Preparation for and Exchange of Contracts

Introduction

Once the draft contract has been negotiated, the parties move towards **exchange of contracts** — the moment at which a legally binding contract for the sale of land comes into existence. This chapter examines the building blocks of the contract: the **standard conditions of sale** (the **SCs** and **SCPCs**), the **special conditions** drafted for the particular transaction, the **deposit** and the capacities in which it is held (**stakeholder** and **agent**), **insurance and risk**, the **basics of VAT**, the **certificate of title** issued to a lender, and the **practice, method and authority to exchange**. It closes with the **consequences of exchange** — the passing of beneficial ownership and risk to the buyer.

Assessment focus

For the SQE1 FLK2 assessment, you must be able to **apply** the standard conditions of sale to a realistic client scenario rather than merely recall them. Be ready to identify the correct **standard condition** (e.g. specified incumbrances, title guarantee, contract rate, deposit), to advise on whether a **special condition** is required to vary the standard position, to explain the difference between holding a deposit as **stakeholder** and as **agent**, and to choose the correct **formula of exchange** (A, B or C). Risk and insurance, VAT on commercial property, and the timing of the **certificate of title** are all examinable. Questions are single best answer questions (SBAQs) set in client-based scenarios; this is a closed-book assessment, so you must recall the key condition numbers, the leading cases and the consequences of exchange from memory.

Study tips

1) Memorise the **default standard conditions**: sale **free from incumbrances** save those in SC 3.1.2 / SCPC 4.1.2; **full title guarantee** (SC 4.6.2 / SCPC 7.6.2); deposit of **10%** held as **stakeholder** (SC 2.2 / SCPC 3.2); contract rate = **Law Society's interest rate** (SC 1.1.1(e)). 2) Remember a **special condition** is needed (i) to deal with matters peculiar to the transaction and (ii) to **vary** a standard condition. 3) **Stakeholder v agent** — a neutral holder who needs both parties' consent (or a court order) to release, versus a holder for the seller who can pass the money to the seller. 4) **Risk passes on exchange** — the buyer must insure from exchange (*Clarke v Ramuz*; *Phillips v Lamdin*). 5) Learn the **exchange formulae**: Formula A (one solicitor holds **both** signed parts), Formula B (each solicitor holds **their own** client's signed part), Formula C (chains; needs the client's **express** authority — *Domb v Isoz*).