annual lease and add that along with the purchase cost, and that is to be paid to the buyer.
The daily rate of the total amount paid is calculated in order to find the rate of apportionment. For instance, if a property has an annual rental fee of £720 for each year, then the rate will be £2 for each day. The remaining number of days in that year is multiplied with £2 and that amount is paid as the apportionment.
In case the amount cannot be determined, then an estimated sum is paid as apportionment. Once the actual amount is estimated, the final settlement is to be completed within 10 operational days.
In such cases, a certain amount will be held back by either of the property solicitors. This amount is used to balance and settle the payment, once the original calculations are over. The original amount is deducted from this fund and the remaining is returned to the seller.
6.4 Amount payable
The sum payable on completion is computed as the purchase price. The price of goods is added to this and any deposit previously compensated is deduced. The sum thus obtained, is adjusted with all apportionment and compensations existing to tally the final amount payable.
6.5 Title Deeds
As soon as all money payments are done and all obligations are completed, all title deeds are handed over by the seller, on the date of completion.
6.6 Rent Receipts
The person who gives a receipt for rent or service charge to the purchaser is assumed to be his agent or the person who is entitled to the payment.
6.7 Means of Payment
On completion, the purchaser is to pay the cash to the seller conveyancing solicitor’s account by direct credit (CHAPS transfer). On the other hand, if the property solicitor holds the deposit as a stakeholder, then the money is paid by unrestricted release of the deposit. Practically, this procedure occurs automatically.
6.8 Notice to Complete
If the completion does not take place on the date or time mentioned in the agreement, then the party who was willing to complete can serve a Notice to Complete on the other party. Such situations might arise when the buyer doesn’t have enough funds or seller is not able to vacate for any reason.
Once the notice is served, the completion should be done within 10 working days, exclusive of the date of service. The Standard Conditions of Sale have an option to make a special condition to reduce the time period. In case the deposit is not paid, or only a portion of the deposit is paid, the buyer has to pay the remaining amount immediately after the notice is served.
A seller is said to be willing for the completion, if he has or is immediately willing to vacate the property. Also, the seller’s property solicitors must have completed all the deed and documentations related to the sales. He should also have redeemed all charges against the property and should have removed all notices and restrictions on the property. All the responsibilities under the contract from the seller’s side should be completed on or before the date of completion.
A buyer is said to be willing for completion, if he has enough funds to meet all charges and obligations on the property.
In most cases the property conveyancers will embrace a condition, in which the buyer is responsible to pay the fees associated with the service of Notice to Complete. If such a clause is present in the contract, the buyer’s solicitor should make it a point to reciprocate this. The average fees will generally be around £75 – £150 in addition to VAT. If the seller is planning an onward purchase, it is important to make sure that the fee mentioned in both the contracts are the same.
A notice can be served as soon as the time on the contract is over. But, practically, people consider issuing a notice only when delay in completion causes some kind of damage to the non-defaulting party. For example, if the buyer defaults and the seller isn’t able to complete his onward purchase or redeem his mortgage, then he is liable to to pay an additional interest or fine to his seller. In such a situation, he will serve a Notice to complete, immediately after the time mentioned in the contract.
7 REMEDIES
7.1 Errors or Omissions
If any statement in the agreement or reply to some enquiry was wrongly inserted by the seller, or if an error or omission has taken place with any of the entries, the buyer will be entitled to damages from the seller. For instance, if the seller states that the cooling system is in proper working condition and the buyer finds it is not, then the mistake should be corrected by the seller. On the other hand, if a clause is mentioned like “to the best of my knowledge” by the seller, then the seller will not be legally responsible to the buyer.
The buyer can withdraw from the contract only if the error or omission occurred as a result of fraudulent practices or recklessness. In such cases, the buyer can either quit the contract or accept the property, along with all the issues, caused by the error or omission.
If the seller withdraws from the contract, the deposit amount is to be given back to the buyer with the interest amount (provided this was not accrued due to a breach by the buyer). The buyer is supposed to return all documents to the seller and the contract is to be cancelled.
