Our bite-sized update summarizes the importance of determining whether the obligations in a contract survive completion.
Under common law, there cannot be two agreements covering the same subject. If a contract is subsequently concluded in a document, the provisions of the contract, insofar as they relate to the same legal basis, are transferred to the completed document and the contract provisions are cancelled.
For example, a contract for the sale of land merges into the deed of transfer or conveyance and a lease agreement merges into the lease agreement – meaning that after completion, the parties may not bring an action for breach of any provision of the contract which has been incorporated into the deed, as the parties’ rights exist upon execution totally ruled through the completed document.
This is important because we have to take care of it any obligations in the contract which is to be “trusted upon completion” (these are not contained in the completed instrument) actually survive completion.
where that becomes important
this will important for transactions where complex provisions are intended to survive completion, such as:
- Service fee;
- Tax Guarantees – Capital Allowances, VAT – TOGC;
- employment TUPE wording;
- environmental regulations;
For complex determinations that have to to survive Finally, we recommend that improved non-merger text needs to be included in the contract (see below).
The Standard Terms include non-merger provisions. However, beware of attempts to do so exclude the non-fusion provisions in the standard terms – these are potentially risky.
- General property conditions (3rd edition), Section 10.4:
- “10.4. Completion does not cancel the obligation to fulfill any outstanding obligations under the contract.”
- Commercial Property Terms and Conditions (Second Edition), Condition 9.4:
- “9.4. Completion does not cancel the obligation to fulfill any outstanding obligations under the contract.”
- General Conditions of Sale (Fifth Edition – Revision 2018), Condition 7.3:
- “7.3. The conclusion does not cancel the obligation to fulfill any outstanding obligations under this contract.”
The above wording generally works well for simple contracts where there are only minor obligations after completion. However, we recommend improved formulation is included for more complex contracts. Drafting specifically varying the relevant provision of the Standard Terms and determining which provisions of the Contract shall remain in full force and effect to the extent required to be complied with and/or performed upon completion. It is also important to identify any warranties or indemnities contained in the contract that must remain in effect after closing. :
- that improved formulation may be built-in purchase agreements or rental agreements;
- Consider whether your contract should be carried out as a deed – Contractual contracts are generally subject to a statute of limitations of 6 years, documented contracts have a statute of limitations of 12 years;
- when you need a commitment to enduring for a long time / stick to the land consider;
- Securing the relevant obligation in the transfer or lease;
- protection of an obligation with a positive agreement/constraint;
- Keep in mind that the underlying contract will eventually disappear.