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Most land sale and purchase transactions involve agreeing and exchanging a contract to show the agreement reached between the buyer and the seller. An unconditional contract is one where there are no conditions that need to be satisfied prior to completion. This means that once contracts are exchanged, all parties are committed to complete the transaction.
Here we look at the typical terms for a property contract.
In order to create a contract for the sale of land, it must encompass the following:
1. It must be made in writing.
This will typically include the details of the parties, particulars of the property being sold (which can simply be the whole of a registered title or detail the property by reference to unregistered title documents or a plan where part only of the seller’s land is being sold), confirmation of the price to be paid, the deposit and date for completion. It may also include various other terms, including apportionments of rent or service charge, any arrangements for early access, or details of any contents to be sold with the property.
2. It will contain all of the terms agreed by the parties.
This can either be in a single document signed by all parties, or by using counterparts, where each party signs one part of the contract and these copies are exchanged between the parties. A contract will usually incorporate standard conditions of sale, which are an industry standard set of provisions which govern property transactions. These can be varied and amended to suit a particular set of circumstances, such as amending the standard time by which completion is required. If there are any other terms agreed by the parties, such as the form of transfer to be used, these can be annexed to the contract to confirm that it is the agreed form to be used on completion.
3. A contract for land must be signed by or on behalf of each of the parties named in it.
This can be a wet ink signature, an electronic signature, or signature by an authorised party (such as a solicitor) on behalf of the buyer or seller.
Unconditional contracts are the most common form of property contract used. On exchange, each party to the contract is obliged to proceed to completion, or risk being in breach of contract. When exchanging unconditional contracts, the buyer will need to make sure that they have sufficient funds available for completion, and typically they will need to make sufficient arrangements for necessary insurance of the property. Sellers will need to ensure that any mortgage lender has consented to removal of their charge from the property on completion.
The agreement is crystallised on exchange of contracts. This is the point at which the sale contract is dated, and the completion date is fixed (or if the sale is on notice, the timetable for service of a notice to complete will be agreed), and arrangements for payment of the deposit will be made. Typically, a deposit is 10% of the purchase price. Once contracts have been exchanged, it formally ties both parties into the arrangement for the sale and purchase, with ramifications on each party if they fail to comply with their obligations under that agreement.
If a contract for land contains provisions which need to be altered, then this can only be done by agreement between the parties and the provisions for exchange of contracts repeated. Typically, a variation is undertaken by what is known as a supplemental agreement, which incorporates and varies the terms of the existing agreement.
Aside from unconditional contracts, property sale agreements can take several other forms. The type of property agreement being used will depend on the context of the transaction and depending on the parties’ requirements for the sale and purchase. Where land is being acquired in advance or anticipation of planning permission being granted, it may be more appropriate for an Option Agreement, Conditional Contract, Promotion Agreement or Joint Venture to be used, depending on the nature of the land and the parties’ intentions.
The form of contract to be used should be carefully considered at the outset of a matter to ensure that the appropriate form of agreement is prepared and that all key terms for the transaction, whether practical or commercial, can be properly reflected in the drafting. By liaising with specialist legal advisers at an early stage, you can ensure that a suitable form of agreement is used, which can save considerable time and money in the course of the transaction.
Our Housebuilding and Development team specialises in acting for developers, land traders, landowners and funders in connection with the acquisition, disposal and funding of development sites across the country as well as advising on construction and planning arrangements and plot sales.
Contact us on [email protected] to learn how the team can assist you throughout the development process.
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If you have any questions relating to this article or have any housebuilding and development matters you would like to discuss, please contact us.
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