It is up to the seller’s solicitor to decide on the special conditions that are needed when drafting the contract. The following are the areas to be considered:
The seller’s duty of disclosure
Incumbrances
A seller’s conveyancing solicitor is ideally expected to list out the incumbrances that affect the property by way of special conditions. To do so, he is required to investigate the title properly. Unless there are special conditions mentioned in the contract, the buyer takes the property free of all incumbrances except those mentioned in the SC and SCPC 3.1.2. When the incumbrances are mentioned as special conditions, the buyer takes the property subject to them and the ones mentioned under SC and SCPC 3.2.1 (a). Thus, the sale becomes subject to incumbrances.
But what happens when the seller fails to expressly mention these incumbrances? If the incumbrances fall under one of the categories mentioned under SC and SCPC 3.2.1, then the seller is said to have disclosed them. But if it does not, the buyer can withdraw the contract and even claim compensation. The following are the matters covered under SC and SCPC 3.2.1.
Matters discoverable by an inspection of the property before the contract (3.1.2(b))
The paragraph is the same in SC and SCPC. Under this paragraph, obvious incumbrances need not be disclosed expressly. But to avoid disputes, it is common for conveyancing solicitors to disclose all incumbrances in the contract, irrespective of the fact that they could be discovered by an inspection.
Matters the seller does not and could not reasonably know about
Here again, the paragraph is the same in both SC and SCPC. Thus, the property that is being sold is subject to any incumbrances that the buyer would be aware of, irrespective of the fact that the information was gathered by way of searches, enquiries, inspection, survey, or even third parties including neighbours and estate agents. Mortgages are included from such incumbrances because they are usually paid for before the buyer takes charge of the property.
Matters, other than mortgages, which the buyer knows about (3.1.2(c))
The paragraph is the same in SC as well as SCPC and is intended to act as an antidote to the rule that properties should be sold free from incumbrances. But for issues to come under this provision, the seller should prove that there could be no reasonable knowledge of the matter. However, in reality it is unlikely there could be an incumbrance that the seller did not know, nor could have known by the seller’s solicitor when he investigated the title.
Matters other than mortgages, which the buyer knows about (SC 3.1.2(d))
The provision appearing in the SC indicates that the property is being subject to incumbrances that the buyer knows about irrespective of the fact that the information was obtained through the seller, conveyancing searches, enquiries, inspection, survey or even neighbours and estate agents. But mortgages are excluded as these are paid off even before completion of transaction.
Entries made before the date of the Contract in any public register except those maintained by Land Registry or Land Charges Registry or by Companies House (SC 3.1.2(e))
The paragraph that mentions this only appears in the SC. Incumbrances that are entered into the register in case of a registered land, or those that are registered as land charges in case of an unregistered land need not be deemed to be disclosed and hence should be expressly mentioned in the contract. Such incumbrances should be revealed even if they are discovered by an inspection or is already known to the buyer. In fact, good conveyancing practices demand that they should be included in the contract so as to avoid problems in the future about what the buyer knows, or should have known. But issues that are entered in public registers like the Local Land Charges Register need not expressly disclosed in the contract.
Matters, other than monetary charges or incumbrances, disclosed or which would have been disclosed by the searches and enquiries which a prudent buyer would have made before entering into the contract (SCPC 3.1.2 (d))
This paragraph means that the buyer buys the property subject to all entries in the title at the Land Registry, even when they are not specifically mentioned in the contract. The exceptions to this are incumbrances and monetary charges, for example, existing mortgages. Thus, when SCPC becomes the basis for a draft, the conveyancing solicitor need not include all incumbrances as a separate condition. But it is common for conveyancers to include such incumbrances in a special condition to avoid confusion.
Public requirements (SC 3.1.2(f)) and SCPC 3.1.2 (e))
Public requirements are notices, orders or proposals made by a statutory authority such as Local Authority. These are not to be expressly mentioned in the contract.
Defects in title
SCPC 3 provides that the seller has sold the property free from all defects except those mentioned by SCPC 3.1.2, and incumbrances if any, should be specified as a special condition. Failing to do so, can make the seller liable to pay compensation for non-disclosure. It is also common to include a clause in the contract, that after contract is exchanged, the buyer cannot raise any objection to a defect.
Thus, defects such as missing details of covenants will obviously be revealed in the title register and need not be disclosed by a special condition under SCPC (3.1.2 (d)). However, it is common practice to include all details in the draft so as to bring everything to the notice of the buyer before completion of sale.
Matters that do not require disclosure
There may be issues in a land that may not bind the buyer; these need not necessarily be disclosed to the buyer. For instance, issues such as interests of beneficiaries on land that can be overreached on sale by two trustees, physical defects, etc. need not be disclosed. It is up to the buyer to ascertain if issues such as physical defects exist and hence the need to commission a survey. But if the seller makes a deliberate attempt to cover up the physical defects, then a claim may lie for a tort of deceit.
Insurance for breach of a restrictive covenant or the other defect in title
When it is found upon investigation that there is a defect in the title or a restrictive covenant was breached, the buyer should consider purchasing an insurance to cover these defects. Restrictive covenant insurance and defective title insurance are easily available in the market; however, they are subject to the fact that the insurance company finds such a risk acceptable. In most cases, it is common for the seller to agree to pay for such insurance. When such insurance is taken, it should be specifically mentioned as a special condition that is inserted in the contract. This condition should contain details such as the sum of money insured, terms of the policy, the whereabouts of the original policy papers (the seller should have handed over the originals to the buyer) etc.
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