New Contract for Sale for all Real Estate Transactions

2019 General Conditions

When selling or purchasing real estate, the Law Society of Ireland endorsed Contract of Sale (the “Contract”) is invariably used by the parties to govern the terms of the agreement reached.  It is drafted with a view to ensuring a number of minimum formalities are dealt with, but also in the interest of providing a fair balance between the rights of the seller and the buyer.

One such formality is the incorporation, in the Contract, of General Conditions of Sale which deal with a number of key issues such as the seller’s title to the property; planning and development and; the identity and condition of the property. The General Conditions contain a number of warranties and representations on the part of the seller about the property being sold. The seller may only exclude these warranties or otherwise vary the general conditions by inserting special conditions in the Contract. Through this mechanism, the buyer is made aware of any differences between the draft contract presented to them and the standard Contract.

The Law Society of Ireland have recently updated the General Conditions for 2019 (the “2019 General Conditions”) in order to facilitate a new era in Irish conveyancing law and practice.  For the first time, the practice of having buyers fully investigate title of a seller, prior to the entry into binding contracts, is enshrined in the 2019 General Conditions.  The Law Society recommend that this new edition is utilised for all transactions commencing from 1 January 2019 onwards.

General Conditions of Sale 2019

The 2019 Conditions change the long-standing conveyancing practice where contracts for the sale of land could be signed in a situation where no significant title investigation had been carried out.  While on the one hand, this allowed the parties to sign contracts soon after reaching an agreement in principle, it introduced what, for many, were unacceptable uncertainties as to when, and if, a transaction would actually close. Under the 2019 General Conditions, the onus is on a buyer to be satisfied with all matters relating to the title of a property before he/she can enter into the Contract.

This means that the solicitor for the buyer must receive and review all title documentation at the outset of each transaction.  He must raise any concerns or queries relating to title before his client can execute the contract – as he will now be precluded from doing so once the Contract has been signed.

Impact

The obvious benefit of this system is that all title queries will be resolved prior to the signing of the Contract.  

The Law Society outlines a number of reasons for this fundamental change including that:

1. A practice had evolved of buyers’ solicitors raising lengthy pre-contract enquiries; and this was leading to a significant duplication when investigation of title was carried out post-contract aswell.
2. There was concern, under the old system, that a buyer’s solicitor could delay completion of a transaction by raising title issues post-contract.
3. The move to pre-contract title investigation gives more certainty to the conveyancing process; there will be greater “deal certainty” from the date of the contract.
4. At the date of entering into the Contract, the buyer will now have all relevant available information regarding the property.  It is now less likely that something will be overlooked.

Practical Implementation

In practice, it is expected that the new system will work as follows:

• The seller’s solicitor, upon receiving instructions in relation to the sale, will, when drafting the Contract, prepare replies to the (also newly updated) Requisitions on Title and furnish all copy title, along with the replies, to the buyer’s solicitor.
• The buyer’s solicitor will then investigate the title and raise queries if they deem it necessary.
• Then, as provided for under new General Condition 6(c), the buyer will confirm that he has had the opportunity to raise requisitions prior to signing the contract and that he “Accepts” the title offered. This will have the effect that the buyer cannot raise any requisitions after the date of sale (other than in very limited circumstances).

This approach has been a feature in the sale of new homes, in “receiver” transactions and in more high-value commercial deals, for some time now.  As a result, many practitioners are already familiar with the system.  In 2016, the Law Society carried out a survey on the issue and it became clear that the majority of solicitors would favour this new system for all transactions. Many solicitors had been unhappy that title due-diligence was left to be completed in the post-contract period and pointed out the inefficiency with the old system.

Conclusion

It is our view that the new system will inevitably result in a more cost-effective and efficient system, as the work and costs involved are more “front loaded” than before. This will mean there is less duplication of work and there will be a greatly reduced possibility of title issues arising post-contract.  Under the previous regime, there was always a risk from the seller’s perspective that a buyer might take advantage of an issue uncovered in post contract investigation, with a view to delaying the sale or re-negotiating the price.

In bringing this system in, particularly from a buyer’s point of view, there is a risk, from a costs perspective, in the period between agreeing a sale and the signing of the Contract.  Throughout the transaction, both parties will be liable for their own costs and therefore risk incurring wasted fees (solicitors, surveyors and other advisers), when the other party is entitled to withdraw at any time (and for any reason) prior to the signing of contracts.  This situation is similar to what intending buyers at auctions face regularly; where they might incur significant expense and not ultimately be successful in purchasing the property.  The old system would have provided some solace for such a buyer, in that at least the seller was bound to sell to them in accordance with the Contract (and following a further title investigation).  To deal with this, it is clear that all service providers within the conveyancing process will need to ensure that their fee agreements cover a “no deal” scenario and that this is understood from the outset. 

The implementation of the new system in the 2019 General Conditions will inevitably give rise to wrinkles which will need ironing out.  The system will need to evolve with practice but the introduction of the 2019 General Conditions is undoubtedly a positive step.

For further information please contact Killian Morris (Partner), or your usual AMOSS contact.