Special conditions in contracts

Can You Answer This?

Practice with real exam questions

Sasha, a first-time property developer, is purchasing farmland from Evelyn for a potential residential project. The farmland is near a protected environmental zone, raising concerns about possible contamination issues and future building restrictions. Both parties are keen to finalize their deal but worry about the risk of the planning authority denying substantial development changes to the land. They agree to incorporate special conditions in their contract to address these uncertainties. Each party desires a provision ensuring that if planning permission is refused or significant environmental hazards are discovered, the sale can be terminated under specified terms.


Which of the following provisions best reflects a properly drafted special condition that aligns with accepted legal principles for clarity and enforceability?

Overview

Exchanging contracts represents a key moment in property transactions, establishing a legally binding agreement under the law. While standard conditions provide a general framework, special conditions tailor the contract to specific circumstances, addressing unique needs and managing potential risks. In the context of property law, understanding these special conditions is significant. This article examines the principles and requirements of special conditions in contracts, covering their legal foundations, categories, and practical applications.

Legal Framework and Importance of Special Conditions

Statutory Basis and Case Law

The legitimacy of special conditions is rooted in contract law principles and reinforced by statutory provisions. For instance, the Law of Property (Miscellaneous Provisions) Act 1989, Section 2, mandates that land sale contracts be in writing and include all agreed terms. This mandates the necessity of meticulously drafted special conditions.

Historically, case law has significantly influenced the interpretation and application of special conditions:

  • Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 highlighted the importance of interpreting a document's meaning as it would be understood by a reasonable person.

  • Wood v Capita Insurance Services Ltd [2017] UKSC 24 stressed the need to evaluate both the language and the business context when understanding bespoke contract terms.

Why are special conditions so important in property contracts?

Functions and Legal Effects

Just as a tailor adjusts a suit to fit an individual's measurements, special conditions modify the standard terms of a contract to suit the particular needs of the parties involved. They serve several key functions in property transactions:

  1. Customization and Risk Management: Special conditions address specific requirements, altering responsibilities beyond the standard provisions to manage risks effectively.

  2. Conditional Factors: These provisions often introduce conditions that must be fulfilled for the contract to proceed to completion. For example, obtaining planning permission or financing approval may be necessary steps before finalizing the deal. In Patel v Mirza [2016] UKSC 42, the courts affirmed the enforceability of contractual conditions, provided they do not conflict with public policy.

  3. Legal Safeguards: Clearly articulated special conditions act as a shield in disputes, protecting the interests of the parties. The case of Arnold v Britton [2015] UKSC 36 demonstrated that courts uphold unambiguous terms, thereby ensuring fairness in the agreement even if they result in an unfavorable outcome for one party.

Categories of Special Conditions

Special conditions are not one-size-fits-all; they serve diverse purposes depending on the transaction's specifics.

  1. Conditions Precedent: These are conditions that must occur before the contract becomes binding or before an obligation is performed. They function like a safety check before a flight—if the aircraft doesn't pass inspection, it doesn't take off. Similarly, a condition precedent could be the buyer securing a mortgage. Without financing, the purchase cannot proceed.

  2. Conditions Subsequent: These conditions define events that, if they occur after the contract is formed, can terminate the agreement. For instance, if a significant environmental issue is discovered after signing, it could void the contract.

  3. Warranties: These are assurances regarding specific aspects of the transaction. If a seller warrants that a property is free from structural defects, and this proves untrue, the buyer may have a right to compensation.

  4. Indemnities: These provisions require one party to compensate the other for certain losses. It's akin to an insurance policy within the contract, guarding against potential liabilities.

Drafting Tips and Best Practices

Clarity and Precision

Precision in drafting special conditions is imperative, as ambiguity can lead to disputes. If directions are vague, it might cause confusion. Similarly, unclear contract terms can cause misunderstanding and conflict.

In Rainy Sky SA v Kookmin Bank [2011] UKSC 50, the court favored interpretations aligning with commercial common sense.

Example:

For a planning permission clause:

  • Imprecise: "The sale is subject to obtaining planning permission."

  • Precise: "The sale requires the Buyer to secure planning permission for a three-storey residential building with at least ten units, within six months from the date of this agreement."

Aligning with Standard Conditions

Special conditions should complement standard terms to avoid conflicts. While special conditions typically prevail in case of inconsistency, as seen in McMeel v National Provident Life [2007] EWHC 777, it is prudent to ensure all terms work together to prevent disputes.

