Progressing to exchange of contracts - Special conditions in contracts

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Overview

Exchanging contracts is a key moment in property sales, formally establishing a binding agreement between parties. While standard conditions set the basic structure, special conditions tailor the contract to meet unique needs and manage potential risks. For SQE1 FLK2 candidates, a strong understanding of special conditions is vital for exam success and practical work. This article examines these special provisions, helping you tackle complex legal aspects in property law.

Legal Framework and Importance of Special Conditions

Statutory Basis and Case Law

Special conditions derive their legitimacy from contract law principles, supported by statutory rules. The Law of Property (Miscellaneous Provisions) Act 1989, Section 2, requires land sale contracts to be in writing and include all agreed terms. This highlights the need for well-crafted special conditions.

Influential cases have shaped how special conditions are interpreted:

  • Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38: Emphasized the importance of what a document means to a reasonable person.
  • Wood v Capita Insurance Services Ltd [2017] UKSC 24: Stressed the need to consider both language and business context for bespoke contract terms.

Functions and Legal Effects

  1. Customization and Risk Management: Special conditions adjust contracts to specific requirements, allocating responsibilities differently than standard terms.

  2. Conditional Elements: These provisions often introduce conditions that must be met for completion. In Patel v Mirza [2016] UKSC 42, the court affirmed that contractual conditions are enforceable, barring conflict with public policy.

  3. Legal Safeguards: Clearly defined conditions help resolve disputes. Arnold v Britton [2015] UKSC 36 noted that clear terms are enforced, even in unfavorable deals.

Categories of Special Conditions

Special conditions vary, each with distinct purposes:

  1. Conditions Precedent: The contract depends on specific events before becoming binding, like needing mortgage approval.

  2. Conditions Subsequent: The contract may become void if certain events occur after signing, such as failing to secure an environmental permit.

  3. Warranties: Assurances about the transaction aspects, breaches of which can result in compensation or contract cancellation.

  4. Indemnities: Provide financial protection against potential losses due to the other party's actions.

Drafting Tips and Best Practices

Clarity and Precision

Precision is vital when drafting special conditions. Ambiguity can lead to disputes. In Rainy Sky SA v Kookmin Bank [2011] UKSC 50, the court favored interpretations aligned with business sense.

Example: For planning permission:

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 10 units, within 6 months from this agreement."

Aligning with Standard Conditions

Special conditions should work well with standard ones to prevent conflicts. If conflicts arise, special conditions usually take precedence, as seen in McMeel v Sonatrach [2007] EWHC 2678 (Comm), but this shouldn’t be relied upon as a fallback strategy.

Timing Considerations

Special conditions often involve deadlines, especially between exchange and completion. Consideration of potential delays is important.

Example: Regarding a pre-completion survey:

"The Buyer may conduct a structural survey no later than 14 days before completion. If repairs exceed £10,000, the Buyer can: (a) Cancel the agreement and get a deposit refund; or (b) Proceed with a purchase price reduction, agreed upon by an independent surveyor."

Practical Applications in Property Deals

Conditional Contracts

Special conditions often form conditional contracts, depending on certain events.

Case Study: In Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382, a lease renewal depended on planning permission. The court stressed the necessity of precise drafting.

Tenanted Properties

Special conditions address issues like rent reviews or lease terms in tenanted properties.

Example: For a freehold sale with tenancies:

"The Seller confirms all rent reviews under existing leases are settled before completion. Reviews due before completion require the Buyer's consent, which shouldn’t be unreasonably withheld. All related correspondence must be shared within 3 days."

Environmental Concerns

Commercial transactions may require special conditions for environmental issues.

Example: On site contamination:

"The Buyer can conduct an assessment within 30 days of exchange. If contamination exceeds standards, options are: (a) Cancel the agreement for a deposit refund; or (b) Require the Seller to meet standards before completion, extending the timeline but not beyond 6 months."

Historic Properties

For historic properties, special conditions ensure compliance with preservation laws.

Example: For historic features:

"The Seller confirms all original features are present as listed. The Buyer can inspect these before completion. The Seller agrees not to object to the Buyer's planning permission applications for preservation."

Conclusion

Special conditions in property contracts tailor agreements, manage risks, and handle specific situations. For SQE1 FLK2 candidates, understanding this is essential, intersecting with property law and conveyancing. Key takeaways include:

  1. The legal basis of special conditions, including statutory and case law observations.
  2. The necessity of precise drafting to prevent disputes.
  3. The different types of special conditions and their uses in property transactions.
  4. The careful combination of special with standard terms while factoring in timing.
  5. Practical uses in areas like conditional contracts, tenanted properties, environmental matters, and historic sites.

By skillfully handling special conditions, legal professionals can manage complex transactions, protect clients, and ensure smooth contract exchanges. This knowledge is essential for exams and real-world practice.