Buying a Property via a Conditional Contract

Buying a property can often take longer than you would like and, until the exchange of contracts, there is always the risk that the seller can back out. This period, between acceptance of your offer and exchange of contracts, can leave you on tenterhooks, especially if your purchase depends on another event, such as the grant of planning permission. So, what are your options?

‘One possibility is the use of a conditional contract,’ says Edward Sharpe, a Partner in the Residential Property with Sills & Betteridge. ‘This can give you a degree of certainty, as it means the seller cannot simply walk away from the deal and you only have to proceed once a stipulated condition is satisfied.’

Here Edward answers some of your questions, including when a conditional contract may be suitable.

What exactly is a conditional contract?

A conditional contract, like a conventional sale agreement, is binding from exchange and both you and your seller will have certain duties to perform. For example, the sellers must still prove their title to the property. The price is fixed as is the framework for completion. 

This differs from a conventional sale agreement because your obligation to complete only kicks in once a particular condition is satisfied. This could, for example, be the grant of planning permission, landlord’s consent, or the acquisition of another property. Once that condition is met, notice is given, and the sale will proceed according to the timetable and terms set out in the contract, just as it would with a conventional sale. 

When should I consider a conditional contract?

There is no legal restriction on when you can use a conditional contract. However, they are most suited to situations where proceeding depends on a particular event happening, one which can be clearly defined. For example, if you have plans to build on a development plot or to substantially renovate or extend a property, you are likely to require planning permission. Without the security of a contract, you risk losing the property if the seller changes their mind due to delays outside of your control. If that happens, you will have wasted time and expense applying for the permission. 

Exchanging contracts without the permission in place will secure the property but is risky, as you may not get the permission and be able to develop it as you want. A conditional contract means you proceed only once you have the permission and know you can carry out your plans. 

As well as with planning permission, conditional contracts can be used where any form of regulatory consent is required. For example, if you are buying a licensed premises, or need an environmental permit. 

If your plans involve multiple purchases, you can use a conditional contract to ensure you secure all the necessary elements at the same time. This could be because you are buying a building plot and access land separately, or amenity land such as a pony paddock to go with your new home. 

If you wish to buy a property with a short lease, you could make it conditional on the seller obtaining a lease extension.

Are there any pitfalls to look out for with a conditional contract?

The flip side of the relative certainty of a conditional contract is that you are committed for a set period, albeit provisionally. Whereas sometimes you may be better off cutting your losses and looking for another property.
Most conditional contracts include a longstop date. If the condition is not met by this date, then the contract comes to an end. Termination may be automatic or at the option of one of the parties. This avoids you having to wait indefinitely for something that is unlikely to happen. The date should be realistic considering the likely length of time needed to satisfy the condition. 

In addition, the contract may set out who should do what and when. This lets you maximise the chances of satisfying the condition. For example, if your purchase depends on landlord’s consent for alterations, you may want to require the seller to actively pursue this.

It is important to get the right advice when negotiating a conditional contract. Your solicitor should understand your individual circumstances and what you are trying to achieve. 

Are there any alternatives to a conditional contract? 

Even where you require something to happen before proceeding, a conditional contract may not be your best option. If there is a title issue, then your solicitor may identify another viable solution. For example, if the Land Registry has yet to complete an associated application, it should be possible to get that application expedited. In other scenarios, you may be able to complete subject to a retention of money, the balance being released only when the relevant condition is satisfied. 

An option agreement is another possibility. In this, the seller undertakes, if required, to sell you their property for an agreed price, although they may require a separate payment for this right. Unlike a conditional contract, you are not obliged to proceed unless you choose to exercise the option. This can work well, for example, if you are planning a development, where there are multiple dependencies or the lead-in time is significant. 

How we can help

If you are buying a property subject to a condition, getting the right professional advisors on board is vital. You should look for someone who is not only a competent conveyancer, but who understands more complex transactions and who can advise you on the best structure for your aims. 

Our residential property team at Sills & Betteridge have extensive experience of all types of  transactions. They are well equipped to help whatever your circumstances.

For further information, please contact Edward Sharpe in the Residential Property Team on 0800 542 4245 or email ESharpe@sillslegal.co.uk . Sills & Betteridge has offices across Lincolnshire, Yorkshire and the East Midlands.