Learning Outcomes
By the end of this article, you will be able to identify the purpose and legal effect of special conditions in property contracts, distinguish between standard and special conditions, explain how special conditions are used to address specific risks or requirements, and apply key principles for drafting and interpreting special conditions in the context of SQE1-style scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the function and application of special conditions in contracts for the sale of land. As you work through this article, focus your revision on:
- The distinction between standard conditions and special conditions in property contracts
- The reasons for including special conditions and their legal effect
- Common types of special conditions (e.g. conditional clauses, indemnities, warranties)
- How special conditions interact with standard conditions and the contract as a whole
- Drafting and interpreting special conditions in practice
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.
- What is the main difference between a standard condition and a special condition in a property contract?
- Give two examples of situations where a special condition might be required in a contract for the sale of land.
- If a special condition conflicts with a standard condition, which will usually take precedence?
- What is the legal effect if a special condition is drafted ambiguously or is uncertain?
Introduction
Special conditions are a key feature of contracts for the sale of land. While standard conditions provide a general framework for most transactions, special conditions allow the parties to address specific risks, requirements, or circumstances that are unique to the deal. For SQE1, you must be able to identify when and why special conditions are used, understand their legal effect, and apply the principles for drafting and interpreting them in practice.
The Role of Special Conditions in Property Contracts
A contract for the sale of land will typically incorporate a set of standard conditions (such as the Standard Conditions of Sale or the Standard Commercial Property Conditions). These standard conditions cover the routine aspects of the transaction. However, every property and every deal is different. Special conditions are used to tailor the contract to the parties’ needs, manage particular risks, or make the contract conditional on certain events.
Key Term: special condition
A contractual term added to the standard conditions in a property contract to address a specific issue, risk, or requirement in the transaction.
Why Are Special Conditions Needed?
Special conditions are used to:
- Make the contract conditional on an event (e.g. obtaining planning permission, finance, or a satisfactory survey)
- Allocate responsibility for known risks (e.g. indemnity for breach of covenant, environmental issues)
- Deal with non-standard arrangements (e.g. delayed completion, retention of part of the price, sale subject to tenancies)
- Modify or override a standard condition to suit the parties’ agreement
Key Term: conditional contract
A contract that only becomes binding or is only to be completed if a specified event occurs or a condition is satisfied.
Types of Special Conditions
Special conditions can take many forms, but the most common include:
- Conditions precedent: The contract is not binding, or completion cannot occur, unless a specified event happens (e.g. buyer obtains mortgage offer).
- Conditions subsequent: The contract may be terminated if a specified event occurs after exchange (e.g. adverse search result).
- Warranties: Promises about the state of the property or other facts (e.g. seller warrants there are no disputes).
- Indemnities: One party agrees to compensate the other for loss arising from a specified risk (e.g. breach of a positive covenant).
Key Term: indemnity covenant
A promise by one party to compensate the other for loss or liability arising from a specified matter, often used to cover ongoing risks after completion.
Drafting and Interpreting Special Conditions
Special conditions must be drafted with care. They should be clear, precise, and unambiguous. If a special condition is uncertain or incomplete, it may be unenforceable or lead to disputes.
Key Term: ambiguity
Uncertainty in the meaning of a contract term, which can lead to disputes or the term being declared void for uncertainty.
Special conditions should not contradict the standard conditions unless this is intentional. If there is a conflict, the special condition will usually prevail, but this should be made clear in the contract.
Worked Example 1.1
A contract for the sale of a house includes a special condition: "Completion is conditional on the buyer obtaining a mortgage offer from a high street lender within 21 days of exchange." The buyer fails to obtain a mortgage offer by the deadline.
Answer: The contract is conditional. If the buyer does not obtain a mortgage offer within 21 days, the contract will not proceed, and neither party will be obliged to complete. The special condition protects the buyer from being bound without finance.
Worked Example 1.2
A contract includes a special condition: "The seller will provide an indemnity covenant to the buyer in respect of any future enforcement of a positive covenant to maintain a boundary wall." After completion, the local authority demands repairs to the wall.
Answer: The buyer can require the seller to compensate them for the cost of complying with the positive covenant, as the seller’s indemnity covenant covers this risk.
Common Situations Requiring Special Conditions
Conditional Contracts
A contract may be made conditional on:
- The buyer obtaining satisfactory finance
- Planning permission being granted for a proposed development
- The seller obtaining consent to assign a lease or discharge a mortgage
If the condition is not satisfied by a specified date, the contract will usually be rescinded and the deposit returned.
Indemnities and Ongoing Risks
Where the seller remains liable for a risk after completion (e.g. as original covenantor under a positive covenant), a special condition can require the buyer to provide an indemnity covenant in the transfer.
Sale Subject to Tenancies
If the property is sold subject to existing tenancies, special conditions may:
- Set out the tenancies and require the seller to provide copies
- Allocate responsibility for rent arrears or rent reviews
- Require the seller to obtain the buyer’s consent before agreeing to any rent review or lease variation between exchange and completion
Environmental or Planning Issues
If there is a known risk of environmental contamination or a planning issue, a special condition may:
- Make completion conditional on a satisfactory environmental report
- Require the seller to remediate contamination before completion
- Provide for a price reduction or retention if an adverse matter is discovered
Interaction with Standard Conditions
Special conditions are intended to supplement, not duplicate, the standard conditions. If a special condition is inconsistent with a standard condition, the special condition will usually take precedence. This should be made explicit in the contract.
Key Term: precedence of special conditions
The rule that, in case of conflict, a special condition will override a standard condition in the contract.
Drafting Tips
- Use clear, simple language
- Specify deadlines and consequences if a condition is not met
- Avoid ambiguity—define key terms
- Ensure the special condition does not unintentionally conflict with standard conditions
- State expressly if the special condition is to override a standard condition
Exam Warning
If a special condition is vague or uncertain, it may be declared void for uncertainty and have no legal effect. Always ensure conditions are clear and complete.
Revision Tip
When revising, practise drafting short special conditions for common scenarios (e.g. conditional on finance, indemnity for breach of covenant) and check for clarity and completeness.
Summary
Special conditions are essential for tailoring property contracts to the parties’ needs and managing specific risks. They must be clear, precise, and consistent with the contract as a whole. In SQE1, you must be able to identify when special conditions are required, understand their legal effect, and apply the principles for drafting and interpreting them in practice.
Key Point Checklist
This article has covered the following key knowledge points:
- Special conditions are used to address specific risks or requirements in property contracts.
- They can make the contract conditional, allocate responsibility for risks, or modify standard terms.
- Common types include conditional clauses, indemnities, warranties, and conditions precedent.
- Special conditions must be clear, precise, and consistent with the contract as a whole.
- If a special condition conflicts with a standard condition, the special condition usually prevails.
- Ambiguous or uncertain special conditions may be unenforceable.
Key Terms and Concepts
- special condition
- conditional contract
- indemnity covenant
- ambiguity
- precedence of special conditions
