Malcolm Waters QC and Elizabeth Ovey look at the second edition of the Standard Commercial Property Conditions, which took effect on 1 June

The second edition of the Standard Commercial Property Conditions (SCPC) takes account of the changes made by the Land Registration Act 2002, the forthcoming implementation of part I of the Commonhold and Leasehold Reform Act 2002, and a number of other developments.

It follows the publication of the fourth edition of the Standard Conditions of Sale (SCS), that took effect on 13 October 2003.

The SCPC are intended primarily for use in more complex commercial transactions, as appears in particular from the extended provisions they contain in relation to leasehold matters, VAT and capital allowances.

Conveyancers are likely to find that, for residential sales and sales of small business premises, the SCS are better suited to their needs.

The commercial emphasis has led to one new departure for the SCPC.

The conditions are now divided into two parts.

Part 1 contains conditions of general application and is an updated and expanded version of the first edition.

Part 2 comprises new conditions relating to VAT, capital allowances and reversionary interests in flats.

The conditions in part 1 apply except as varied or excluded by the contract (1.1.4(a)), but a condition in part 2 applies only if expressly incorporated (1.1.4(b)).

Provision is made on the back page for boxes to be ticked to apply conditions contained in part 2.

The main changes to the front and back pages and part 1 are:

- The purchase price now includes any sum payable for chattels.

- The sale is made subject to the incumbrances specified on the front page by virtue of 3.1.2(a) and there is no longer a special condition relating to incumbrances.

- 1.1.1(f) uses the term 'conveyancer' (rather than 'solicitor') to refer to those who may lawfully carry out conveyancing work for reward.

- 1.1.3 explains when a party is ready, able and willing to complete.

- 1.3 has been revised to clarify the conditions relating to service of notices and documents and to cover the use of e-mail.

- Property sold subject to a lease has a separate condition (condition 4) instead of being included in condition 3.

Condition 4.2 deals with the management of such property between contract and completion.

It makes detailed provision for the conduct of court or arbitration proceedings (other than rent review proceedings, which are dealt with in condition 5) and for the grant of licences, consents or approvals under the lease.

- A new condition 5 covers rent reviews proceeding between contract and completion.

It requires co-operation between the seller and the buyer and states how the costs of the rent review process are to be borne.

- 6.1.1 requires the seller to provide the buyer with proof of its title to the property and of its ability to transfer it or to procure its transfer (the latter alternative applying, for example, to a sub-sale).

6.1.2 contains requirements as to the proof of registered title and 6.1.3 covers unregistered title.

- 6.2.1(a) now bars the buyer from raising any requisitions on the title shown by the seller before the making of the contract.

However, the buyer retains the right to raise requisitions on matters coming to its attention for the first time after the contract is made (6.2.2).

- Where the seller deduces title (either in whole or in part) after the contract is made, 6.3.1 continues to allow the buyer to raise requisitions within six working days of the date of the contract or delivery of the seller's proof of title on which the requisitions are raised.

- The SCPC no longer provide for the buyer to be let into occupation before completion, as the old condition 5 did.

- Condition 7 deals with the insurance of the property.

As before, the default position is that the seller is under no obligation to insure (7.1.4), but such an obligation will arise if the contract provides for the seller's policy to remain in force after exchange or if the property is let on terms that require the seller to insure.

In these cases, the parties' responsibilities are as set out in 7.1.2 and 7.1.3.

- 8.1.2 maintains the general rule that where the money due on completion is received after 2pm, apportionments and compensation are to be worked out as if completion had taken place on the next working day as a result of the buyer's default.

However, the general rule is now disapplied by 8.1.3 where the sale is with vacant possession and completion does not take place by 2pm because the seller has not vacated the property by then.

- 8.3 contains revised and extended apportionment provisions.

In particular, 8.3.4 now makes special provision for apportioning instalments of annual sums and 8.3.6 deals with service charges and similar payments due from the tenant under a lease of the property.

- 10.3 extends the provisions governing consents to assign or sub-let to cases where consent is required for the creation of a new lease of freehold land.

- 10.3.1(b) confirms that any necessary consent must be in a form that satisfies the requirement to obtain it.

- Condition 11 contains new provisions for commonhold in anticipation of the implementation of part 1 of the Commonhold and Leasehold Reform Act 2002.

The options provided by part 2 are:

- The default position under 1.4 is that the sale of the property does not constitute a taxable supply for VAT purposes.

Part 2 offers two options if the default position is not the correct one.

A1 covers the case where the sale constitutes a standard rated supply.

A2 deals with the case where the seller is using the property for the business of letting to produce rental income and the sale is a transfer of a going concern.

- B assists the buyer in making claims under the Capital Allowances Act 2001 by obliging the seller to provide (upon terms) copies of relevant information and to give co-operation and assistance.

- There are again two possible options in relation to reversionary interests in flats.

C1 contains a warranty by the seller of facts that would mean that the tenants have no rights under the Landlord and Tenant Act 1987.

C2 provides for the case in which the tenants do enjoy a right of first refusal.

Copies of the SCPC are available from OYEZ Professional Services, tel: 020 7556 3200.

Details of all the changes made are available in the explanatory notes to the SCPC.

These notes are distributed by OYEZ with each pack of the SCPC, and can also be viewed at www.lawsociety.org.uk.

Malcolm Waters QC and Elizabeth Ovey are barristers at 11 Old Square and members of the standard conditions joint working party.

The second edition of the Standard Commercial Property Conditions of Sale is available from Oyez Forms Publishing (020 7232 1000), Everyform (www.everyform.net) and Laserform (01925 750000).