#10280 - Freehold Contract Amendments Model Answer - Property Law and Practice

Freehold Contract - Amendments

Parties

Check Property number/company names/numbers/address/ other stuff is correct. If number of trustees changes, need to alter signage space on the back of the contract accordingly.

Clause 1.1 - Contract Rate

The Contract Rate is stated as being 6% above the base lending rate of Barclays Bank plc. The contract rate fixes the compensation that BFL would be liable to pay in the event of delayed completion. As 4% above the base rate is the Law Society’s Interest rate (SCPC 1.1.1(e)), the Contract Rate should be amended to match this to ensure that the provision is fairer for BFL.

Clause 1,1 and Clause 9 – VAT

If charging VAT – may have to if it is a new commercial building

The facts indicate that the Seller is going to charge VAT as clause 9 incorporates Condition A1 of the Part 2 conditions of the SCPC (states SCPC 1.1.4 & 1.4.2 don’t apply) which are the provisions that apply if the sale is a VATable transfer. The Seller is allowed to charge VAT for this transaction as the property is an “old” commercial freehold property, meaning it was constructed more than three years ago. Therefore the transaction is exempt, but the Seller has the option to charge VAT at the standard rate (20%) if they so desire. In our case, as the property is being sold by the trustees, it is the beneficiary (IF IT IS A SOLE BENEFICIARY) who has the option to tax, not the trustees (the beneficiary must account for any VAT due on the supply and claim any input tax that arises).

As VAT is being charged, it will be necessary to make the value of the Deposit and the Purchase Price inclusive of VAT (rather than exclusive of VAT as at present). This will ensure BFL do not spend anymore than 490,000 on this transaction.

[IF THE BENEFICIARIES ARE NUMEROUS, SUCH AS A UNIT TRUST OR A PENSION FUND, THE PERSON MAKING THE SUPPLY IS THE TRUSTEE WHO HOLDS THE LEGAL INTEREST AND RECEIVES THE IMMEDIATE BENEFIT OF THE CONSIDERATION]

[EVEN IF BENEFICIARY IS VAT SENSITIVE, IT HAS TO CHARGE VAT ON SALE OF NEW COMMERCIAL BUILDING AND HAS THE OPTION TO TAX ON OLD COMMERCIAL BUILDING]

If not charging VAT

The facts indicate that the Seller is not going to charge VAT on the sale of the property under any circumstances and the contract should reflect this. Otherwise the Seller could elect to charge VAT on this otherwise exempt supply. This is the case as it is the sale of an “old” commercial freehold property, meaning it was constructed more than three years ago. The Seller could do this at any point up to the completion and the buyer would ten be required to pat and additional 20% on the purchase price.

Clause 9 incorporates Condition A1 of the Part 2 conditions of the SCPC which are the provisions that apply if the sale is a VATable transfer. Clause 9 should be amended to make it clear that the Purchase Price and the Deposit are inclusive of VAT and that Condition A1 does not apply. This can be done by deleting Clause 9. In addition the Purchase Price and Deposit should be stated to be inclusive of VAT (rather than exclusive of VAT as at present). This will ensure BFL do not spend anymore than 490,000 on this transaction. If Clause 9 is deleted, clause 3.2 needs to be re-drafted to state that Part 2 of the conditions do not apply.

Clause 5 – Deducing Title

If Unilateral Notice

As there is a unilateral notice in Entry [X] of the Charges Register, it will be necessary...