What happens in a Sub Sale?

by Tony Lilleystone, Legal Manager
Friday 9th of March 2012 03:54:04 PM

There are a number of issues to consider where a sub sale is involved during the purchase conveyancing process.

Always instruct a Conveyancing Solicitor with relevant experience in this area.

Who are the Parties?

Firstly, it is important to understand who the parties are:

The Buyer – is the person who has contracted to buy the land and who is going to sell the land to another party under a sub contract sale before they complete on the purchase

The Seller – means the person from whom the buyer (as defined above) is buying  the property and who is the legal owner of the property pending completion.

Third Party – means the person who is buying the property from the Buyer (as defined above) under a sub sale contract.

Contractual Restriction on Sub Sales

Where a buyer wishes to sell the property by way of a sub sale before he completes on the purchase of a property, he must make sure that there is nothing in the contract to restrict this. Standard Condition 1.5 of the Standard Conditions of Sale 4th edition, states the buyer is not permitted to transfer the benefit of the contract to anyone else. This means that the seller cannot be forced to transfer the property to another party other than the buyer named in the contract.

It should be noted that this condition will not prevent a sub sale of a freehold or a sub-assignment of a lease. However, the buyer will have to complete the sale to the third party after he has completed on the purchase (which buyers may not want to do in a sub sale transaction). This provision does provide protection where a new lease is being granted since the landlord cannot be forced to grant a lease to anyone other than the buyer.

Therefore, provided there is no restriction, the buyer can enter into a sub sale agreement with a third party before he completes on his purchase. The buyer’s conveyancer would then draft the Transfer inserting the third party’s details as the person to whom the legal estate is to be transferred to on completion.

Special Conditions in the sub sale contract

Special conditions will have to be inserted in the sub sales contract to reflect provisions in the main contract relating to the following:

The Contract
When drafting the sub sales contract care must be taken to ensure the relevant clauses are included, eg, the same Notice to Complete period provisions have been included to reflect those in the main contract.

Title
The third party should be required, by a condition in the contract, to accept the buyer’s entitlement to be registered as the owner of the property on the basis of the official copy entries of the seller’s title that have been produced.

The Purchase Deed

This will usually consist of a Transfer directly from the seller to the third party. The Buyer will also have to be made a party to the document so the ‘equitable interest’ in the property can be transferred to the third party.

Apportionment of Price

Where the amount paid by the third party is more than the amount payable by the buyer to the seller (often the case) then apportionments need to be included in the transfer.

Completion

Consideration will have to be given to the following matters:

  • Where is completion to take place?
  • Safekeeping of deeds during the conveyancing process
  • How are funds to be transmitted?
  • Undertakings for the discharge of the seller’s mortgage over the property

 

Stamp Duty Land Tax – who is liable?

Generally, stamp duty land tax (SDLT) will be payable by both the sub buyer and the buyer where completion does NOT take place at the same time (simultaneously). If the buyer completes and performs the main contract, eg, moves onto the land or starts to develop it, a land transaction takes place and SDLT must be paid. Then when the land is transferred to the sub-buyer or third party a further land transaction takes place and again SDLT will have to be paid.

Registration of the third party

Regardless of whether the transfer to the third party occurs by way of two separate Transfers or one directly between the seller and the third party, the third party’s title can be registered without the buyer having to register their legal ownership at any stage. Where two Transfers have been executed, the third party would need to submit both Transfers to Land Registry with their application to update the Register.

Protection of a sub sale contract

It is advisable for a third party in a  sub sale transaction to register the contract with Land Registry  by registration as a class C(iv) land charge which will then appear in the Register.

Notice to Complete

Problems may arise where the third party is unable to complete or is late in completing. The buyer cannot serve a Notice to Complete on the third party unless he has completed on his own contract. To avoid this, a condition should be inserted in the sub sale contract to say that the buyer can serve a Notice to Complete on the third party even though he has not completed on his own purchase. That said, the buyer should only serve Notice to Complete on the third party if he is confident that he can complete on his purchase.