Understanding Contracts for the Sale of Property
A contract for the sale of property is an important legal document and care must be taken to ensure that it is properly drafted. Errors in preparing the contract could mean that the intentions of the buyer and seller are not properly realised or even that the transaction is rendered void.
Whether a standard form of contract is adopted – such as the Law Society’s Standard Form of Contract – or the parties draw up their own contract, there are several elements which should be included. If the National Conveyancing Protocol is being followed, the Law Society’s Standard Contract should be used.
The contract becomes binding on both the buyer and the seller once exchange has taken place. If either subsequently pulls out of the sale, compensation may be payable to the other party.
The following are some important elements of a contract for the sale of property.
Special Requirements for Contracts for the Sale of PropertyFor most agreements there are three main requirements which make a contract valid:
- The parties to the contract intend to create a legal relationship between them;
- One party makes an offer which the other party accepts; and,
- There is “consideration” for the contract. Consideration is a legal term which essentially means that something of value is exchanged between the parties.
- Be in writing;
- Specifically include all the terms that the parties have agreed; and,
- Be signed by (or on behalf of) all parties to the contract.
The Description of the PropertyA prospective purchaser has viewed number 42 Sunshine Avenue, liked what they saw and decided to put in an offer. The property forming the subject of the contract may seem fairly obvious. However, issues regarding land are rarely straightforward. Boundaries and restrictions on the use of the land may mean that the property to be purchased is not quite what the buyer (or seller) expected. Therefore, it is vital that the contract includes a precise description of the property – including any additional land that may be included in the sale, such as a parking space. A plan of the property – which corresponds to the plan held by the Land Registry – may also be included.
Special Terms and Conditions of Property ContractsA set of standardised conditions for property contracts have evolved over the years and will be used in many property sales. There are general conditions which will apply to most sales – such as the timetable for the conveyancing process and who is responsible for the property between exchange and completion. Special conditions applying to a particular sale may also be included in the contract. A special condition may also be used to show that the parties have decided not to include one of the standard, general conditions.
A contract for the sale of property may include a “lock-out” agreement. Such a clause is included to prevent gazumping - where a seller accepts a higher offer from another prospective buyer.
The contract should include a specific term if any fixtures and fittings or other items are to be included in the sale. These items may then be listed on a separate document or schedule which can be attached to the contract.