Contract Issues

Commercial Terms and Memorandum of Sale I

The contents of the contract of sale are a matter for agreement between the parties.  The parties are largely free to determine the terms of the sale and reflect them in a document as they see fit.  In practice, the vast majority of sales are governed by the Law Society of Ireland General Condition of Sale (latest edition) with amendments appropriate to the circumstances.

The first part of the Law Society contract document comprises a memorandum of agreement.  This sets out the basic terms, including the parties, the price, the property or description of the interest in sale.  It is to be signed by both parties and witnessed.  Witnessing is not essential to the validity of the contract.

The particulars of sale contain a description of the property and the interest in sale.  It must be recalled, that from a legal perspective, what exists is not the property itself, but estates and interest in the property.  In the majority of cases, a full freehold interest may be in sale, which equates to “full ownership” of the property.  However, in other cases, more limited interests such as leases, or other rights in the property only,  may be the subject of the sale contract.

Commercial Terms and Memorandum of Sale II

The price or consideration must be specified. It may be in a foreign currency, but must be translated into Euro for stamp duty and tax purposes.

The deposit should be specified in the memorandum.  By convention, this is ten per cent of the purchase price.  The deposit may be forfeited from the buyer where he does not perform his contract obligations after notice has been given.

The form of the contract specifies the completion date.  In the default of any date being specified, it is to be the first working day five weeks after the date of the contract.

An interest rate should be specified in the contract.  This is the interest on late closing.  It may not be a penalty.

The closing date should be specified.  The presumption is that time is not of the essence.  If the buyer does not close on the appointed date, notice may be given.  Provided the seller is not at fault the seller may terminate the contract, forfeit the deposit and possibly sue for further damages if the deposit does not cover his loss. He may forfeit the deposit, even though he gains, suffers no loss of suffers less loss than the amount of the deposit.

The title documents which prove the seller’s ownership to the described property will be listed.  Other legally significant documents, such as planning permissions, fire safety certificates and certification of compliance with them may be listed.

There may be documents which give easements and rights over adjoining land and the benefit of covenants. Conversely, there may be documents creating such rights over the land in sale for the benefit of adjoining property. There may be confirmations from the local authority on a range of matters.

Description

The seller will wish to ensure that the description of what is sold is compatible with the title documents. There may be a common description, which will commonly be the postal address and eircode. However, this is unlikely to be sufficiently precise.

In the case of registered title, the property in sale will be described with reference to the folio number.  In the case of unregistered title, there may be a reference to property described in a deed which may have a map.

There may be a map attached to the contract, which defines what is in sale.  In the case of registered title,  this may cover part of the registered title in sale or a number of different titles.

With unregistered title, the deeds may not contain a map at all.  A map may be prepared for the purpose of showing the extent of the property, described verbally by the seller, and which has been in his possession.  The map should accurately delineate the extent of the property which the seller has the capacity and intends to sell.  A Land Registry compliant map is required on the sale of unregistered titled to permit the buyer to complete mandatory first registration of title

Because of the difficulties in defining exact boundaries, particularly in the case of unregistered title, the General Conditions of Sale provide that the seller is not required to define boundaries ditches, hedges and walls exactly.  He need not specify which are of a party nature or otherwise.  He need not identify which part of the property is held under which title.

The general principle is that the fixtures within the property are included in the sale.  In the case of land, the building itself is a fixture.  Questions may arise as to whether particular items are, or are not fixtures.  If fittings and contents are to be included,  then it is desirable to list them.  If they are included, the General Conditions provide a warranty that they are free of any lease, hire purchase agreement, mortgage or charge.

Subjections

Where land is to be sold with the benefit of easements and similar rights, they should be specified in the legal description of the property.  Where the property itself is subject to such rights and interests,  they should be set out in the description of what is in sale.

If a freehold property is described without reference to leases et cetera,t is presumed that vacant possession is intended to be given similarly.  If there are easements and rights which affect the property then they must be disclosed as so affecting into the description.  Otherwise, the buyer is entitled to the property free from these rights.  The seller might be in breach of contract in this regard.

Execution / Signing

If the buyer signs on behalf of another person with that person’s authority then in accordance with the principles of agency, that latter person is bound  If a buyer signs as agent or as trustee without identifying his principal he is liable.

Where the seller is a company or an entity established outside the state this must be disclosed.

Disclosures

There is no general duty on the seller to disclose physical defects in the property even if they are known.  There is a duty to disclose hidden defects in the title.  This does not apply to patent or apparent defects in title. The duty applies to latent title defects which are those which are not patent to the eye.