Timing Considerations

Deadlines often accompany special conditions, particularly for actions that need to occur between exchange and completion. Accounting for potential delays is necessary to avoid penalties or contract termination.

Example:

Regarding a pre-completion survey:

"The Buyer may conduct a structural survey no later than fourteen days before completion. If the survey reveals repairs exceeding £10,000, the Buyer may:

(a) Terminate the agreement and receive a refund of the deposit; or

(b) Proceed with the purchase, subject to a price reduction agreed upon by both parties."

Practical Applications in Property Deals

Conditional Contracts

Special conditions frequently form the basis of conditional contracts that hinge on certain events.

Case Study:

In Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382, a lease renewal was contingent upon securing planning permission. This case underlines the critical nature of precise drafting in conditional contracts.

Tenanted Properties

When dealing with tenanted properties, special conditions can address aspects like rent reviews or lease obligations.

Example:

When selling a freehold subject to tenancies:

"The Seller warrants that all rent reviews under existing leases due before completion have been settled. For any reviews falling due between exchange and completion, the Seller must obtain the Buyer's consent before agreement. All related correspondence shall be shared with the Buyer within three days of receipt."

Environmental Concerns

Given the increasing focus on environmental responsibilities, especially after the UK's commitment to net-zero emissions by 2050, property transactions often include provisions to address contamination. For example, the discovery of harmful substances like asbestos or soil pollution can significantly impact the property's value and usability.

Example:

On site contamination:

"The Buyer shall conduct an environmental assessment within thirty days of exchange. If contamination levels exceed legally acceptable standards, the Buyer may:

(a) Terminate the agreement and receive a refund of the deposit; or

(b) Require the Seller to remediate the contamination before completion, provided that completion is not delayed beyond six months from the date of exchange."

Historic Properties

Transactions involving historic properties often require special conditions to ensure compliance with preservation laws. For instance, when dealing with a property like those found in the historic city of Bath, with its renowned Georgian architecture, special conditions ensure that any modifications respect the heritage status.

Example:

Regarding historic features:

"The Seller confirms that all original historic features of the property are intact and listed. The Buyer may inspect these features prior to completion. The Seller agrees not to contest any planning permission applications submitted by the Buyer aimed at preserving these features."

Conclusion

In the complex realm of property transactions, special conditions serve as necessary instruments for addressing complicated scenarios. Consider a sale involving a tenanted, historic building with potential environmental contamination. The contract must integrate special conditions that manage existing tenancies, comply with heritage preservation laws, and address environmental remediation requirements.

This detailed interplay of conditions requires meticulous drafting, grounded in legal principles outlined in statutes like the Law of Property (Miscellaneous Provisions) Act 1989 and informed by case law precedents such as Wood v Capita Insurance Services Ltd. Conditions precedent ensure necessary approvals occur before completion, while warranties and indemnities provide legal safeguards against unforeseen liabilities.

For example, the buyer may include a condition precedent requiring a satisfactory environmental assessment, complying with environmental legislation standards. Simultaneously, warranties regarding the state of the historic features, aligned with national heritage guidelines, protect the buyer's interests.

Understanding these principles and their practical application is essential for legal professionals in property law. Precise drafting, alignment of special conditions with standard terms, and careful consideration of timing are essential skills. Proficiency in these concepts not only leads to successful transactions but also ensures compliance with legal obligations and protection of client interests.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Barbri SQE
One-time Fee
$3,800-6,900
BPP SQE
One-time Fee
$5,400-8,200
College of Legal P...
One-time Fee
$2,300-9,100
Job Test Prep
One-time Fee
$90-350
Law Training Centr...
One-time Fee
$500-6,200
QLTS SQE
One-time Fee
$2,500-3,800
University of Law...
One-time Fee
$6,200-22,400

Note the above prices are approximate and based on prices listed on the respective websites as of December 2024. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

Practice. Learn. Excel.

Features designed to support your job and test preparation

Question Bank

Access 100,000+ questions that adapt to your performance level and learning style.

Performance Analytics

Track your progress across topics and identify knowledge gaps with comprehensive analytics and insights.

Multi-Assessment Support

Prepare for multiple exams simultaneously, from academic tests to professional certifications.

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal