Alternativas de estudio

Broadly speaking, from a legal point of view, the two most crucial points, the conveyancing Rubicons of no return in a sale transaction, are exchange of contracts, as it is commonly called (ie the creation of a binding contract) and completion. Completion is the stage at which (in final performance of the contract) the title to the property is finally transferred to the purchaser (subject to registration in the case of registered title) and in return the purchaser hands over the balance of the purchase money. This is dealt with later (see Chapter 14). We are concerned here with exchange.

In accordance with ordinary contract law, until there is a binding contract neither prospective vendor nor prospective purchaser is legally bound to the other.

Either side can withdraw for any reason whatsoever without penalty or liability.¹ If a prospective purchaser has paid what is commonly called a preliminary deposit (para 2.3.1) she can recover it.

The moment a binding contract does come into existence, both parties are legally bound. Each party becomes liable to complete the contract and, wrongfully failing to do so, will be liable for breach of contract. From this moment their respective rights and obligations are determined by the terms of the contract; and cannot unilaterally be altered.

1 But note that financial liability may have been incurred for work done to the solicitors, estate agents, valuers, etc. And liability to the other party may be incurred under the principles of proprietary estoppel and restitution; see Regalian Properties Ltd v London Docklands Development Corporation [1995] 1 WLR 212; [1995] Conv 135; and see below, para 9.5.3.

It is therefore important to be able to identify the contract terms; to understand them and be able to advise the client in simple English on their implications; and to be able to negotiate and draft any necessary amendments.

5.3.1 The content of a sale contract

The terms of the contract, like indeed the terms of any contract, are derived from two sources:

(a) Express terms. The express terms are those which have been expressly agreed between the parties and written into the contract. In general, the parties can agree to whatever terms they like—for example, that completion will take place on a certain date. As will be seen, this freedom of contract is limited in a few respects by statute and equity.

In principle, and occasionally in practice, the parties may form a contract which contains no more than the parties (who is selling to whom), the identity of the property and the price. This gives the basic minimum certainty to constitute a valid contract. Such a contract is commonly referred to as an open contract. In contrast to a sale of goods contract, in the absence of agreement on price, the courts will not imply a reasonable price and there will be no contract.

(b) Implied terms. A moments thought, even to a Timothy brain, will indicate that a sale of land transaction involves a whole galaxy of other matters which must, or may have to, be decided—for example, on what date must completion take place; what is to happen if the building is destroyed by fire before completion; is the purchaser required to pay a deposit; what if the vendor’s husband suddenly claims an interest in the property and refuses to move out? However, failure to deal expressly in the contract with any or all of these points does not leave the parties in a contractual vacuum. Provided there is a valid contract, the law contains, enmeshed in past decisions and statute, what can be seen as a reserve storehouse of principles and terms which will be applied to resolve any matter not settled by the expressly agreed terms. These implied terms are commonly referred to as the terms implied under an open contract (and lawyers talk of ‘the open contract position’).

If a contract is a contract by correspondence² and in so far as it is not governed by its own express terms, it will be governed by what are

2 See Steam v Twitchell [1985] 1 All ER 631; Pips (Leisure Productions) Ltd v Walton (1982) 43 P &

CR 415. But can a valid contract of correspondence be created under the Law of Property (Miscellaneous) Provisions Act 1989, s 2? See below, para 9.5.

generally known as the statutory conditions of sale. This is a set of conditions drawn up by the Lord Chancellor under s 46 of the Law of Property Act 1925 to govern such contracts.³ Parties to any contract can use these conditions if they wish by express incorporation as a set of standard conditions; but they deal only with the very basic matters and are not resorted to in practice.

In practice, parties would be foolish to leave all matters to be decided by these implied terms; and will incorporate a full set of express terms into their contract dealing with more or less all issues that might arise.

The practice is for the vendor’s solicitor to draft the contract for the purchasers solicitor to approve or suggest amendments. The terms as finally negotiated will then be incorporated into the final form of the contract ready for exchange (Chapter 9).

If a solicitor sat down, with a blank sheet, and attempted to draft a full set of express terms every time she acted on a sale, she would soon find herself using substantially the same clauses time and time again. She would, in effect, be creating her own standard form of contract.

All sale of land transactions have a great deal in common. It is therefore possible and desirable to have available a single, standard set of terms which can be used in whole or part in any sale of land contract. Indeed, as will be seen, conveyancing solicitors use standard forms and precedents as the basis for most stages in any transaction.

Use of such a standard set of contract terms is advantageous for a number of reasons: (i) It saves time and money; (ii) A lot of thought should have gone into the drafting of a set of standard terms. This means that, hopefully, it will deal with all points that may arise in a comprehensible and suitable manner, reasonably fair to both sides. Without their use, it would be all too easy to overlook (or not deal fully) with important issues—and typically, the issue not dealt with would be the one to give rise to a dispute; (iii) Such standard terms are likely to have come before the courts at some time; their meaning is likely to have acquired the certainty of a judicially binding construction.

Sets of standard terms (commonly described as standard conditions—though of course they are made up of both conditions and warranties) have been published. The one most commonly used by lawyers today for residential conveyancing is probably that produced jointly by the Law Society and the Solicitors’ Law Stationery Society Ltd, known as ‘The Standard Conditions of Sale (Third Edition)’. These Standard Conditions have been incorporated into a printed form of contract, published by the same two bodies, and used as the basis for illustration throughout this book.

3 SR & O 1925/779.

Alternatively, a firm may draft and use its own set of standard conditions. Or a solicitor may think it desirable to make her own standard amendments (to be incorporated as a matter of course in each transaction) to a published set.

There are, of course, matters which will necessarily need to be changed from transaction to transaction—most obviously, the identity of the parties, the property and the price; and the date for completion; on a sale of part the restrictive covenants that may need to be imposed on the purchaser’s land and so on. Any term which is put in to add to or amend the standard conditions is commonly referred to as a special condition (though, again, it may of course itself be a condition or a warranty).

At this point, a caveat needs to be entered. No set of standard conditions is perfect; or necessarily reflects what both sides want and are prepared to negotiate for. And no two transactions are exactly alike. Timothy’s attitude that there is a standard form for everything which only needs filling in is a dangerous one. For every transaction it is important to consider whether there is any feature of that transaction or of the client’s requirements which necessitates amendment of whatever standard conditions are being used.

5.3.2 Void conditions

A number of contractual conditions are made void by statute. For example, the overreaching machinery is fundamental to the philosophy of the 1925 legislation;

that is that buying and selling land is about buying and selling the legal estate. The legislation is designed to keep equitable, trust interests off the title, to guarantee that a purchaser will take free of any such without having to investigate them.

Section 42(1) of the Law of Property Act 1925 accordingly provides that any stipulation requiring a purchaser to take a title made with the concurrence of a person entitled to an equitable interest, if it can be made without such concurrence (that is by operating the overreaching machinery) will be void. To deter avoidance of this rule, s 42(2),(3) and (8) provide that any stipulation requiring the purchaser to pay towards the cost of operating the overreaching machinery or of getting in any outstanding legal estate will be void.⁴

The section does not insist that the overreaching machinery must be used;

merely that the vendor cannot insist on it not being used. In practice, it is common

4 Compare s 110(1) and (5) of the Land Registration Act 1925, designed to prevent the sanctity of the register as the basis of conveyancing of registered land from being undermined.

to have a person (such as a person who has originally contributed to the purchase price) with a certain or a possible equitable, trust interest in the property to join in the contract or otherwise sign a consent to release her interest.

Under s 48 of the Act any term which might restrict a purchaser in the selection of a solicitor to act for her will be void; including one that the conveyance or registration of title is to be carried out by a vendor-appointed solicitor at the purchaser’s expense.

The section does not prevent the vendor stipulating the form (ie the wording) of the conveyance and charging a reasonable sum for doing so. And this is commonly done by estate developers for the sake of preserving uniform conveyancing on the estate and avoiding negotiation over the wording of each individual conveyance.

Equally, it does not prevent the customary practice whereby, on the grant of a lease, the lease is prepared by the lessor’s solicitor at the cost of the lessee (subject to the Costs of Leases Act 1958 (para 17.2.3)).

As to conditions requiring the purchaser to cure stamping defects, see para 10.7.1.

5.3.3 Drafting the contract: general points

In addition to what has been said, a few basic objectives should be kept in mind when drafting the contract.

(a) You must draft the contract so as to reflect accurately your client’s instructions and authority. This of course also involves, where necessary, drawing the client’s attention to and explaining the points on which her instructions are necessary.

(b) You must be very careful to create in the contract only obligations which your client is capable of fulfilling. The objective is not to draft your client into court for breach of contract. This applies particularly in deciding what title can be offered to the purchaser.

Since the abolition of the rule in Bain v Fothergill a vendor will be liable to pay substantial damages for loss of bargain and not just the purchaser’s legal costs, if there is a defect in title which is not dealt with in the contract (para 10.6.4).

Timothy has failed miserably to pursue either of these objectives. He has lost a crucial part of the instructions; he has drafted the contract without checking what if any title to the land the Goldbergs have. His laxity is not unique.

In Errington v Martell-Wilson⁵ Latey J opened his judgment as follows:

‘From first to last this has been an unhappy action, punctuated by a series of mistakes and errors of judgment. This went on until the eve of the hearing when the Plaintiff’s solicitors included in the large bundle of documents for the use of the judge a letter from the Defendant’s solicitors, informing the Plaintiff’s solicitors of the amount of a payment into court.’

Mrs Martell-Wilson was an old lady of 82 in 1977. The plaintiff’s solicitor approached her with a view to buying a piece of land which his client wanted to develop. Eventually, a letter came from her solicitors to the plaintiff’s solicitors:

‘all we have been able to extract from her as yet in relation to the property—she appears for the time being to have mislaid the title deeds of which we have on our file a schedule receipted by her—is a copy of a plan, referred to by her as ‘the deeds’, comprising in our opinion considerably more land, although it includes the sites of Nos 1 to 10 Walton Terrace that is now the subject of this transaction. In the meantime we have been able to prepare from the papers in our file a draft contract and this we are enclosing, together with a duplicate, with a view to getting this matter moving at least. Although we cannot be certain, we do not believe that the copy plan herewith is the same as the one referred to in the draft contract.’

Note, in passing, the importance if you part with deeds which you hold of getting a receipted schedule signed by the person to whom they are passed.

The matter did move—without the deeds!—and the next thing we read in the report is that ‘a contract was signed dated 28 March 1977. Within a few days the Plaintiff discovered that [Mrs Martell-Wilson] had no title to the property.’ She had in fact forgotten, being old, that she had sold it five years earlier. Needless to say (the defence of mental incapacity and unconscionable bargain having been rejected on the facts—see Cresswell v Potter⁶), the plaintiff was held entitled to damages—in fact for misrepresentation (para 4.4.1).

I will now turn to consider some of the special conditions which need to be drafted, following the sequence of the form used by Timothy. The meaning and possible amendment of the various, printed, general conditions will be considered where appropriate in the text.

5 (1980) Lexis transcript.

6 [1978] 1WLR 255.