Progressing to exchange of contracts - Contracts: Standard Conditions of Sale and Standard Commercial Property Conditions

Learning Outcomes

After reading this article, you will be able to explain the role and structure of the Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC) in property transactions, identify and apply their key provisions regarding deposits, risk, completion, and remedies, and advise clients on the practical implications of these standard terms for residential and commercial conveyancing, as required for SQE1.

SQE1 Syllabus

For SQE1, you are required to understand the use and effect of standard contractual terms in property transactions. Focus your revision on:

• The purpose and structure of the Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC)
• Key provisions relating to deposits, risk, completion, and remedies for breach
• The process and consequences of exchange of contracts
• The allocation of risk and insurance obligations
• The procedures for delayed completion and contractual remedies

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the usual amount of deposit payable under the SCS and SCPC, and how is it typically held?
2. When does risk in the property pass to the buyer under the SCS and SCPC?
3. What is the effect of serving a notice to complete under the standard conditions?
4. How do the SCS and SCPC differ in their approach to compensation for delayed completion?

Introduction

The Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC) are widely adopted sets of contractual terms used in property transactions in England and Wales. The SCS is primarily used for residential sales, while the SCPC is tailored for commercial property. Both provide a clear, predictable framework for exchange of contracts, completion, and remedies, reducing the need for bespoke drafting and minimising disputes.

The Role of Standard Conditions in Property Contracts

Standard conditions are incorporated into most property sale contracts to ensure clarity and fairness. They set out the rights and obligations of buyers and sellers, covering key issues such as title, deposit, risk, completion, and remedies for default. By using these conditions, parties benefit from established legal principles and avoid unnecessary negotiation over routine matters.

Key Term: Standard Conditions of Sale (SCS)
A set of pre-drafted contractual terms, currently in its fifth edition, used mainly in residential property transactions to govern the sale and purchase process.

Key Term: Standard Commercial Property Conditions (SCPC)
A set of standard terms, currently in its third edition, designed for commercial property transactions, addressing additional complexities such as VAT and occupational leases.

Structure and Key Provisions of the SCS and SCPC

Both the SCS and SCPC are divided into three main parts: the particulars of sale (front page), the standard conditions (middle section), and special conditions (back page). The particulars record the transaction details, the standard conditions apply unless specifically varied, and special conditions address transaction-specific issues.

Deposits

Under both the SCS and SCPC, the buyer is usually required to pay a deposit of 10% of the purchase price on exchange of contracts. The deposit is typically held by the seller’s solicitor as stakeholder, meaning it cannot be released to the seller until completion. The deposit demonstrates the buyer’s commitment and provides security for the seller if the buyer defaults.

Key Term: stakeholder
A neutral party (often the seller’s solicitor) who holds the deposit on trust for both parties until completion or default.

Key Term: agent (for deposit)
If the deposit is held as agent for the seller, it may be released to the seller before completion, increasing risk for the buyer.

Completion and Risk

The standard conditions specify the completion date and the process for transferring title and funds. Importantly, risk in the property (i.e., responsibility for damage or loss) passes to the buyer on exchange of contracts, not on completion. This means the buyer must insure the property from exchange.

Key Term: risk
The responsibility for loss or damage to the property; under SCS and SCPC, this passes to the buyer at exchange of contracts.

Remedies for Delay and Default

If completion does not occur on the agreed date, the standard conditions provide for compensation at the contract rate (usually 4% above base rate) on the balance of the purchase price. Either party may serve a notice to complete, making time of the essence and requiring completion within 10 working days. If the buyer fails to complete, the seller may rescind the contract, forfeit the deposit, and claim damages. If the seller fails to complete, the buyer may rescind and recover the deposit with interest.

Key Term: notice to complete
A formal notice served by a party ready, able, and willing to complete, requiring the other party to complete within 10 working days, after which the contract may be rescinded for non-compliance.

Special Conditions

Special conditions are used to vary or supplement the standard conditions for the specific transaction. Common examples include varying the deposit amount, specifying how the deposit is held, or addressing particular title issues.

Application in Residential and Commercial Transactions

The SCS is used for most residential sales, providing a familiar and efficient process for solicitors and clients. The SCPC is used for commercial property, addressing additional issues such as VAT, occupational leases, and more complex title matters. Both sets of conditions can be adapted by special conditions to suit the needs of the parties.

Worked Example 1.1

A buyer is purchasing a residential property for £400,000. The contract incorporates the SCS. The buyer can only pay a 5% deposit on exchange. The seller agrees to accept the reduced deposit.

Answer: The SCS allows the parties to agree a reduced deposit, but the seller should be advised of the increased risk if the buyer defaults. The contract should specify the reduced deposit and may require the buyer to pay the balance up to 10% if completion is delayed or the buyer defaults.

Worked Example 1.2

A commercial buyer exchanges contracts under the SCPC for a retail unit. The property is damaged by fire before completion.

Answer: Under the SCPC, risk passes to the buyer at exchange. The buyer is responsible for insuring the property from exchange and must complete the purchase even if the property is damaged, unless the contract provides otherwise.

Exam Warning

Under both the SCS and SCPC, risk passes to the buyer at exchange of contracts. Failure to advise the buyer to insure the property immediately may result in professional negligence if loss occurs.

Revision Tip

Always check whether the deposit is held as stakeholder or agent. If held as agent for the seller, the buyer may have difficulty recovering the deposit if the seller defaults.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The SCS and SCPC are standard contractual terms used in residential and commercial property transactions.
• The buyer usually pays a 10% deposit on exchange, held as stakeholder unless otherwise agreed.
• Risk in the property passes to the buyer at exchange of contracts under both sets of conditions.
• Compensation for delayed completion is payable at the contract rate; under the SCS, either party may be liable, but under the SCPC, only the buyer is liable.
• A notice to complete makes time of the essence and allows the contract to be rescinded if completion does not occur within 10 working days.
• Special conditions are used to vary or supplement the standard conditions for the specific transaction.

Key Terms and Concepts

• Standard Conditions of Sale (SCS)
• Standard Commercial Property Conditions (SCPC)
• stakeholder
• agent (for deposit)
• risk
• notice to complete