- The Standard Conditions of Sale
Emily Farrow, in our Residential Property & Conveyancing team, explains the Standard Conditions of Sale.
The Law Society issued the Standard Conditions of Sale Fifth Edition in April 2011 to be used in residential conveyancing contracts (unless the property is being sold at an auction). In fact, if the conveyancing firm is Conveyancing Quality Scheme (CQS) accredited it must use this edition of the Standard Conditions in all contracts for the sale of residential property. Often these conditions are inferred into the contract without actually being printed on it. These conditions cover most foreseeable eventualities arising from a residential property transaction, such as what happens if completion is delayed. There are usually also Special Conditions of Sale which are printed on the contract. These conditions are specific to the particular transaction, for instance if there are occupiers who need to vacate the property prior to completion.
Key points covered in the Standard Conditions of Sale are as follows:-
Standard Condition 1 - General
Where there is more than one buyer or seller the contract can be enforced against them jointly or individually. For example if one of two sellers passes away between exchange of contracts and completion the surviving seller is still obligated to sell the property. Also, if the buyers withdraw from the transaction following exchange of contracts and a full 10% deposit has not been paid the seller can pursue just one of the buyers for the outstanding sum.
After exchange of contracts the buyer named in the contract is not entitled to nominate a third party to buy the property in his place.
Standard Condition 2 - Formation
It is usual for the parties’ conveyancers to agree to treat the contract as exchanged before the duplicate copies are physically exchanged. The date of exchange that is inserted into the documents will be the date of this agreement.
This standard condition also deals with the deposit. For more information regarding this please refer to my blog “Buying a Property: The Deposit Explained”.
Standard Condition 3 – Matters Affecting the Property
This condition covers matters from interests which others have in the property, such as rights of way over it, to adverse entries revealed by the searches, leases affecting the property and the physical state of it.
The property will be sold subject to the following:-
- Matters specifically referred to in the contract - This will usually be all matters contained or referred to in the register of title except for mortgages.
- Matters which are discoverable by inspection of the property before exchange of contracts - It does not matter whether the buyer actually discovers them or not, so long as they are discoverable. It is particularly important that a buyer note, for example, whether there are any adult occupiers of the property other than the seller.
- Matters which the seller does not know about and could not reasonably know about - It would not be reasonable for the buyer to be able to take action against a seller for something he did not or could not have known about at the time.
- Matters which the buyer knows about, except mortgages.
- Entries made before the date of the contract in any public register except that of the Land Registry or its Land Charges Department or Companies House - It is therefore very important that the buyer’s conveyancer ensures that all the relevant searches are carried out.
- Public requirements - A public requirement is defined as any notice, order or proposal given or made by a body acting on a statutory authority.
After contracts have been exchanged the seller must notify the buyer in writing of any new public requirement affecting the property and anything else that the seller learns about that affects the property.
The buyer accepts the property in the condition that it is in at exchange of contracts, unless any special condition to the contrary is added to the contract for example when buying a newly built property which has not yet been finished at the date of exchange. It is therefore advisable for the buyer to re-inspect the property just prior to exchange to check there has been no damaged caused since he first viewed the property.
Standard Condition 4 - Title and Transfer
The buyer may not raise enquiries regarding the property following exchange of contracts. It is therefore important that all relevant enquiries are satisfactorily dealt with prior to exchange. If a matter comes to light following exchange the buyer can raise enquiries relating to it within 6 days of the matter coming to his attention. After this time he loses his right to raise enquiries.
The seller is not required to prove the exact position of the boundaries of the property, who has ownership of the boundary structures or identify separate parts of the property which come under different titles. He is only required to reveal any information he has if requested to do so.
This condition also deals with the drafting of the Transfer document which will ultimately transfer the legal title of the property from the seller to the buyer.
Where the seller is a member of a management company that has an interest in the property or the surrounding area he is required to provide to the buyer on completion the documents required to enable the buyer to become a member of that company.
Standard Condition 5 – Pending Completion
On exchange of contracts the risk in the property passes to the buyer. If anything happens to the property between exchange and completion the buyer is still required to complete the purchase. There is no obligation on the seller to maintain buildings insurance once exchange has taken place. It is therefore very important that the buyer puts the buildings insurance for the property in place just prior to exchange.
