Progressing to exchange of contracts - Special conditions in...

Learning Outcomes

This article explains the purpose and legal effect of special conditions in contracts for the sale of land, distinguishes between standard and special conditions, shows how special conditions are used to address specific risks or requirements, and applies key principles for drafting and interpreting special conditions using realistic, SQE1-style conveyancing scenarios.

SQE1 Syllabus

For SQE1, you are required to understand special conditions in property contracts, with a focus on the following syllabus points:

• The distinction between standard conditions (SCs/SCPCs) and special conditions in property contracts, and when each is used
• The reasons for including special conditions and their legal effect (including precedence over standard conditions)
• Common types of special conditions (e.g. conditional contracts, indemnities, warranties, price retention, deposit handling, VAT)
• How special conditions interact with standard conditions and the contract as a whole (e.g. SC 3.1, SC 4, SC 6, SC 7; SCPC 4, 7, 9, 10)
• Drafting and interpreting special conditions in practice (certainty, time limits, remedies, non‑merger, entire agreement, and service of notices)

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, it is essential to identify when and why special conditions are used, understand their legal effect, and apply the principles for drafting and interpreting them in practice. In all cases, remember that a land contract must satisfy section 2 of the Law of Property (Miscellaneous Provisions) Act 1989: it must be in writing, incorporate all the terms expressly or by reference (including special conditions), and be signed by both parties.

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.

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 (SCs) for residential and simple transactions, or the Standard Commercial Property Conditions (SCPCs) for commercial transactions). These standard conditions cover routine aspects of the transaction, from evidence of title and risk to completion and remedies for delay. 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.

Two recurring themes supporting special conditions:

• Disclosure and allocation: SC 3.1.1 (SCPC 4.1.1) presumes the seller sells free from incumbrances except those specified in the contract or deemed disclosed by the standard conditions. Special conditions are the proper place to specify the incumbrances and allocate risks, remedies, and costs.
• Modification: where the parties need to vary the default position under the standard conditions (e.g. deposit amount, time of completion, passing of risk, VAT, or evidence of title), a special condition is used.

Key Term: precedence of special conditions
The rule (reflected in SC 1.1.4 and SCPC 1.1.4(a)) that, in case of conflict, a special condition overrides a standard condition.

Why Are Special Conditions Needed?

Special conditions are used to:

• Make the contract conditional on an event (e.g. buyer’s acceptable finance, grant of planning permission, obtaining a landlord’s consent, assignment of a key contract, or discharge of a charge)
• Allocate responsibility for known risks or defects (e.g. indemnity for breach of covenant; price retention pending remediation; Green Deal liabilities)
• Deal with non-standard arrangements (e.g. delayed completion, completion on notice for newbuild, reduced deposit or deposit held as agent, sale subject to occupational tenancies)
• Modify or override a standard condition to suit the parties’ agreement (e.g. vary 2pm completion time, pass risk differently, supplement evidence of title, or disapply requisitions after exchange in light of specific disclosures)
• Preserve or extend remedies beyond completion via non‑merger wording for particular obligations

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.

Where a defect cannot be fully rectified pre‑exchange, parties often combine: (i) an express disclosure special condition; (ii) a covenant that the buyer raises no requisitions or objections; and (iii) an agreed risk allocation (indemnity, insurance, or price retention).

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 receives a mortgage offer acceptable to a reasonable buyer; planning permission for a defined scheme is granted by a longstop date).
• Conditions subsequent: The contract may be terminated if a specified adverse event occurs after exchange (e.g. service of a statutory notice that materially impacts value or use).
• Warranties: Promises about the state of the property or other facts (e.g. seller warrants there are no disputes, or that specified consents have been complied with).
• Indemnities: One party agrees to compensate the other for loss arising from a specified risk (e.g. future enforcement of a positive maintenance covenant, service charge deficit for a defined period, or continuing liability as original covenantor).

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.

To be effective, conditional clauses must be certain. An open‑ended condition such as “subject to a satisfactory mortgage” is void for uncertainty unless “satisfactory” is objectively framed (e.g. satisfactory to a reasonable buyer in the circumstances). Time is critical for conditional clauses: courts treat time for fulfilment of conditions as of the essence (Aberfoyle Plantations v Cheng). State a clear longstop date and consequences of non‑fulfilment.

Key Term: ambiguity
Uncertainty in the meaning of a contract term, which can lead to disputes or the term being declared void for uncertainty.

