Contracts for the sale of land

A contract for the sale of land, or of any interest in land, is void unless it complies with Law of Property (Miscellaneous Provisions) Act 1989, s 2 (LP(MP)A 1989). It must:

If a contract is varied after exchange then the variation must be in a document that itself complies with LP(MP)A 1989, s 2.

Re Stealth Construction [2011] EWHC 1305 (Ch) indicates that emails might contain the elements required to comply with LP(MP)A 1989, s 2. Consequently, emails containing the terms of a proposed agreement should be marked subject to contract' to avoid inadvertently and prematurely creating a binding agreement.

In Khan v Clemments the parties' solicitors exchanged contracts without checking that the draft transfers were in identical form. Each side then argued that its own version of the contract formed the basis of the deal. The court held that there was no contract capable of satisfying the requirements of LP(MP)A 1989, s 2.

In exceptional cases the court has 'saved' contracts from the full rigour of LP(MP)A 1989, s 2 by finding that terms omitted from the contract did not relate to the sale of the land, but formed a separate 'collateral' contract.

LP(MP)A 1989, s 2 does not affect the creation or operation of resulting, implied or constructive trusts. The House of Lords' ruling in Yeoman's Row v Cobbe [2008] All ER (D) 419 (Jul) suggests that in commercial transactions the court will be reluctant to assist an experienced party who has failed to ensure his own protection by exchanging a valid contract. Individuals in private/family transactions may be more readily protected.

Standard Conditions of Sale

Both residential and commercial contracts are generally formed by incorporating standard conditions. For residential contracts the current form is the Standard Conditions of Sale (5th edn) (the 'SCs'), and for commercial the Standard Commercial Property Conditions (2nd edn) (the 'SCPCs'). Where standard conditions are incorporated the parties may decide to exclude or vary them. Exclusions or variations will be set out in the special conditions and will prevail over the standard conditions.

The SCs and SCPCs both provide that the sale will be with full title guarantee unless the contract states otherwise. In any case where limited, or no, title guarantee is to be given an express provision is needed to negate that standard condition.

The SCs provide that the property is at the buyer’s risk from the date of the contract, reflecting the ‘open contract’ position. The SCPCs are silent on the point so the 'open contract' position applies and risk passes to the buyer on exchange.

The SCPCs are divided into 'Part 1' and 'Part 2' conditions. The 'Part 2' conditions will apply only if (and to the extent) that they are specifically incorporated into the contract. They deal with:

and in each case provide a 'menu' of clauses to fit the requirements of the transaction.

For VAT, alternative clauses are given for use where the transaction will be exempt, standard rated or the transfer of a going concern.

Enforcement

Time is not of the essence for completion. A strict deadline for completion, and for termination if that deadline is not met, must be established by serving a notice to complete. Only if the defaulting party still does not complete can the other party terminate the contract.

The SCs and the SCPCs both cater for service of a contractual notice to complete. In each case the person serving the notice must be 'ready, willing and able to complete'. The court has held that a seller was 'ready, willing and able' even though it did not have, among other things, the resignations of the outgoing directors and new bank mandates for the buyer available. These were merely administrative matters which could have been put in place very quickly had the buyer been ready to complete.

Where one party is in fundamental or 'repudiatory' breach of the contract (eg by misrepresentation), the other party may terminate the contract and claim damages. No notice to complete is required.

Where the buyer is in default and the contract is terminated (or where specific performance is not ordered) the seller is generally entitled to retain any deposit received. However, the court always has discretion to order the deposit’s return to the buyer. Factors may include whether the seller will suffer any loss or if the seller is itself responsible in some way. The court has no power to return part of the deposit. It is all or nothing. The court may decide not to order its return if that would leave the seller significantly out of pocket. Neither a claim for specific performance, nor a claim for the return of a deposit can be maintained by one co-purchaser (Bhandari v Hanover National (Holdings Developments) [2010] All ER (D) 38 (Aug)).

Clauses purporting to exclude Law of Property Act 1925, s 49(2) serve no purpose. A seller can still sue a buyer and claim damages for any loss as a result of the failure to complete. This could cover the difference between the contractual price and the price for which the seller eventually sells the property as well as any additional expenses on the subsequent sale.