It is possible that a seller will allow a buyer into occupation of the property between exchange and completion. If this is the case the occupation will be under a licence and no tenancy will be created.
Standard Condition 6 – Completion
The Standard Conditions require completion to be 20 working days after exchange. However, this is rarely complied with and is usually overridden by inserting the agreed completion date onto the front page of the contract. There is actually no minimum time between exchange and completion and both can take place on the same day if desired by both parties although this needs to be planned for in advance.
The Standard Conditions call for completion to take place prior to 2pm. It is usual for this time to be amended to an earlier time, especially if there is a long chain above. This is to allow time for the whole chain to complete on the same day. The completion time in the contract for a sale transaction should always be prior to the completion time for a related purchase to ensure there is enough time for the conveyancer to forward the monies for the purchase once received on the related sale.
Any income or expenditure affecting the property which has either been paid or received in advance will be apportioned. This is likely to be things such as rental income from a tenant or service charges and ground rent payable in respect of a leasehold property. It is usual for the seller’s and buyer’s conveyancers to agree the apportionments following exchange of contracts but prior to completion. The apportionments will then be added to or subtracted from the purchase monies on completion as appropriate. Where it is not possible to accurately ascertain the figures for an apportionment, a retention can be agreed. A common example of when a retention will be made is where it is expected that there will be a deficit in the service charge accounts for the current year. An additional special condition can be added to the contract requiring the seller’s conveyancer to hold a sum of money deducted from the net proceeds of sale until such time as the amount of the deficit is known. The buyer can then claim from these funds the amount which is due in respect of the seller’s period of ownership. This prevents the buyer having to pursue the seller for payment of the apportionment.
If completion does not take place by the completion time on the completion date the party who is ready and willing to complete can serve a Notice to Complete on the defaulting party. The defaulting party is then given 10 working days (excluding the day on which the Notice was served) to complete the transaction.
Standard Condition 7 – Remedies
If any plan or statement in the contract or made in negotiations leading to it, which the buyer is entitled to rely on, is misleading or inaccurate due to an error or omission by the seller, the buyer may be entitled to damages if there is a material difference between the description or value of the property as represented and as it actually is. For example, if the seller stated that the roof did not leak but it did, then the buyer would be entitled to compensation. However, if the seller stated that as far as he was aware the roof did not leak and he had no reason to believe it did, then no misrepresentation would have been made and the buyer would not be entitled to compensation.
Where there is a misrepresentation resulting from fraud or recklessness on the part of the seller the buyer is entitled to withdraw from the contract entirely. This is also the case if the misrepresentation is such that the buyer would be obliged (to his prejudice) to accept a property differing substantially in quantity, quality or tenure from which he was led to expect. If the contract is cancelled for any reason other than the buyer’s breach of contract the deposit monies will be returned to the buyer.
If completion is delayed then interest will be payable at the rate stated in the contract, by the party who is in default.
If the buyer fails to comply with a Notice to Complete before it expires, the seller may cancel the contract. If he does so he may also keep the deposit and any interest accured, resell the property and any contents included in the contract and claim compensation for losses incurred. If the seller does not cancel the contract immediately the Notice to Complete expires, he may do so at any time until the buyer is ready and able to complete.
If the seller fails to comply with a Notice to Complete before it expires, the buyer may cancel the contract. If he does the seller must return the deposit with any interest accrued. The buyer may also claim compensation.
Standard Condition 8 – Leasehold Property
If buying an existing leasehold property the buyer, having received a copy of the lease, is treated as knowing the terms it contains and buys the property subject to them.
If buying a new lease a copy of the draft document must be attached to the contract and the actual lease must identical to that draft.
If consent of the Landlord is required to the sale of a leasehold property, then this must be obtained at the seller’s expense but the buyer must provide all reasonably required information and references for this purpose.
Standard Condition 9 - Contents
The following provisions apply to any contents that are included in the contract, whether or not a separate price is paid for them:-
- The contract takes effect as a contract for sale of goods.
- The buyer takes the contents in the state and condition they were in at exchange of contracts.
- Ownership of the contents passes to the buyer on the actual completion date.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.