Drafting and Interpreting Special Conditions

Special conditions must be drafted with care. They should be clear, precise, and unambiguous, with:

• Defined terms (e.g. “Planning Permission”, “Mortgage Offer”, “Longstop Date”, “Satisfactory” measured against a reasonable standard)
• Clear deadlines and consequences (e.g. rescission and deposit return if condition not satisfied by the longstop date; allocation of survey, planning, and appeal costs)
• Express linkage to standard conditions (e.g. “This special condition overrides SC 6.1.2 and 6.1.3”)

A special condition that is uncertain or incomplete risks being unenforceable (e.g. Lee‑Parker v Izzett (No 2) found “satisfactory mortgage” uncertain absent an objective standard). Where a special condition intentionally departs from the SCs/SCPCs (for example, risk, deposit handling, requisitions, completion time), say so expressly.

Two further drafting points:

• Entire agreement: The pre‑printed “representations” special condition (SCs) or a bespoke “entire agreement” clause preserves clarity on reliance and helps avoid collateral terms not included in the contract (remember that unless a term is in the written contract, it will not satisfy section 2 LP(MP)A 1989).
• Non‑merger: If an obligation must survive completion (e.g. a seller’s covenant to remediate a defect or contribute to a cost), include an express non‑merger clause alongside SC 7.3/SCPC 10.4.

Key Term: precedence of special conditions
The rule that, in case of conflict, a special condition will override a standard condition 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 (and absent any extension agreed), the condition fails and the contract can be rescinded under the special condition with the deposit returned (unless otherwise agreed). The term is sufficiently certain because it specifies an objective event (issue of a mortgage offer) and a clear time limit.

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. The covenant should state scope, duration, and any monetary cap.

Worked Example 1.3

The contract states: “The deposit will be 5% and shall be held as agent for the seller on exchange.” SC 2.2.6 would otherwise require stakeholder holding.

Answer:
The special condition overrides the standard condition (SC 1.1.4). The buyer should appreciate the added risk: funds can be released to the seller immediately. Consider adding a top‑up-on-default clause (mirroring SCPC 9.8.3) and carefully assess the seller’s solvency risk.

Common Situations Requiring Special Conditions

Conditional Contracts

A contract may be made conditional on:

• The buyer obtaining adequate finance (draft objectively: “a mortgage offer on usual commercial terms for at least £X at an interest rate not exceeding Y% above the base rate, by the Longstop Date”)
• Planning permission being granted for a proposed development (define the “Permission”, include obligation to use reasonable endeavours, whether to appeal, who bears costs, and a Longstop Date)
• The seller obtaining consent to assign a lease or discharge a mortgage (set out who applies, whether to pay a reasonable sum to procure consent, and consequences if refused)

If the condition is not satisfied by a specified date, the contract will usually be rescinded and the deposit returned. Time is generally of the essence for fulfilment of conditions unless stated otherwise. Avoid vague standards such as “satisfactory to the buyer” without an objective test.

Key Term: condition precedent
A provision making the contract or completion conditional on a defined event occurring by a stated deadline.

Key Term: condition subsequent
A provision allowing termination if a specified post‑exchange adverse event occurs (e.g. the service of a statutory notice materially affecting value).

Indemnities and Ongoing Risks

Where a seller remains potentially liable after completion (e.g. as original covenantor on a positive covenant, or for legacy Green Deal payments), a special condition can provide:

• An indemnity covenant from the buyer to the seller (or vice versa) tailored to the identified risk
• A requirement to include a corresponding indemnity in the transfer deed, surviving completion (non‑merger)

Where insurance is appropriate (e.g. restrictive covenant indemnity), the contract can oblige a party to procure and pay for a policy acceptable to the other, for a minimum insured sum. Advising on insurance is a regulated activity; ensure compliance with the general prohibition unless your firm is authorised or exempt, and provide information enabling informed consent.

Key Term: Green Deal plan
A statutory scheme under which energy efficiency improvements are paid for via the electricity bill for the property; liability attaches to the bill payer. A special condition should acknowledge liability and allocate any required undertakings or disclosures.

Sale Subject to Tenancies

If the property is sold subject to existing tenancies, special conditions may:

• Enumerate the occupational leases/tenancies, attach copies, and summarise rent, term, break, review, and arrears
• Allocate responsibility for arrears and apportionments on completion (e.g. seller retains pre‑completion arrears; buyer assigns claims; or retention held pending recovery)
• Control seller’s dealings between exchange and completion (e.g. no rent review agreement, licence, or variation without buyer’s consent not to be unreasonably withheld)

A buyer will also want warranties or a disclosure-based regime as to compliance (e.g. EPC, MEES, deposits, statutory notices) and sometimes a retention against service charge balancing deficits for a defined accounting period.

