15.4 Drafting the Contract and Exchange
Key Takeaways
- The sale contract is drafted from particulars, special conditions, and either the Standard Conditions of Sale (residential) or the Standard Commercial Property Conditions (commercial).
- Under the SCS the deposit is held as stakeholder unless a special condition says otherwise; holding as agent for the seller is more dangerous for the buyer if the seller becomes insolvent.
- Risk passes at common law on exchange; the standard conditions then allocate insurance duties, and the buyer is still usually advised to insure from exchange.
- Law Society Formula B is the everyday telephone exchange where each solicitor holds a signed part; Formula A is used when one solicitor already holds both parts; Formula C is the chain-release machinery.
Exchange is the moment the freehold deal becomes a contract. Completion is the moment possession and money move. Delay is what happens when those dates part company. The September 2026 FLK2 specification groups drafting the sale contract (including SCS and SCPC), the Law Society formulae, pre-completion (including financial considerations and apportionments), completion, post-completion, and delayed-completion remedies in one practice heading. This independent OpenExamPrep section is written for that heading.
Drafting the sale contract: SCS, SCPC, and special conditions
A modern sale contract is not a free-hand letter. It has particulars (parties, property, title number or root, incumbrances, specified chattels, deposit, completion date, title guarantee), standard conditions incorporated by reference, and special conditions that amend or add to those standards.
| Standard Conditions of Sale (SCS) | Standard Commercial Property Conditions (SCPC) | |
|---|---|---|
| Typical use | Residential freehold and some residential leasehold | Commercial and mixed investment property |
| Deposit default | 10%, held by the seller's conveyancer as stakeholder (auction sales aside) | Also a deposit regime, but commercial bargains often vary percentage and holder by special condition |
| Risk and insurance | Common law risk still matters; SCS requires the seller to keep existing insurance on foot until completion and lets the buyer insure as well | Fuller commercial insurance clauses; the seller may insure as trustee of the buyer's interest depending on the edition and special conditions |
| VAT | Light touch; most dwellings are exempt supplies | Detailed VAT machinery: option to tax, transfer of a going concern, whether the price is exclusive |
| Apportionments | Outgoings and income of the property | Rent, service charge, insurance rent, and VAT on those sums |
Special conditions are where the file-specific deals live: a reduced deposit; a requirement of vacant possession; a list of included fittings that matches TA10; a condition that the seller discharge a charge; a flying-freehold insurance policy to be put on risk at the seller's cost; a delayed completion to wait for a related sale; and VAT wording on commercial files. If a point is important enough to argue about, it is important enough to put in a special condition rather than leaving it as a side email.
Stakeholder versus agent is a favourite because the money trail is easy to test. A stakeholder holds the deposit for both parties and may only release it on completion, on a joint instruction, or as the contract provides after lawful rescission. An agent for the seller holds for the seller: the seller can call for the money, and if the seller becomes insolvent the buyer may be an unsecured creditor of the deposit. SCS default is stakeholder. If the seller wants agent, that is a special condition the buyer's solicitor must explain, not a quiet change on page one.
Insurance and risk. At common law, risk in the property passes to the buyer on exchange. If the house burns down between exchange and completion, the buyer still has to complete and is left to insurance and contractual machinery. SCS does not pretend that common law disappeared; it requires the seller to maintain existing insurance until completion and allows the buyer to insure. Practice advice is still that the buyer should insure from exchange, and that a lender will expect its interest to be noted. Dual insurance can cause contribution issues, but no insurance is worse. On SCPC files, read the insurance condition you actually incorporated; commercial landlords and sellers often keep the policy and hold proceeds on trust.
VAT basics in a contract (the full tax chapter does the rates). A used dwelling is generally an exempt supply: do not add VAT to the price as if it were a fridge. A new dwelling can be zero-rated. Commercial property may be exempt unless the seller has exercised an option to tax, in which case VAT is due on the price unless a transfer of a going concern applies. The contract must say whether the price is VAT-exclusive, who is opting to tax, and what happens if HMRC later disagrees. A residential SCS file that is silent on VAT is usually silent because no VAT is expected, not because VAT is impossible. A commercial SCPC file that is silent on VAT is a drafting failure.
Title guarantee on the transfer (full or limited) is agreed in the contract. Sellers who are personal representatives or trustees often give limited title guarantee. That is a special condition and a TR1 box, not a surprise on completion morning.
Authority, formulae for exchange, and consequences of exchange
You do not exchange because the estate agent is shouting. You exchange when you have, as a minimum: a contract the client has signed or authorised; express authority to exchange (including the completion date and any chain); satisfactory title investigation and search results, or a written client decision to accept named risks; a live mortgage offer if the buyer needs one; the deposit in hand; and, if you act for a lender, no outstanding Handbook obstacle that would stop you certifying.
The Law Society formulae are the authorised method of exchanging by telephone (and their modern electronic equivalents):
- Formula A — one solicitor already holds both signed parts. That solicitor dates them, holds one part to the other's order, and confirms exchange.
- Formula B — each solicitor holds their own client's signed part. They agree the exchange and the completion date, then send the parts. This is the everyday formula.
- Formula C — chain machinery. A solicitor who is ready releases their part so that related exchanges can be made, usually by Formula A, by a stated time. Formula C needs specific client authority because the client can become bound as part of a chain they do not control.
Memorise who holds what. Do not invent a fourth formula on the exam.
Consequences of exchange. There is a binding contract. The buyer has an equitable interest in the land and should protect it (a notice on registered land; a C(iv) land charge on unregistered land) if completion will not follow immediately. The completion date is fixed. The deposit is at risk if the buyer later defaults. Death of a party does not dissolve the contract; personal representatives complete. Neither side may simply change their mind. Specific performance is available as an equitable remedy, alongside the delay remedies below. This is also the moment a lender's interest in insurance becomes acute, even if the certificate of title and the advance come later.
Timing of the certificate of title to the lender belongs here as well as in 15.3. After exchange you know the completion date. You prepare the completion statement, carry out OS1/OS2 and bankruptcy searches, confirm redemption figures, and issue the certificate in time for the lender to send funds for completion. Certifying weeks before you have priority searches, or requesting the advance before you can complete, is how drawdown goes wrong.
A residential freehold contract incorporates the Standard Conditions of Sale. There is no special condition about the deposit. The buyer's solicitor sends 10% of the price to the seller's solicitor on exchange. How is that deposit held?
Each solicitor holds their own client's signed part of a residential sale contract. They agree by telephone to exchange and to a completion date, then send the parts. Which Law Society formula have they used?