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Standard conditions of sale – are sub-sales prevented?

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The recent case of Pittack v Naviede considered the standard conditions that we see incorporated into property sale contracts and the effect they have on sub-sales.

Property sale contracts use one of two sets of conditions.  Residential contracts tend to incorporate the Standard Conditions of Sale (4th edition) (“SCS”) whereas commercial contracts follow the Standard Commercial Property Conditions (2nd edition) (“SCPC”).  These conditions effectively form the basis of the contract but allow parties to add further bespoke conditions to the contract as required.

The background of this particular case is that the parties exchanged contracts for the sale and purchase of a residential townhouse.  The contract incorporated the SCS.  The buyer wanted to sub-sell the property to a third party and he found a willing buyer.

When the buyer sent the seller a draft transfer identifying the third party purchaser, the seller stated that the contract was not assignable and refused to complete the transfer.  The seller issued a notice to complete, which the buyer did not comply with.

The buyer rescinded the contract claiming that the seller had breached the contract.  The seller also sought to rescind the contract and claimed that the buyer had breached condition 1.5 of the SCS.  The seller forfeited the buyer’s deposit.  Condition 1.5 of the SCS states that “The Buyer is not entitled to transfer the benefit of the contract”.

The Court had to decide whether it was the buyer or the seller who was entitled to rescind the contract and keep the deposit.  The Court compared condition 1.5 of the SCS to condition 1.5 of the SCPC.  Whilst this condition in the SCPC also states that the buyer is not entitled to transfer the benefit of the contract, the same condition of the SCPC also states that the Seller cannot be required to transfer the property to anyone other than the buyer.  The Court viewed this as specifically prohibiting sub-sales and the same prohibition is not contained in the SCS.

Accordingly, the buyer was entitled to the return of the deposit as it was the seller who had breached the contract by refusing to complete with the third party.  The contract should have contained an express clause preventing sub-sales, if that was of particular importance to the seller.  The absence of such a clause meant that the buyer could legitimately require the seller to complete with the identified third party.

The conclusion to draw, therefore, is that the SCS do not prevent a buyer from either completing a transfer himself or directing the seller to complete with a third party instead.  The SCPC are much tighter here and specifically exclude sub-sales.  Extra care needs to be taken when acting for either buyer or seller to ensure that the intention regarding sub-sales is dealt with adequately in the contract should the default position under the SCS or SCPC not be favourable.

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