Professionally drawn contracts to sell land include standard terms and conditions drafted by the Law Society. Practitioners can select from two alternative sets of conditions. The standard commercial property conditions (2nd ed) are designed for use in commercial transactions. They are based on, but in many respects, differ substantially from, the standard conditions of sale (4th ed), which were drafted for use in residential transactions (but are also used to sell commercial properties).
Both sets of conditions restrict the buyer’s ability to transfer the benefit of its contract to a third party. Interestingly, however, the standard commercial property conditions go further than the standard conditions of sale. They provide that the seller “may not be required to transfer the property in parts or to any person other than the buyer”. Consequently, the seller can require the buyer to accept a transfer of the land and pay stamp duty land tax on the purchase price, even though the buyer has arranged to sell the property to a third party on completion of the transaction and would be entitled to tax relief were the property to be transferred directly to its subpurchaser.
Pittack v Naviede [2010] EWHC 1509 (Ch); [2010] PLSCS 172 is the first decision on the effect of the abbreviated restriction that appears in the standard conditions of sale. The buyer accepted that the restriction prevented him from assigning the benefit of the contract to a third party who could step into his shoes because this could expose the seller to unwanted contractual obligations to the assignee. He took the view, however, that he was still entitled to direct the seller to transfer the property to his subpurchaser on completion.
The seller relied on paragraphs in the Law Society’s Conveyancing Handbook and The Standard Conditions Of Sale: A Conveyancer’s Guide, which suggest that the restriction in the standard conditions of sale was included to prevent sellers from having to transfer land to third parties. He accepted that he could not prevent back-to-back transfers, but argued that the buyer would have to complete the subsale separately.
The judge acknowledged that the provision in the standard conditions of sale was not couched in technical terms, but decided that it was impossible to equate the substitution of a subpurchaser with a transfer of the benefit of the contract. Importantly, the standard commercial property conditions recognise a clear distinction between them and, in the absence of an explicit exclusion, a buyer is entitled to direct its seller to transfer the property to a third party of its choosing.
Practitioners who were puzzled by commentaries suggesting that the standard conditions of sale restrict subsales now know that they do not do so. None the less, it remains open to sellers to include an explicit exclusion in the terms adopted in the standard commercial property conditions, if this is what they want to achieve.
Allyson Colby is a property law consultant
