House Purchase Contract / Incumbrances

[DuraLexSedLex]

Dear Members,

We are about to purchase a freehold residential property.

We received a draft contract which contains these ”Specified Incumbrances” :

“All those matters referred to in entries 1, 2, and 3 of the Charges Register
for which the Buyer will indemnify the Seller in the Transfer upon completion”

We understand the 1st half of the sentence :

“All those matters referred to in entries 1, 2, and 3 of the Charges Register”

But we were given no explanation for the 2nd half of the sentence :

“for which the Buyer will indemnify the Seller in the Transfer upon completion”

Is it normal to have this 2nd half written in the “Specified Incumbrances” ?

Your time and insight would be much appreciated !

do you have a conveyancing solicitor?

Yes, we have a conveyancer.
We were told that the sentence is standard without further explanation.
But we would appreciate to have a sufficient understanding.

Yes this is normal. Basically, at the moment the person selling the house to you has a contract with the person who sold the house to her to comply with whatever is in the charges register.

So A sold the house to your seller (B) who is now selling the house to you (C).

A doesn’t have any contract with you so if you breach the requirements, he can only sue B. B doesn’t want to be financially liable if it turns out you are a loon who will ignore all the requirements so she puts in a contract term that if you go against the requirements, you have to pay any damages A is awarded (indemnify B) rather than B being on the hook for the damages for your actions.

I think (though you’d have to check with a conveyancing solicitor) it also means A can sue C (you) in place of B. Since you will own the house and be the only ones able to breach whatever is in the charges register, that seems only fair.

Obviously with some houses, the chain of people can be very long.

Also obviously, a key issue is whether you are happy to comply with ‘entries 1, 2 and 3’ and whether they are reasonable.

You should note that if there has been an ongoing breach, you are accepting responsibility for it. For example, if one of the requirements is ‘not to own chickens’ and you are buying a property with a chicken farm in the back garden, if you are sued, you are legally responsible even though B set up the chicken farm and ran it for 30 years.

Thank you very much for your detailed response !

More precisely, we have 2 concerns about the following expression :
“for which the Buyer will indemnify the Seller in the Transfer upon completion”

Concern 1 :
We could not find any example of incumbrances containing such expression.

Concern 2 :
The expression differs much from section 4.6.4 of the Standard Conditions.

The Standard Conditions can be downloaded from this address :
www.lawsociety.org.uk/topics/property/standard-conditions-of-sale

I’ve just looked at 4.6.4 and as I read it, it says exactly the same?

4.6.4 reads that if there are conditions that would bind the seller (B) after sale, then unless there is a law that would transfer the obligation to the buyer (C) (which there usually isn’t) it is a standard requirement under 4.6.4(a) that C should indemnify B for any breach of obligations and also undertake to comply with the obligations in question.

Basically the wording in your OP exactly carries out the requirements of the standard conditions. Why do you think it differs?

Edited to say: I’m not sure what you mean by ‘concern 1’ - can you explain?

i think you need to pick up the phone to your solicitor first thing monday morning

Thank you very much for your detailed response !
I think that there is at least the following important difference.

Section 4.6.4 of the Standard Conditions specifies twice
that the considered breaches are “future breaches”.

Whereas section “Incumbrances” of the Sale Contract does not specify
whether the considered breaches are past or future.

Note : About Concern 1, we browsed many examples of contracts on the web.
But we could not find any section “Incumbrances” that indicated an indemnity.

Note : We already asked our conveyancer about our concerns.
But we were told that the sentence is standard without further explanation.

so… where you ask a question and get that kind of response

you go back and ask for the solicitor to elaborate

Indeed several times, we asked our conveyancer to elaborate.
But we were told that the sentence is standard without further explanation.

that really does not bode well

I see what you mean about the past / future thing.

It might be your conveyancer is using the wrong terminology. Maybe try searching for ‘restrictive covenants’ or just ‘covenants’ (which is what I’ve always heard things you can / can’t do called in house purchases) rather than ‘incumbrances’.

Are you using one of the big conveyancing firms? If you are, your conveyancer probably isn’t a solicitor and will just be using boilerplate drafted by someone who may not be with the firm any more (or the firm may have ‘borrowed’ the standard terms from another company - I’ve known that to happen too).

I think a key issue is what entries 1, 2 and 3 actually are. If it’s really easy to see the seller hasn’t breached them, there is no issue with accepting liability for either past or future breach since past hasn’t happened and you are the only one who can commit a future breach.

Usually this is used due to a chain of indemnity - once one person gives it in their deeds, each successor has to also give it otherwise the previous owners who gave the indemnity (I.e. your sellers) would remain liable for your future breaches - so it's actually about stopping their ongoing liability.

The Contract has a field named “Incumbrances” filled as follows :

“All those matters referred to in entries 1, 2, and 3 of the Charges Register
for which the Buyer will indemnify the Seller in the Transfer upon completion”

It is not possible for me to check
that all covenants have never been breached in the past.

So why should I accept such a Contract that includes past breaches,
although the Standard Conditions include only future breaches ?

I also wonder whether such a Contract
would negatively impact the content of the resulting “Register of Title”.

What do 1-3 of the Charges Register say?

Are you a FTB? You are overthinking it

Entries 1-3 of the Charges Register refer to a number of covenants.

We fully agree with the following sentence,
since it is very usual in such contracts :

“All those matters referred to in entries 1, 2, and 3 of the Charges Register”

But we do not understand the presence of the following sentence,
since it differs from the Standard Conditions and is absent in other contracts :

“for which the Buyer will indemnify the Seller in the Transfer upon completion”

It means that in the transfer of ownership document you will take legal responsibility for any of the covenants not being obeyed in the past. If you think the seller or previous owners might have broken any, get your conveyancer to ask their conveyancer. There are solutions (insurance generally).

Most Transfers have that wording added even if the contract doesn’t specifically say so as it’s such a standard thing.

We could find many Contract examples that contained such a sentence :

“All those matters referred to in entries 1, 2, and 3 of the Charges Register”

But we could not find any Contract example that contained such a sentence :

“for which the Buyer will indemnify the Seller in the Transfer upon completion”

We would not want the Contract to be worded in such a way
that negatively impacts the resulting Register of Title.

The current Register of Title refers to an Indemnity mentioned in the Transfer,
but does not mention the Seller in any way.

The Transfer mentions an Indemnity from successive Buyers to the Developer,
but does not mention the Seller in any way either.

You won’t find any contract examples on the internet because it’s standard OP. Plus the internet doesn’t have all the information in the world ever.

If you don’t trust your conveyancer on this simple point, perhaps you should find someone else.

If this contract was written according to an existing Standard,
then we would statistically expect to find :

• A similar contract among the many contracts found, or
• A reference documentation that supports this Standard.

But we did not find any such evidence on the web :

• Either we were inefficient,
• Or we were unlucky,
• Or there is no web evidence of such Standard,
• Or there is no such Standard... :-)

OR you have no legal knowledge, but that’s fine because that’s what you’re paying your conveyancer for.

I mean, if you want you can sign up to a free trial of Practical Law which probably has a precedent.

There’s all sorts of extra wording that can be needed because the Standard Conditions don’t cover them.

Standard today is not what was standard 100 years ago. Old house deeds can be fun!

What are you actually worried about? I presume it isn't the specific wording, but if it is a pedantic point then is it worth the energy?

What do you think this wording puts at risk? The restrictive covenants, what do they say? If they are breached then what is the penalty? Who would enforce them and sue you?