Setting the commercial contracts standard

Sue Highmore offers an update on the third edition of the Standard commercial property conditions The Standard commercial property conditions have been around for decades. Their newest incarnation (the third edition, SCPC3) took effect on 1 May 2017 with a relatively low-key launch. How will they change the standard contracts for sale and letting of commercial property that property owners and their legal teams have grown used to? How to obtain them SCPC3 can only be obtained from Oyez and a restricted range of other legal publishers. The Law Society shares the copyright in SCPCs with Oyez, but it is not possible to view or download a copy of SCPC3 from the Law Society website. Oyez publishes SCPC3 as an integral part of a standard sale/letting contract. While some firms are happy to use that Oyez standard sale contract, many choose instead to create their own standard contracts, which incorporate the SCPCs by reference and expressly amend some of them. Those contracts do not set out the full text of the SCPCs (to do so is a breach of copyright). To understand the obligations imposed by the contract, the reader must access the SCPCs from a different source (either purchasing a copy from Oyez or accessing them online, or in a textbook through one of the permitted publishers). Adoption and amendment The Law Society hopes that SCPC3 will be adopted unamended by the majority of users, and certainly some of the changes will encourage that. However, it seems very unlikely that lawyers with well-established standard precedents will abandon them. Instead they will consider whether to incorporate SCPC3 and, if so, whether to amend them in part. The most important thing to remember is that it is not compulsory to adopt SCPC3, either quickly or at all. Sellers/landlords can stick with their current standard contracts (which probably adopt SCPC2) if they feel the beneficial changes brought in by SCPC3 are not worth the additional cost and time of adapting their established precedents. While those sellers/lawyers/landlords are deciding what to do with their own documents, they may receive a contract that incorporates SCPC3. They need to understand the changes so as to decide whether to amend that contract. Fortunately, the substantive changes are few, and often in areas where bespoke contracts already amend SCPC2 to achieve the same change or replace the relevant SCPC condition. The most tiresome feature of SCPC3 is that it renumbers the majority of the SCPC2 conditions. This means all cross references in standard precedents to particular conditions must be checked and changed – another reason to make any swap to SCPC3 slowly and carefully. The main changes VAT: The position has been reversed. Condition 2 presumes the transaction will be a standard rated supply. If it is actually a transfer of a going concern or a non-taxable supply, then alternative drafting appears in Part 2. Most bespoke contracts already deal with the VAT position in greater detail. Capital allowances: The optional drafting (Condition B in Part 2) has been updated to reflect current legislation and facilitate the buyer claiming any remaining allowances. This brings SCPC3 into line with most bespoke contracts. This condition should only be adopted where the parties have had proper advice on capital allowances. Insurance: It is now express (rather than implied in SCPC2) that the property is at the risk of the buyer from exchange. Sellers obliged (either by the contract or their own lease) to insure up to completion can now only be asked to request a note of the buyer’s interest if the policy does not already contain a generic contracting purchasers’ clause. Where the buildings insurance is maintained by a superior landlord, new condition 8.2.5 obliges the seller to use reasonable efforts to ensure that insurance is maintained and to assign to the buyer its rights under that policy. New condition 8.2.7 limits the loss of rent cover the seller must maintain. Third-party rights: These are now excluded, as in most bespoke contracts (condition 1.5). Commonhold: The commonhold conditions have been deleted (but were rarely used). Transfers: The transfer (for sales of part) should now be attached, or the wording for any rights and reservations set out in full in the contract. This has long been good practice in bespoke contracts as it saves last-minute argument. Also, any assignment of a leasehold property must now contain a standard exclusion of the statutory implied covenant (condition 7.6.4). Landlord’s consent to assignment: These provisions have been tightened up. The seller must give the buyer copies of the correspondence seeking consent. If consent is not obtained by the completion date, then completion is now postponed to five days after consent is obtained or determined as unreasonably withheld, with an overall cut-off date of six months. Money laundering compliance: Changes have been made to the payment provisions, requiring payment to and from a conveyancer’s bank account by electronic means. Most bespoke contracts do this already. Cooperation over 1954 Act lease renewals: This has been introduced in condition 6.2. Between exchange and completion, both parties must agree to any proposed new terms or interim rent. After completion the seller is only consulted on rent proposals if they affect rent payable pre-completion. This reflects what is in most bespoke contracts. Cooperation over outstanding rent reviews: This no longer extends to stale rent reviews, where the rent review date falls more than two years before the completion date (condition 6.1.3). Apportionment: Clearer arrangements come in for rent or service charge payments which are under review (condition 9.3). It is likely conversion to SCPC3 will be slow for more sophisticated commercial property transactions. Sue Highmore is a freelance editor at Practical Law Photo:©WestEnd61/REX/Shutterstock