7.2 Late Completion
If the completion is delayed due to default from either party or both, the person whose default is greater should pay compensation to the other. The amount to be paid is calculated in the following way:
The purchase cost – any deposit compensated by the buyer / 100 * the contract rate (the number affirmed on the face of the agreement) / 365. For instance, the base rate was 5.75%, the agreement rate was 4% on top of the base rate, the purchase cost was £100,000 and the deposit amount £10,000 then the day by day rate of reimbursement would be ((£100,000 – £10,000) / 100 * 9.75) / 365 = £24.04. The amount resulting from any damages due to late completion is reduced from the compensation amounts.
7.3 After Completion
Any liability, which is not agreed by either party, shall not be canceled even after the completion and will continue, until it is satisfied.
7.4 Buyer’s Failure to comply with a Notice to Complete
If the purchaser fails to complete, within 10 days or the time mentioned in contract, the seller can withdraw the contract. In such a case, the seller can keep the deposit amount with him, along with the accrued interest and any associated claims. He also has the right to resell the property. The buyer is obliged to return all the documents and withdraw from the agreement. The seller is not indebted to rescind; it is his/her discretion whether to drop or move forward with the transaction. He can rescind from the contract at any point before the buyer is willing to complete, not necessarily on the immediate day. But the interest will be accrued, according to the contract rate in this period.
7.5 Seller’s failure to comply with a Notice to Complete
If the seller fails to complete within the time mentioned in the Notice, then the buyer has the right to rescind. The seller should give back the deposit along with accrued interest. He will also have to give compensation, if the buyer has claimed damages. The buyer is supposed to give back the documents and withdraw from the contract. Any expenses related with the cancellation of the registration will be borne by the seller. If the buyer is not interested in withdrawing the contract, then the seller will have to pay the interest till the date of completion.
8. LEASEHOLD PROPERTY
8.1 Existing Leases
The seller or seller’s solicitor should provide a copy of the lease to the purchaser prior to exchange. If this is done, then the buyer takes the possessions subject to them. If the tenant is obliged to cover the property, according to the lease, then the seller is supposed to insure the property till completion.
8.2 New leases
If it is a new lease, a sketch of the original lease should be attached along with the bond and the original lease should follow the same structure. If the lease is intended for a period more than seven years, then it should be registered in the Land Registry. In such cases, the seller has to deduce the freehold title to the buyer, so that it is sufficient enough for the purchaser to register the lease with absolute title. If the freehold is registered then all you have to do is to produce the Official Copies. In case it is not registered, then you will have to produce deeds showing the series of ownership for the past 15 years. The title will practically be deduced to the buyer before the exchange. This is not applicable for the auctions. The seller must produce an original title deed and a copy. The original should be marked by the seller and given to the buyer at least five days before the date of completion. The buyer should sign the corresponding copy and give back to the seller on the date of completion.
8.3 Consent
If the landlord’s consent is mandatory to let or sublet the property, then it is the obligation of the seller to get the consent at any cost. All the expenses in this regard should be covered by the seller. The buyer also should provide all the documents and references from his side for getting the consent. If the consent is not granted or obtained within three working days before completion (or before or the agreed time period), or if the consent is given on a condition to which either party does not agree, then either of the parties can rescind the contract. This is not applicable if the seller has not taken any effort to get the consent or the buyer has not provided enough information. In case they rescind, none can claim damages.
COMMONHOLD LAND
UPDATE: The part on common hold land has been detached from the Standard Conditions of Sale 5th edition.
9 CONTENTS
Irrespective of whether a separate fee is paid for the chattels along with the purchase price or not, as per the Standard Conditions of Sales, the following conditions apply:
- The contract for the sale of goods will take effect as the contract itself.
- The chattels are taken in the material state, as they were at the time of exchange, by the buyer.
The buyer can take ownership of the belongings only on the date of completion.
