General Conditions of Sale Charles Ward guides us through the conditions attached to land transactions in the UK and explains how they deal with failure to complete
The General Conditions of Sale provide the small print of any land transaction. Everyone knows they are there, but no-one looks at them until something goes wrong. They then come under intense scrutiny as lawyers for each party look to protect their position.
It happens most commonly when the transaction cannot complete on the scheduled date because of a logistical hiccup. While completion delays can occur for many reasons, they most often follow a delay in the release of mortgage funding required by a buyer’s lawyer to complete the purchase on the scheduled date.
Even if completion takes place the following day, there is still the inconvenience and expense of cancelled removal vans, as well as the disappointment and uncertainty. It is also a problem multiplied when the delayed transaction is one link in a chain of transactions which were due to complete on that day. Each lawyer in that chain will then look at the General Conditions to assess the financial consequences of that delay in relation their own client. There may be interest payable from the buyer to the seller on outstanding completion monies for the period of the delay, repeated across the whole of the chain. And it is the General Conditions which will determine who pays interest to whom and how that interest is to be calculated.
In a small minority of cases there is a more serious reason why the buyer cannot access the funds required to complete the purchase. It is at that point that the seller, being “ready, willing and able to complete” loses patience and looks for a way to bring the contract to an end; perhaps forfeiting the buyer’s 10% deposit. Again, it is the General Conditions which provide the contractual machinery which will enable the seller’s lawyer to serve on the buyer’s lawyer a “completion notice” giving the buyer a final deadline to complete the transaction, around two weeks hence, failing which the contract will become terminated and the deposit forfeited.
The mechanics
“General Conditions” is itself a generic term, as there are several different versions of General Conditions which can be used. They set out in the tiniest detail the mechanics of a typical conveyancing transaction. They are the matters which an experienced conveyancer will already take for granted. Examples covered include:
? The manner in which the 10% deposit is to be paid and how the seller’s lawyer can utilise that money between exchange of contracts and completion;
? Who insures the property between exchange and completion;
? How the seller is to prove their existing ownership of the property and their capacity to transfer that ownership to the contract purchaser;
? Who prepares the transfer documentation;
? The manner in which the transaction is completed.
And as we have seen, it also deals with the situation when something goes wrong.
It is even arguable that without the General Conditions, a land contract would not even be valid. This is because Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 states that a contract for the sale of land must be made in writing and incorporate all the agreed transaction terms in one document or, where contracts are exchanged, in each.
This means that any land contract would be legally incomplete unless a copy of the General Conditions are either incorporated within the contract document or are attached to it.
For almost all residential transactions, the standard contract document is prepared on a four-page pro forma document. The format is always the same: on the front page are listed the transaction details. Space will also be left for the completion date to be inserted, once contracts are exchanged. In the middle two pages are the General Conditions. And on the back page are the Special Conditions. Listed among the Special Conditions are the specific features of the transaction which are unique to that contract.
These specifics will always state whether the property is sold with vacant possession or with a tenant in occupation. The Special Conditions will also list any matters which the property sale is subject to. Conventionally, these will include all restrictions and other matters affecting the land title, with the exception of any mortgages which will be discharged on completion of the sale.
Finally, the Special Conditions will make express reference to any variations to the printed General Conditions which have been agreed between lawyers. These variations often relate to small technical matters affecting the mechanics of the transaction and reflect the personal preferences of the conveyancers. For instance, a favourite variation of many sellers’ conveyancers is to bring forward the deadline for receipt of the purchase money from the printed 2pm on the day of completion, to 1pm. It means that any money received after 1pm would then be treated as having been received the next working day, and contractual interest calculated accordingly.
Historic perspective
Until the early 1980s, conveyancers had a choice as to the type of General Conditions they wished to use in a land contract. And as it was conventionally the seller’s lawyer who drafted the sale contact for the buyer’s lawyer’s approval, it was the seller who had first call as to which set of conditions were used. There were several variants.
Excepting those General Conditions which some local law societies published themselves for use by their members, there were two market leaders: the Law Society’s Conditions of Sale and the independently published National Conditions of Sale. As the National Conditions were perceived to be more “pro-vendor”, it was more often than not the National Conditions which were chosen. Each of the two rivals were then subject to constant revision and reissue to meet legal changes as well as changes in conveyancing practice.
During the 1960s an exchange of contracts meant exactly that. The buyer’s conveyancer would travel to the office of the seller’s conveyancer carrying a signed contract and a deposit cheque. A physical exchange of documents would then take place. Completion of the property transaction took place the same way, with the buyer’s lawyer going to the seller’s lawyer carrying a banker’s draft for the balance of the completion money and collecting the title deeds. That’s the way it had been for more than 100 years. But by the end of the 1970s conveyancing practice had been transformed.
Physical exchange had been replaced by a notional telephone exchange, in which lawyers agreed verbally with each other that contracts would be treated as having been exchanged from that moment and the parties bound accordingly. Banker’s drafts were replaced by electronic funds transfers, which meant that physical attendance was no longer necessary. To meet changing conveyancing practice, the Law Society invented “exchange formulae” to define the professional obligations of any lawyer exchanging contracts by telephone. These exchange formulae – which, depending on the circumstances, were defined as Formula A; B or C – were then incorporated in all future revisions of the General Conditions.
About the same time as the Law Society was publishing its new exchange formulae, another revolution was taking place: the National Conditions merged with the Law Society Conditions of Sale to create new Standard Conditions of Sale. At this point the National Conditions had reached its 20th edition, which remains the last stand-alone version of those conditions.
The new Standard Conditions were originally intended to form part of a wider conveyancing protocol to speed up the process: in which the seller’s lawyer would provide the buyer’s lawyer with something akin to a home information pack and containing, among other things, the results of recent conveyancing searches.
While much of that early protocol quickly fell into disuse, some documents, like the new Property Information Form, survived. That and the Standard Conditions of Sale are now incorporated into almost every residential conveyancing transaction. The Standard Conditions are already in their fifth edition.
Charles Ward is a solicitor and manages the London Borough of Sutton’s property and contracts team