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 receipt of a satisfactory environmental report by an agreed Longstop Date
• Require the seller to remediate contamination before completion to an identified standard, with an agreed independent expert mechanism
• Provide for a price reduction or retention if an adverse matter is discovered or if a completion certificate is still awaited
• Allocate responsibility for pre‑existing planning breaches or building control non‑compliance (e.g. indemnity policy, regularisation application pre‑completion with a retention if evidence not produced)

Remember planning control and building regulations are separate to title; even where permission exists, restrictive covenants can still constrain use and development. Consider a special condition mandating a suitable restrictive covenant indemnity insurance policy where enforcement risk is low but not negligible.

Deposit Arrangements and Risk

The standard position is a 10% deposit held by the seller’s solicitor as stakeholder (SC 2.2; SCPC 3.2). Parties often vary this via special conditions:

• Reduced deposit (e.g. 5%), sometimes with a top‑up obligation on buyer default
• Deposit held as agent for the seller (higher risk to the buyer; consider seller solvency)
• Buyer’s solicitors holding to the order of seller’s solicitors pending bank clearance where timing requires

Key Term: stakeholder
A neutral holder of the deposit who may not release funds to the seller before completion (default under SC 2.2.6; SCPC 3.2.2).

Key Term: agent (for deposit)
An arrangement allowing the seller’s solicitor to release the deposit to the seller immediately after exchange (increasing buyer risk; used only via an express special condition or the limited SC 2.2.5 exception).

Fixtures, Fittings and Vacant Possession

Use special conditions to:

• Attach a contents and fixtures list, price any chattels, and identify any fixtures to be removed (with a covenant to make good damage)
• Confirm vacant possession or list occupational tenancies
• Obtain occupier’s consents (adult occupiers waive any rights and agree to vacate)

Evidence of Title, Disclosures, and Defects

Special conditions commonly:

• List specified incumbrances to ensure compliance with SC 3.1.1/SCPC 4.1.1
• Disclose and bar objections to an identified defect (especially where SCPC 7.2.1 restricts post‑exchange requisitions)
• Provide for specific title production (e.g. statutory declarations for adverse possession, lost deeds, or regularisation of execution issues)

VAT and Taxation

Commercial contracts often need a special condition on VAT:

• Standard‑rated supply (SCPC condition A1/A2 or a bespoke clause mirroring SCPC 2): purchase price exclusive of VAT; VAT payable on completion in return for a VAT invoice
• VAT‑inclusive pricing: include an express clause if the parties agree that VAT cannot be added
• TOGC: include the relevant SCPC Part 2 condition if applicable and the buyer’s obligations (e.g. VAT registration, intention to carry on the same business)

Key Term: VAT standard‑rated supply clause
A clause requiring the buyer to pay, in addition to the price, an amount equal to VAT on completion against a valid VAT invoice (see SCPC formulations).

Overreaching and Second Trustees

If a sole surviving proprietor is selling and there is a beneficial tenancy in common, a special condition should require the appointment of a second trustee to overreach the beneficial interests on completion, ensuring the buyer takes free of them.

Key Term: overreaching
Payment of capital money to at least two trustees or a trust corporation so that beneficial interests are transferred from the land to the proceeds, freeing the land for the buyer.

Worked Example 1.4

A buyer discovers an old restrictive covenant “not to use the premises for the sale of alcohol.” The seller has traded as an off‑licence for years without complaint and cannot identify a beneficiary. The buyer’s lender is concerned.

Answer:
A special condition can require the seller to procure a restrictive covenant indemnity insurance policy on terms acceptable to the buyer and lender, at the seller’s cost, handed over on completion. Avoid notifying any potential beneficiary pre‑completion to preserve insurability.

Worked Example 1.5

A developer agrees a contract “subject to planning” for 12 apartments. The clause reads: “Subject to planning permission satisfactory to the buyer.”

Answer:
The clause risks invalidity for uncertainty. Redraft as a special condition defining the proposed development, the required permission, a Longstop Date, reasonable endeavours including (if agreed) an obligation to appeal, and objective triggers for satisfaction (grant materially consistent with plans and conditions not unreasonably onerous). Provide rescission and deposit return if not achieved.

Worked Example 1.6

The parties agree completion funds must arrive by 12 noon due to a long chain. The SCs default to 2pm.

Answer:
Add a special condition varying SC 6.1.2/6.1.3 to substitute “12:00 noon” for “2:00 pm.” This brings forward the time at which compensation or notice to complete may be invoked for late completion.

Worked Example 1.7

A property is sold subject to a retail lease. Between exchange and completion, the seller wants to agree a new rent on review.

Answer:
A special condition should restrict the seller from agreeing any rent review, licence, or lease variation without the buyer’s consent (not to be unreasonably withheld), and allocate the conduct of ongoing rent reviews. This protects the buyer from value‑diminishing changes pre‑completion.

