The Gazette 1992

GAZETTE

JULY/AUGUST 1992

5. Site Conditions

Standard Form Bank Debentures

It must be clear what site works the contract price includes. If a lot of earth removal has to take place before building can commence is this included in the price? If the contractor encounters unexpectedly difficult ground conditions such as a soft spot and has to go down seven foot into the ground for foundations it should be clear who is to pay for the extra cost of this work. Contractors, particularly those who construct a large portion of the building off site, frequently give a quotation without inspecting the site on the basis of a site being reasonably level and soil conditions being normal. Both parties to a building agreement should take great care that the position in relation to the costs of such works is clearly set out in writing. that the employer will arrange to have certain parts of the completion of the house, such as the wiring or plumbing carried out by himself or some other contractor on his behalf. If such an arrangement is made the terms of it should be confirmed either in the agreement or by letter. In particular, it should provide that the contractor shall be entitled to give the employer written notice if the failure to complete any work is causing delay and should provide who is to be responsible for any loss as a result of any such delay. 6. It frequently arises in relation to once-off houses that the parties agree Practices vary as to how payment for the contract is to be made. All that is essential is that whatever payment schedule is agreed between the parties be clearly set out in the schedule of the agreement. Provisions should be made for interest on late payments and for a retention to cover defects appearing after completion. 7. Payment

Solicitors acting for borrowers are frequently presented with forms of debenture or mortgage debenture which are intended to secure their clients' liabilities to the lending bank. The solicitors should advise the client on the nature of the commitment to follow from the client's execution of the debenture. In many cases these debentures are pre-printed and include provisions which are not appropriate to the particular loan. In considering whether the debenture is in an appropriate form, the solicitor should have sight of the bank's loan to the client. The debenture should not do any more than enable the bank to take security in the form agreed to by the client. In certain forms of debenture the bank in addition to taking a floating charge will also seek to take a fixed charge over future acquired assets. Apart from the consideration of the validity of such specific provisions, particularly relating to future acquired registered land, the facility offered to the client by the bank may not in the first instance have provided for such a charge. The solicitor should protect his client from executing a debenture which reserves to the bank security over and above what was provided for by the bank in the loan offer letter and accepted by the client.

Property transactions - practitioners have encountered difficulties with VAT. Added Tax which would be chargeable upon the transaction. The purchaser's solicitor, acting in good faith and upon production of what appeared to be a valid VAT invoice, paid to the vendor's solicitor at closing the amount of VAT sought only to have his claim for a refund of this VAT disallowed by the Inspector of Taxes later on the grounds that VAT should not have been charged on the transaction in that particular case because it related to the sale of a business as a going concern. Quite clearly, it is not safe to assume that if one pays VAT on foot of an invoice bearing all the usual characteristics that a refund of such VAT will automatically issue. A claim for a refund might well be refused on the grounds that the particular transaction, for any one of a number of reasons, might be one which does not give rise to a VAT charge. The Committee recognises that the question of whether VAT should or should not be chargeable on a particular transaction is a complex one and often depends on factors which a purchaser will not be able to ascertain. In the light of this, the Committee has made representations to the Inspector of Taxes and the Inspector, in recognising the difficulties, has suggested that purchasers' solicitors might contact the Inspector and show him the particular invoice on foot of which payment is sought so as:-

Conveyancing

Committee

VAT on Property Transactions - A Word of Warning

The Conveyancing Committee has been contacted by a number of practitioners who have encountered difficulties in the area of Value Added Tax on property transactions. One such difficulty arose where a vendor's solicitor inserted into a contract for sale the usual clause which provided that the purchaser would pay to the vendor any Value

Please photocopy this practice note and file for reference.

Conveyancing

Committee

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