When buying or selling a residential property, the contract you sign will usually incorporate the Standard Conditions of Sale. At the time of writing the Standard Conditions of Sale are on their 5th edition, which was launched in 2011 by the Law Society.
The conditions provide for the terms under which the sale or purchase will operate. They are not mandatory, so a Conveyancer does not have to use them, but it is very rare to see a contract that does not include them. The conditions are drafted to accommodate all foreseeable consequences of a sale or purchase.
The conditions are divided into 9 sections.
Section 1 General
This section provides for the definition of words and terms in the documents. It confirms that:
- If there is more than one buyer or seller, the obligations of the contract will be enforceable against all parties
- If a notice needs to be served, how and what timeframe can be used
- The purchase price and contents are inclusive of VAT
- The buyer cannot transfer the benefit of the contract, so the buyer cannot make the seller transfer to anyone other than the buyer.
Section 2 Formation
This section confirms the rule on when the exchange of contract takes place.
On the day of exchange the buyer must send the sum of 10% of the purchase price to the seller’s Conveyancer. If the money is sent by cheque and the cheque does not clear, the seller can withdraw from the contract without penalty.
This section also determines how the 10% can be paid and the use of the 10% deposit for an onward purchase. If the full 10% is not paid under the contract, the 10% is still owed but in order to cover the difference the seller would have to sue the buyer.
Auction sales must have a reserve price set, and a seller can bid on the property up to that reserve price. An auctioneer can refuse any bid, but if a bid is accepted the deposit for the property is paid to the auctioneer as the seller’s agent.
Section 3 Matters Affecting the Property
The section stipulates that a seller must sell the property free from encumbrances such as mortgages and tenants, but subject to:
- Those mentioned in the contract
- Those discoverable by inspection of the property before the exchange
- Anything the seller does not or could reasonably know about
- Entries made before the date of the contract in any public register (such as entries which would be revealed in searches) except those maintained by HM Land Registry, its Land Charges department (not to be confused with the local land charges register which is maintained by the Local Authority) and Companies House
- Public requirements.
The buyers accepts the property in the state it is in at the time of the exchange of contracts – although this does not apply to newly built or converted properties. Therefore it is a prudent course of action for the buyer to visit the property just before exchange of contracts.
This section also deals with the sale of a property subject to a lease. A buyer has to take the property subject to the terms of the lease that he has had notice of.
Section 4 Requisitions
This section requires that a seller proves that they own the property being sold. If the seller is selling a property of a deceased person, a Grant of Probate will be required.
After exchange a buyer may not raise any enquiries on matters revealed in the title or encumbrances noted above in section 3. If a matter does arise after exchange and was not revealed beforehand, a buyer may raise enquiries within 6 working days (but no longer than 6 working days).
Section 4 also explains the time frame for drafting, providing and approving the transfer documents.
The seller does not have to prove the exact boundaries, or who owns fences, ditches or walls, or identify separate parts of the property which come under different title numbers. However they should disclose information within their possession.
Informally apportioned rent or rent charges are not to be regarded as a defect in title.
The transfer is sold with full title guarantee, unless the contract specifically states the title guarantee is limited or has no title guarantee at all.
For leasehold properties, when the transfer does not extend to the physical state of the property, it means that the seller is selling with full title guarantee but is not liable to the buyer to remedy any current breach of the lease relating to the physical state of the property.
Where it is a requirement for a buyer to become a member of a management company, the seller needs to produce the documents required by the buyer at their own expense. Although this does not apply to companies which are limited by shares.
Section 5 Risk
Insurance and Occupation Pending Completion
This section states that the buyer is responsible for the property from exchange and there is no obligation on the seller to insure the property from this point, unless they have to under a tenancy or lease agreement. If the seller does insure the property they must keep the insurance in place until completion and do nothing to invalidate the policy.
If the buyer is allowed to occupy the property between exchange and completion, they do so under licence only. The licence cannot be given to someone else, but members of the buyer’s family may occupy the property too. The buyer pays/indemnifies for all outgoings on the property. The buyer pays the seller a fee and the must vacate the property when the licence ends.
Section 6 Completion
This section defines the date and time of completion, although in practice a mutually agreed date and time is used. There are occasions when the time of day for completion is not met and the party who is ready, willing and able to complete can serve a Notice to Complete on the other party. Excluding the day of notice, the other party has 10 working days to complete. The buyer must pay the full 10% deposit.
Any income or expenditure should be apportioned on completion (utilities are dealt with by the companies supplying it). For apportionment purposes the seller is deemed to own the property on the day of completion.
The amount payable on completion is the purchase price plus any chattels, less any deposit already paid.
As soon as the buyer has complied with all of their obligations the seller must hand over the title deeds on completion.
Section 7 Remedies
If any plan or statement is or was misleading or inaccurate due to an error or omission by the seller, the remedies available are:
- If there is a material difference between the description or value of the property or contents the buyer is entitle to damages
- An error or omission resulting from fraud or recklessness, or the property differs substantially in quantity, quality, or tenure the buyer can rescind (cancel) the contract.
If completion is delayed by either party, the defaulting party must pay compensation to the other party in accordance with the contract’s agreed rate.
Liabilities still in force post completion continue until satisfied.
If following the Notice to Complete the buyer fails to complete within 10 working days, the seller can cancel the contract and keep the deposit along with any accrued interest, claim damages and proceed to re-sell the property.
If following the Notice to Complete the seller fails to complete within the 10 working days, the buyer can cancel the contract, and the seller must return the deposit with accrued interest. The buyer must return any documents to the seller, at the seller’s expense, and may claim damages.
Section 8 Leasehold Property
This section deals with leasehold properties, which are typically flats – but can be houses as well. If the buyer has been informed of a property subject to a lease, they purchase the property subject to the lease terms.
For new leases a draft of the lease must be attached to the contract. If the lease term is for more than 7 years then it must be registered at the Land Registry and the seller must prove the freehold ownership.
The seller must produce two copies of the lease – an original and a counterpart. The original is to be signed by the seller and handed to the buyer on completion. The counterpart is to be sent to the buyer at least 5 working days before completion. The buyer must then sign this counterpart and return it to the seller in time for completion.
If a landlord’s consent is needed to assign (sell) a lease then the seller has to obtain the consent at their own expense. The buyer has to supply all information and references reasonably required. If the Landlord’s consent has not been obtained 3 working days prior to completion because of a condition either the buyer or seller reasonably objects to, then either party can rescind (cancel) the contract and neither party can claim damages from each other.
Section 9 Contents
This section concerns the contents of the property, and confirms that:
- The contract is to take effect as a contract for the sale of goods
- The buyer takes the chattels in the physical state they were in at the date of exchange
- The buyer takes possession of the chattels on the date of actual completion.