Conditional contract: property sale

This is a conditional contract for the purchase of real property. The deal is under contract and both sides are bound subject only to one or more conditions being met, most usually planning permission be granted. This type of agreement transfers the risk from the buyer to the seller that the buyer's intended plans for the land or property will not be prevented from happening.
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About this document

This is a conditional contract, where the sale of land or property is subject to something happening before the deal can proceed to completion. In such an agreement, the entire deal is under contract and both sides are bound subject only to one or more conditions being met.

A conditional contract is an alternative to using property option agreements.

An option places the option holder (usually the potential property buyer) in control of whether the property is sold.

A conditional sale contract tends to favour the seller in that they know they have sold subject only to the condition being met. However, the buyer may also be in favour of using this agreement because they can be confident that they will not have to pay the purchase price until the condition is met and the deal takes place.

The most usual conditions are:

  • obtaining a grant of planning permission for development or alterations
  • the removal of a restrictive covenant on use
  • finding reasonable finance for the project
  • landlord's consent to sell leasehold land or for an assignment of a lease
  • obtaining a satisfactory survey or ground reports or search results
  • grant of access rights
  • vacant possession of a building being obtained from an occupier
  • grant of permission or licence for a particular use

You can edit the template easily for any other condition or multiple conditions.

The template is suitable for any type of land or property (residential or commercial property). For example, it might be used to buy:

  • an office building to be redeveloped
  • a field or derelict land to have houses built
  • a house, flat or shop to be refurbished

This agreement also gives you an option for the seller to require an additional payment in the future. This provision gives a seller a stronger incentive to sell when he thinks that the buyer may be able to generate more value later. For example, if the buyer cannot obtain planning permission for the whole site and instead seeks planning permission in stages, the seller can benefit from the increase in value of the land as a result of the subsequent grants of permission. We suggest that a buyer should keep this provision in reserve and not offer it unless demanded.

Application and features

Using a conditional contract should be preferred over an option agreement when both sides are able to weigh the chance of the condition being satisfied. A conditional sale is done and dusted apart from the condition.

There can also be a tax advantage for the buyer of using a conditional rather than an unconditional contract. Under the Taxation of Chargeable Gains Act (TCGA) 1992, capital gains tax is calculated between the date of acquisition and the date of disposal. Since with conditional contracts the contract for sale only comes into existence when the condition is met, on the subsequent disposal, for the calculation of capital gains, the date and value of acquisition is not that when the contract was signed, but later when conditions are met. This timing difference can reduce a tax liability.

This agreement is a complete contract for the sale of land or property. When signed, both sides are committed to its terms. It does not require a separate or additional document other than the final transfer document for which you will require a solicitor.

While the contract is open, the seller accepts restriction over actions which could adversely affect the condition or value of the land or property to the buyer.

In case the seller is a limited company, the buyer can make the director guarantee this contract personally.

Satisfying conditions

Within the contract you should state which party is responsible for satisfying each condition and how they will be judged to have made effort to ensure that the conditions are met.

Contracts typically refer to one party using reasonable or best endeavours.

Best endeavours means that the party responsible for meeting the condition must take all steps in their power to ensure the condition is satisfied, even if that requires them to act against their own interests, perhaps incurring significant costs.

Reasonable endeavours is less onerous in that it allows the party to balance contractual requirements and personal and financial concerns. There is no obligation to pursue every possible course of action and instead they only need to carry out what would be considered a reasonable best course of action to achieve the result.

Good faith should be avoided but it is not clear how a court would interpret such an obligation in a dispute.

Be clear on timescales for meeting conditions

How long each party has to satisfy a condition must be specified precisely.

Deadlines should be realistic. However, you’ll want to be fair about the time allowed so that the party who has the obligation can meet it while the other party retains the ability to walk away after a reasonable time (usually after giving written notice). Bear in mind that a condition being met might require another party to take action (such as a local authority) and that how long this third party takes may not be in the buyer's or the seller's control.

The contract includes an end date (also known as a long-stop date) and sets out details relating to termination.

Considerations if the sale is conditional on obtaining satisfactory planning permission

If planning permission is being sought then the contract should cover whether a condition is met if permission is refused or granted subject to conditions. Specifically, you will need to agree:

  • that any planning application might follow an agreed form
  • whether any variations, restrictions or conditions are acceptable
  • whether the refusal of planning permission can be appealed
  • who pays associated costs with a planning appeal, extensions and variations
  • how the purchase price might change

Typically, the price may be set at a certain percentage of the open market valuation of the property once planning permission has been granted or a fixed fee for each acre of developable land (or some combination of the two).

Contents

  • Particulars of the contract: money and dates
  • Details of the condition
  • Conveyancing conditions and matters to which the deal is subject
  • Extensive menu of seller’s warranties: title warranty, past disputes, planning history, local development, no charge or mortgage
  • Option for top-up payment
  • The seller must not interfere with the land or property while the contract is open
  • The seller indemnifies the buyer against breach of the agreement
  • Optional provision for a guarantor
  • Provision for the buyer to assign his rights under the agreement
  • Other protections and clarifications
Draftsman

This document was written by a solicitor for Net Lawman. It complies with current English law.

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