In practice, the title is usually fully disclosed prior to contract. All relevant title documents are usually furnished in their entirety.  The latent defects apparent from the title documents will be normally deemed disclosed.  The alternative is that the “root of title” only is furnished and that the later and other title deeds are furnished after contract.

The seller’s duty applies only to onerous covenants and conditions.  Covenants that are usual in a particular type of disclosed document need not be disclosed provide the document itself is disclosed.  In modern times full copies of documents are almost invariably available prior to contract in any event.

Where a property is sold subject to tenancy, the seller must disclose notices and relevant matters concerning the tenancy.

Latent Defects

The buyer will be deemed aware of matters and rights that are apparent from notice and inspection of the property.  They need not be disclosed.  However, a seller will run the risk that a particular matter may be classified as a latent defect. To avoid disputes,  matters which are not completely apparent from inspection should be specifically disclosed.

Defects may cover a wide variety of matters  They may include burdens, third party rights and charges on the property.  They may include leases, easements and covenants.  They may cover leases and onerous conditions in leases which are not readily apparent.

Under the Law Society general conditions, the seller is to disclose before the sale in the particulars,  conditions or otherwise, all easements, rights, exceptions, privileges, covenants, events, taxes and other liabilities not already know to the buyer or apparent from inspection which are known to the seller to affect the property or are likely to affect after completion.

The seller is obliged to disclose notices which come to his attention before the sale by public and other statutory authority.  This may include notices by way of planning or environmental enforcement.  It also includes a range of notices of public-health, environmental, water services, fire safety or health and safety to work and like legislation.  See generally the sections on local government law in relation to the type of notices that local and other governments entities can issue.

The obligation only applies to actual notices.  It is common to make enquires pre-contract in relation to prospective notices or circumstances which may give rise to a risk that powers might be exercised in the future.

False Description / Representation

If a person makes a false representation including a misdescription of the property the buyer can terminate the contract and /or sue for compensation for the breach of contract.  This can cover a duty to disclose a latent defect.  A non-disclosure without any positive assertion may not necessarily constitute fraud.

If there is a substantial misdescription of the property even if not fraudulent, the seller cannot enforce the contract even on the basis of a reduced price.  The buyer has the option of taking the contract at a reduced price or terminating the contract at his option. A substantial misdescription is one which gives the buyer less than he has bargained for.  This may be either in terms of the physical extent of the property or the title.

The buyer is not obliged to accept property which is substantially different from that agreed to be sold either in terms of rights, or extent. The buyer is to be compensated by the seller for loss suffered by the loss of his bargain in relation to the sale as a result of a material error. No compensation is payable for an immaterial loss unless attributable to reckless or fraud on the sellers part.

The Law Society contract conditions provide that the sale is not avoided or affected by partial incomplete or inaccurate statements in relation to the particulars if they are honestly made.The buyer may, however, be entitled to an abatement of the price.  This covers a relatively small variation description or non-disclosure which are not overly consequential.

If the misdescription gives the buyer more than has been agreed to be given, the seller will not be entitled to an increase in price. The Law Society contract conditions provide that the sale is not avoided or affected by partial incomplete or inaccurate statements in relation to the particulars if they are honestly made.

Interpretation

In accordance wiwith generalrinciples of law, the contra proferentem principle will usually be applied to the interpretation of the special conditions of the sale contract.  Where  the conditions are put forward by the seller, as will commonly be the case, they are likely to be interpreted against his interest if there is an ambiguity.

Whether there is a conflict between the general conditions and the special conditions, the special conditions prevail.  The standard law society conditions require that where an amendment is made to the special condition, the reason for the amendment should be given unless it is manifestly evident.  The general conditions must not be altered or interlaminated.  Amendments should be expressly made in the special conditions.

Deposit

The deposit is almost invariably provided for and paid when the contract is entered.  It is the seller’s security that the buyer will complete.  If the deposit is not paid when due, the seller may immediately terminate the contract as a fundamental breach.  The amount of deposit is a matter for negotiation.  Until the late 1970s, a deposit of 25 percent was commonly provided.  Since then, the deposit is almost invariably 10 percent.  The deposits must be paid immediately.

A critical question arises as to who should hold the deposit and how it should be held.  The standard law society conditions require that it be paid to the seller’s solicitor as a stakeholder. This means that the buyer’s solicitor must hold it for the person ultimately entitled.  This gives the buyer a significant level of protection to the buyer. The seller’s solicitor is regulated and would in normal course be liable to be sued for breach of duty.

If the deposit is paid to the seller directly, then if for any reason the contract does not proceed the buyer’s recourse is to the seller only.  If the seller is insolvent or refuses to pay the deposit money may be ultimately irrecoverable.

