FLK2 · Property Practice

Contract & exchange

SQE1 revision notes — the key rules, leading cases and common traps for this topic, in plain English and current to 2026.

PP.03 — Contract & Exchange (Property Practice, FLK2)

Core rule: contracts for land must be in a specific form

A contract for the sale/disposition of land must comply with LP(MP)A 1989 s.2: it must be in writing, contain all expressly agreed terms (in one document, or each part where contracts are exchanged), and be signed by or on behalf of each party. Non-compliance makes it void, not merely unenforceable. Contrast pre-1989 contracts and LPA 1925 s.40 (now repealed). Note s.2 does not apply to leases of ≤3 years taking effect in possession at market rent, public auction contracts, or financial-market contracts.

Drafting the contract

The seller's solicitor drafts it. It incorporates the Standard Conditions of Sale (SCS, 5th edn) for residential/general transactions, or the Standard Commercial Property Conditions (SCPC) for commercial deals, plus Special Conditions. Two parts are prepared (one for each party) for exchange.

Key SCS terms to know

Deposit: normally 10% of the price, held by the seller's solicitor as stakeholder (paid over only on completion). Contrast "agent" — riskier for buyer.
Risk passes to the buyer on exchange, so the buyer should insure from exchange (the property is at the buyer's risk between exchange and completion).
Completion: 20 working days after exchange (default); completion money by 2pm or it counts as next-day for interest/compensation.
Title guarantee: full or limited (LP(MP)A 1994 covenants).

Exchange — the moment of binding commitment

Before exchange: no obligation, either party may withdraw (gazumping/gazundering possible). On exchange, a binding contract forms; the buyer acquires an equitable interest (estate contract) and should protect it — by notice (registered land, LRA 2002) or a C(iv) land charge (unregistered land).

Exchange methods follow the Law Society Formulae:

Formula A — one solicitor holds both signed parts.
Formula B — each holds their own client's part.
Formula C — used in chains (synchronised release).

Common traps

s.2 needs all terms in writing and signatures of both — a missing term or signature is fatal (void).
Deposit held as stakeholder ≠ agent.
Risk passes on exchange, not completion — insurance gap is examinable.
Estate contract must be protected by registration to bind a later purchaser.
SCS apply only if incorporated; Special Conditions override Standard Conditions.

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A woman is the treasurer of a small amateur football club. Members pay £20 each month in cash. Under the club rules she accepted on becoming treasurer, she must bank the subscriptions into the club's dedicated account within seven days. One month she receives £200 in subscriptions and spends the cash on her own gas bill that same day. She intends to replace the money from her wages before anyone notices, and pays an equivalent £200 into the club account two weeks later. Which statement best explains how section 5(3) of the Theft Act 1968 applies to the subscriptions when she pays the gas bill?

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