Unconditional and Conditional Contracts
When land is sold or purchased, it will be the subject of a contract. The specific form of the contract will depend on each transaction however two of the most common forms of contract are unconditional and conditional conditional contracts.
An unconditional contract for the sale or purchase of land is the simplest form of contract however this is often unsuitable for a development site unless this already benefits from satisfactory planning permission and the developer is happy to proceed with the transaction as it is and is not reliant on any further permissions being obtained.
If an unconditional contract is used, on exchange the buyer will be agreeing to complete on the purchase of the land on the completion date specified in the contract. This will not be dependent on any other factors and provides certainty for both parties.
Although an unconditional contract is the simplest form of contract for the sale or purchase of land, dealing with a development site often means that additional terms are needed in the contract to deal with any copyright, community infrastructure levy or environmental issues attaching to the site.
A more common form of contract for the sale/purchase of a development site is a conditional contract. This enables the buyer to agree to buy the property, subject to certain conditions being satisfied. For example, the most common condition to be satisfied is for planning permission satisfactory to the developer to be obtained. Once the conditions have been satisfied within the timescale specified in the contract, the contract becomes unconditional and the buyer must complete on the date set out in the contract.
The benefit of a conditional contract for a developer is that it allows the developer to secure the land for a certain period of time to allow them to satisfy the conditions of the contract (e.g. obtaining satisfactory planning permission). In the event that the conditions cannot be satisfied within the timeframe agreed in the contract, the parties are free to walk away and the developer will not have had the expense of purchasing land which it has not been able to obtain satisfactory permission for.
Additionally, a conditional contract allows the landowner to utilise the expertise of the developer in obtaining satisfactory planning permission (and potentially seek to have a say in the permission granted through the terms of the contract, although this is often limited) in exchange for agreeing to sell the land to the developer if the conditions are satisfied. This is limited to a certain period of time – often known as a long stop date – which is agreed between the parties.
Although unconditional and conditional contracts are commonly used in land sales and purchases, other structures may better suit some transactions. Attwells Solicitors are also able to offer expert advice on the following:
- Option Agreements – where the developer has the option (but is not obliged) to purchase the land for a certain period of time;
- Promotion Agreements – where the promoter agrees to obtain planning and then promote the land for sale to a developer in return for a profit split on the sale proceeds;
- Pre-emption Agreements – a right of first refusal should a landowner decide to sell;
- Overage Agreements – a supplemental agreement to the sale contract providing for an uplift in the value of the land to be split between the parties;
- Joint Ventures – between developers and landowners whereby the landowner puts the land into the venture and the developer supplies the planning and building expertise and then profits are split when sold (either following development or grant of planning permission).
Attwells are able to offer expert advice on all the possible methods of structuring a land acquisition or disposal based on your requirements, whether this is via an Option Agreement, Unconditional/Conditional Contract, Promotion Agreement or an alternative structure.
If you are considering making a disposal or acquisition of land and would like to discuss your options, please contact Nick Attwell on 01473 229242 or 0207 722 9898 for an initial no-obligation chat.
Are you liable?
Since the COVID-19 began to spread across the UK we have seen rapid change in social behaviour measures resulting in Boris Johnson addressing the Nation informing people to stay home. This measure has a direct impact on business productivity, resulting in disruption or supply chain and fulfilment of delivery issues. As a consequence, businesses are reviewing their contract seeking a so called ‘get out clause’, but does one exist in your contract?
Such a clause typically offers provision to excuse the performance of a party due to circumstances beyond their control such as a pandemic or an act of God. However, as in most legal matters the devil is in the detail and such clauses will need to be exercised with care. This is predominantly because there is no precedent confirming a pandemic is an act of God in the UK law, therefore arguably is not covered by the majeure clause. This also differs depending on the location of your business for example countries in the EU may have a similar clause within their civil code.
Equally if your contract does not offer any provisions for acts of God you could find your business is obligated to provide the services or goods as outlined within your contract regardless of the current circumstances.
Subsequently it is important you have your contract reviewed by a commercial or business solicitor. They will be able to unpick the jargon and work with you to achieve the best possible outcome. Our business law team will seek successive clauses and point to other possible actionable clauses to limit or mitigate your business liability.