Victoria Walton, Partner, Commercial Property

Ask the expert: 5 important clauses to get right when preparing a contract for the sale of land

13
Oct

When dealing with the sale of land for development, there is a whole raft of issues which require careful consideration and negotiation, often before the Heads of Terms even reach the hands of the lawyers.  At that point, it is down to the lawyers to ensure that the sale contract is properly drafted to reflect what has been agreed between the parties and that all of the clauses do what they need to.

The wording of a contact will of course vary depending on the specific details of the deal reached, but there are a number of key clauses which feature in almost all contracts for the sale of land and which require precise tailoring each and every time.

 

1. Easements

An easement is a right to use someone else’s land for a particular purpose, for example a right to walk over a private pathway to access your property. 

When dealing with the sale of land for development, the situation can be more complex – particularly if only part of the land is being sold, with a parcel being retained by the Seller – and careful thought should be given to the types of easements which will be required by each party.  These could include:-

  • A right of access over a shared accessway or any planned infrastructure.
  • A right to connect into, use and maintain any shared services and utilities.
  • A right to enter onto neighbouring land to carry out repairs or maintenance.

 

When negotiating these rights, both parties will need to keep one eye on their plans for the future and consider whether any of the easements sought by the other party are likely to have an impact on their proposed use of the land or, indeed, whether there are any additional rights which may be required further down the line which should be documented now.

 

2.  Covenants

In addition to easements, it will also be necessary to consider whether any covenants are required.  A covenant is essentially a legally-binding promise and can take one of two forms:-

  • Positive Covenant – As the name suggests, a positive covenant is a clause which requires someone to do something e.g. to pay a percentage contribution towards the cost of maintaining an access road. Such covenants are only binding on the original buyer so, when drafting the documentation, the seller’s lawyer will need to include the necessary mechanisms to ensure that any future owners also enter into a direct covenant with the seller in the event of a subsequent disposal.
  • Restrictive Covenant – A restrictive covenant is a clause which prevents someone from doing something e.g. not to use the land for anything other than residential development. Such covenants will be binding on the buyer and all future owners of the land. 

 

From the seller’s perspective, covenants are a very useful way to retain some control over the use of the land being sold, which is of particular importance if an area of adjoining land is being retained by the seller for personal use or future development.

As with the negotiation of easements, both parties will need to keep in mind their future plans for the land to ensure that the proposed covenants are reasonable and proportionate.

 

3.  Environmental Liability

Environmental liability is an issue which has attracted increasing levels of public and political awareness in recent years, with landowners finding themselves subject to large fines and extensive remediation obligations for any sites found to be “contaminated”.

On the sale of land, a seller will ideally seek to pass their environmentally liability to the buyer to the fullest extent possible, with a contractual agreement to that effect.  However, a prudent buyer will not want to be held liable for any environmental issues they didn’t create.  It is often necessary for specific clauses to be built into the Contract to ensure that each party is fully aware of their ongoing obligations and liabilities after exchange.  The final details of what each party agrees to be liable for will very much depend on the specifics of the situation and the bargaining powers of each party.

 

4.  Indemnity

A natural follow-on from the previous point is to consider the value of a property drafted indemnity in contracts for the sale of land.  In simple terms, an indemnity is a contractual clause under which one party promises to reimburse the other for any loss suffered.

Where a particular risk has been identified, and specific obligations built into the contract to deal with this, an indemnity will often be sought as a way of bolstering such obligations.  For instance, in the case of contaminated land, if a buyer has agreed to be responsible for all environmental liabilities from the date of exchange, the seller may seek to include a robust indemnity covering all environmental claims, including any claims brought by third parties or liabilities under any other environmental legislation and regimes.

 

5.  Confidentiality

Confidentiality can be extremely important in land transactions to ensure that certain elements of a deal are not disclosed without the other party’s consent.  Where the deal itself is a matter of sensitivity, it is likely that a separate Confidentiality Agreement will already have been entered into at the very outset of negotiations.  However, it is sometimes the case that, during the course of negotiations, certain points are agreed which one or both parties do not wish to be disclosed, event after Completion.  In those cases, it may be necessary to include a carefully drafted confidentiality clause within the sale contract itself, to cover this.

 


For further advice and information on any commercial property or land development issue, please contact Partner, Victoria Walton, by phone on 0191 384 2441 or by email at vew@swinburnemaddison.co.uk

 

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