2. Amendments to the Contract Checklist (Workshop 6, Task 1) PDF

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Amendments to the Contract Checklist – Workshop 6, Prep Task 3/Workshop Task 1  Clauses referred to are from a template contract provided in the Workshop. Clause 1.1 - Definitions  Leave Blank – Date o In Workshop 6 we acted for the buyer of Kenulf House, Arcadian Investments Limited. o It is the seller who traditionally drafts the contract. They will then send a copy of this to the buyer to check. o The buyer amends the contract, and returns this to the seller. o The contract therefore will not be dated until the amendments are accepted and the contracts are exchanged. At this stage, when the contract is being amended, the Date section should be left blank. Are the parties’  Name? details correct?  Address?  Company Number? o In the Workshop Task Arcadian’s Company Number was incorrect. Agreed Terms  Completion Date: o Leave blank. SCPC 8.1.1 provides that the date for completion will be 20 working days after the date of the contract. The completion date will therefore not be inserted until the contract is dated.  Contract Rate: o Should state “the Law Society’s Interest rate from time to time in-force”. o WS 6: a Contract Rate of 4% above the Law Society’s Interest Rate is proposed. The Law Society’s interest rate is 4% above-base. o It will be in the seller’s interest to have a contract rate as high as possible, however a rate of anything above the Law Society’s interest rate is punitive to the buyer. As a buyer’s solicitor this term should NEVER exceed the Law Society rate of 4% above-base. o SCPC 1.1.1(e) provides that the contract rate will be the “Law Society’s interest rate from time to time in-force”. o The special condition repeats this: this is standard practice but could be left blank.  Deposit: o SCPC 2.2.1 provides that the buyer must pay a 10% deposit by the completion date. o WS6: it was agreed that a deposit of 10% would be paid so this definition was repeated in the contract unnecessarily. o A special condition will be necessary if the parties agree to a lower percentage deposit.  Property: o Check the details are correct. o WS6: the Title no. for Kenulf House was wrong.  Purchase Price

o Is the seller charging VAT? o Remember that VAT must be charged on properties which were completed within three years of the date of sale. The seller has an option to charge VAT on properties constructed more than three years before the date of sale. o How old is the property? Is the seller charging VAT? o WS6: We were told in the heads of terms that “the Seller will not opt to tax the property”. Therefore the Purchase Price should have been listed as “inclusive of VAT”. Clause 5 - Deposit Deposit

“Full” or “Limited” Title Guarantee?

 SCPC 2.2.2 provides that the deposit must be held as a stakeholder.  In WS6, a Special Condition of the contract provided that the deposit was to be held by the seller’s solicitor as agent.  Check the client’s instructions, however it is unlikely to be in the seller’s interest to have the deposit held as agent.  In such circumstances the seller’s solicitor would be entitled to release the deposit to the seller client between exchange and completion which could cause issues for the buyer if the seller goes insolvent, as they will be an unsecured creditor.  If the deposit is held as stakeholder, the buyer will be able to get it back at any point up to completion.  Thus in WS6 we removed this clause; it is in the buyer’s interest for SCPC 2.2.2 to apply. Clause 8 – Title Guarantee  Where a property is sold with “full title guarantee”, the full range of covenants under the Law of Property (Miscellaneous Provisions Act) 1984 are implied into the transfer (not the contract), specifically: o That the seller has the right to sell the property. o That the seller will, at his own cost, do what he reasonably can to ensure the buyer has good title. o That he is selling the property free from all charges and encumbrances and all other rights exercisable by third parties other than those which the seller does not and could not be reasonably expected to know about.  Where a property is sold with “limited title guarantee”, the key difference is that the final covenant above does not apply. The seller merely covenants that since the last sale, he has not created any encumbrances over the property but cannot speak for the former owners.  The property should only be sold with “limited title guarantee” if the seller has no personal knowledge of the property e.g. he is a PR or trustee. Clause 9 – Matters Affecting the Property

Matters Affecting the Property (Incumbrances)

 SCPC 3.1.1. provides that the seller sells the property free from incumbrances OTHER than those mentioned in SCPC 3.1.2. SCPC 3.1.2 provides that this will include incumbrances “specified in the contract”.  In WS 6, the original wording of the special condition provided that the Seller would sell the Property free form incumbrances other than “any matters contained in or referred to in the entries or records made in the registers…”  If we left this unamended, this would mean we would have taken the property

subject to all incumbrances mentioned in the Register of Title, including the mortgage.  This clause needs to be altered to reflect the incumbrances the buyer is actually taking i.e. “the matters contained or referred to in entry 2 on the property register and entry 1 on the charges register…” Clause 10 - VAT Inclusive or Exclusive of VAT? Exclusion of SCPC 1.4.2

 Check whether the “amount… payable by the Buyer to the Seller” should be exclusive or inclusive of VAT. If no VAT being charged this should be “inclusive”.  In WS 6 as VAT was not chargeable, Clause 10.2, which specified what was to happen “if any VAT is chargeable”, was unnecessary.  In WS6, the contract, as a special condition, excluded SCPC 1.4. If no VAT is being charged, providing a special condition makes clear that VAT is not being charged, SCPC 1.4 can be excluded in its entirety.  SCPC 1.4.2 provides that IF there is a change in the law between signing the contract and completion which means the sale must be subject to VAT, then the buyer shall pay the seller an additional amount equal to the VAT.  A buyer’s solicitor will often want to exclude this by a Special Condition to ensure, in the unlikely event that the law does change, that their client does not have to pay an additional unexpected sum. Clause 11 - Completion

Time for Completion

 The time for completion specified by SCPC 8.1.2 is 2PM.  In WS 6, this clause was varied to say that completion should take place at 12:00 noon.  As a buyer, we want the most time possible to enable us to complete and ensure funds are successfully transferred, therefore this alteration was deleted. Clause 14 - Joint and Several Liability

Joint and Several Liability

 In WS 6, we deleted this clause. This clause should only be included if the purchasers are co-owners. In WS 6 the buyer was a company....