Sometimes it is provided that the deposit is not held as a stakeholder by the seller’s solicitor but as agent on behalf of the sellers.  In this case, the money unconditionally belongs to the seller and the above risk applies.  In contrast, the stakeholder is an agent for both parties and will hold it in accordance with the contract and is not released to the seller until completion.

In practice an initial booking deposit will be paid to the estate agent or auctioneer on agreeing on the terms in sale in principle.  The presumption is that the same should be paid as stakeholder so that it is refundable to the buyer if there is no or the  contract does not proceed for any reasons.  After signing, it is appropriated to the contract and held as stakeholder under the terms of the contract.  Under the Property Services Regulation Act, there are provisions for the protection of deposits held by estate agents.

There is no contractual provision for the investment of deposits.  A solicitor may be obliged under professional obligations to pay interest on a deposit where it is held for a prolonged period.

There are detailed provisions which are set out in the standard contract regarding the procedures by which the deposits may be forfeited on breach of contract.

Title Conditions

There are several conditions in the contracts dealing with the title.  Because each title is unique it is necessary in all cases to provide for the title  in the sale to be sold to be the subject of a general condition.  See separately in relation to general conditions.

The special condition is likely to provide restrictively that particular evidence is to be accepted as proof of title.  Depending on the wording this may allow post contract investigation of title or may be precluded to a certain extent or entirely.  If there is a complete exclusion of post-contract  investigation is provided for, then the title must be established prior to completion.

VAT

There are detailed conditions in the standard contract which effectively provides that VAT is payable over and above the stated purchase price.  In domestic second-hand residential sales VAT should rarely be payable.  There will be cases where prior to 2007 a buyer had purchased a residential property for the purpose of short-term lettings thereby reclaiming the VAT on a new property.

In this case VAT may be charged on a subsequent sale.  Outside of this VAT will generally be a cost in relation to commercial properties  where the business purchasing is itself making vatable supplies and purchases for the purpose of its vatable business then VAT should be deductable.

The VAT conditions deal with positions in relation to either the grant or assignment  of a lease.  In this case more complex issues arise and the VAT clause must be carefully considered.

Under the post-2008 VAT rules, a seller may wish to make a VAT election to Revenue so as to ensure the VAT does not become chargeable on him.  This will have to be specifically provided for in the sales.  See generally the chapter on VAT on property in our taxation section.

Vacant Possession

In the  absence of provision to the country, the seller must provide vacant possessions.  This means the property must be clear of occupiers, squatters and other parties in occupation must be procured to leave by the seller.  If those parties have the right to refuse, then the seller is likely to be a breach of contract.

The condition also requires that the  property is physically vacant.  He must remove rubbish or other thing  not expressively included in the sale.

Compulsory Registration

It is now the case that all unregistered title must be subject to compulsory first registration on a first sale.  Originally, compulsory registration applied to three counties. This was  extended to the whole of the country over a number years until  June 2011, since which all areas are subject to compulsory registration on the first sale after that date.

Where compulsory registration already applies, the seller must procure  completion of registration before the completion of the sales.  If it becomes compulsory on sale, the seller must produce a Land Registry compliant map and produce post completion if requested at the buyer’s expense applies all information reasonably required for first  registration.

Land Registry Issues

Where  the title is registered with a possessory title or subject to certain (unusual) preregistration rights,.  the seller must give the buyer sufficient documentation to procure their release or discharge.

The seller must give a declaration confirming that there are no so-called “Section 72” (Registration of Title Act) burdens affecting the property save where the condition otherwise  specifies.  These are burdens which affect registered land notwithstanding non-registration.  See the sections on the registered title.

For the most part they comprise  the rights and interest of  persons in occupation, lessees under leases of less than 21 years, easements acquired by long use by prescription squatter’s title and  some other more obscure less commonly encountered rights.

Where part of the land registry title is sold, the seller is do everything necessary to deal with mapping, queries on registration on the Land Registry.

References and Sources

Primary Texts

Law society of Ireland: Conveyancing 9th Ed Brennan et al.

Investigating Unregistered Title- Magee 2012

Irish Conveyancing Law- Wylie & Woods 4th Ed 2019

Irish Conveyancing Precedents- Laffoy

Irish Conveyancing Statutes – Wylie 2020 6th Edition:

eConveyancing and Title Registration quantity

Complex Conveyancing Law Society PPG Hession 2nd Edition

 

Registration of Deeds and Title in Ireland – Deeney 2014

UK Textbooks

Conveyaning Handbook 28th Ed. Silverman et. al (annual)

A Guide to Conveyancing Residential Property by Alan Stewart

A Practical Approach to Conveyancing (22nd ED) Robert Abbey and Mark Richards

A Practical Approach to Commercial Conveyancing and Property 5th Ed Robert Abbey