Worked Example 1.8

The property is an office building less than three years old. The seller has opted to tax and expects to charge VAT.

Answer:
Include a VAT standard‑rated supply special condition confirming the price is exclusive of VAT, the buyer will pay VAT on completion against a valid VAT invoice, and set out any TOGC conditions if relevant. Absent such wording, disputes can arise on whether VAT is payable in addition to price.

Worked Example 1.9

A sole surviving registered proprietor is selling a property formerly owned by two siblings as tenants in common (Form A restriction on title).

Answer:
Add a special condition requiring the appointment of a second trustee to give a valid receipt for capital money on completion so that the buyer obtains overreached title free of beneficial interests, and ensure the transfer reflects the appointment.

Interaction with Standard Conditions

Special conditions are intended to supplement, not duplicate, the standard conditions. Key interactions to keep in mind:

• Disclosure of incumbrances: SC 3.1.1 (SCPC 4.1.1) requires disclosure in the contract. List all burdens that must bind the buyer even if some are arguably “discoverable on inspection” to avoid disputes.
• Deduction of title and requisitions: where title is deduced pre‑exchange, SC 4.2.1 (SCPC 7.2.1) limits post‑exchange requisitions. Use special conditions to disclose and bar objections to known issues.
• Passing of risk: under the SCs, risk usually passes on exchange; parties sometimes reallocate risk to the seller until completion by special condition (and should align with insurance arrangements).
• Completion timing: vary the default 2pm cut‑off via special condition if the chain requires earlier receipt of funds.
• Remedies for delay: SC 7.2 (SCPC 10.3) provides a compensation regime for late completion; special conditions should dovetail with, not duplicate, these remedies.
• Deposits: SC 2.2/SCPC 3.2 regulate deposits; special conditions can vary the amount or stakeholder/agent status and should spell out consequences on default.

Key Term: precedence of special conditions
The rule that a special condition prevails over a conflicting standard condition (SC 1.1.4; SCPC 1.1.4(a)).

Drafting Tips

• Use clear, simple language and define key terms (e.g. “Longstop Date”, “Planning Permission”, “Mortgage Offer”)
• Specify deadlines and consequences if a condition is not met (rescission, deposit return, cost allocation, or price adjustment)
• Avoid ambiguity—ensure objective standards (e.g. “satisfactory to a reasonable buyer acting reasonably in the circumstances”)
• Ensure the special condition intentionally and expressly overrides any inconsistent standard condition
• Include non‑merger wording for obligations to survive completion (e.g. indemnities, remediation)
• Align special conditions with tax and regulatory requirements (e.g. VAT, energy performance, Green Deal) and lender requirements
• Be alert to regulated activities when arranging insurance; ensure appropriate authority or exemption and informed consent

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, include time limits, and identify consequences for non‑fulfilment.

Revision Tip

Practise drafting short special conditions for common scenarios (e.g. subject to planning with a Longstop Date, reduced deposit held as stakeholder, restrictive covenant indemnity insurance) and check they integrate with SCs/SCPCs.

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—and drafted with objective standards, defined events, and clear deadlines. In practice, they are used to make contracts conditional, allocate responsibilities for known risks, manage non‑standard arrangements, and vary default standard conditions. In SQE1 scenarios, be ready to identify when a special condition is required, how it affects the standard conditions, and how to draft or interpret it so that it is enforceable and aligned with the transaction’s risk profile.

Key Point Checklist

This article has covered the following key knowledge points:

• Special conditions tailor the contract to the deal and address specific risks or requirements.
• They can make the contract conditional, allocate responsibility for risks, or modify standard terms (e.g. deposit, risk, completion time).
• Common types include conditions precedent/subsequent, warranties, indemnities, VAT clauses, and price retentions.
• Conditions must be certain, with clear longstop dates and consequences for non‑fulfilment; ambiguity risks invalidity.
• Disclose burdens via special conditions to comply with SC 3.1.1/SCPC 4.1.1 and bar objections where appropriate.
• If a special condition conflicts with a standard condition, the special condition usually prevails (SC 1.1.4; SCPC 1.1.4(a)).
• Use non‑merger wording where obligations must survive completion; align with SC 7.3/SCPC 10.4.
• Deposit, VAT, tenancies, and environmental/planning issues often require bespoke special conditions.
• Advising on insurance is regulated; ensure appropriate authority or exemption and informed consent.

Key Terms and Concepts

• special condition
• conditional contract
• condition precedent
• condition subsequent
• indemnity covenant
• ambiguity
• precedence of special conditions
• stakeholder
• agent (for deposit)
• Green Deal plan
• VAT standard‑rated supply clause
• overreaching