Contract & exchange

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 Contrast pre-1989 contracts and LPA 1925 s.40 (now repealed).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.