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Bite size update on Mergers and Non-Mergers of a contract

21 April 2022

Our bite size update summarises the importance of identifying whether the obligations in a contract survive completion. 

Introduction

At common law, there cannot be two agreements that cover the same ground. When a contract is subsequently completed by deed, insofar as they cover the same ground, the provisions of the contract merge into the completed deed and the terms of the contract are discharged.

For example, a contract for the sale of land merges into the transfer deed or conveyance and a contract for an agreement for lease merges into the lease – this means that following completion, the parties cannot bring an action for breach of a contractual provision which has merged into the deed, as from completion the rights of the parties are entirely governed by the completed deed.

This is important because we need to make sure that any obligations in the contract, which are to be 'relied on after completion' (which are not contained in the completed deed) actually survive completion.

Where this becomes important

This becomes important for transactions where complex provisions are to survive completion, such as:

  • retentions;
  • service charge;
  • tax warranties – capital allowances, VAT – TOGC;
  • employment TUPE wording;
  • environmental provisions;

For complex provisions which need to survive completion, we recommend that upgraded non-merger wording needs to be included in the contract (see below).

Drafting study

The Standard Conditions include non-merger provisions. However, watch out for attempts to exclude the non-merger provisions in Standard Conditions – these are potentially risky.

Examples

  • Standard Commercial Property Conditions (Third Edition), condition 10.4:
    • "10.4. Completion does not cancel liability to perform any outstanding obligation under the contract."
  • Standard Commercial Property Conditions (Second Edition), Condition 9.4:
    • "9.4. Completion does not cancel liability to perform any outstanding obligation under the contract."
  • Standard Conditions of Sale (Fifth Edition – 2018 Revision), condition 7.3:
    • "7.3. Completion does not cancel liability to perform any outstanding obligation under this contract."

The above wording will generally work fine for simple contracts where there are only trivial obligations post completion. However we recommend upgraded wording is incorporated for more complex contracts. Drafting that specifically varies the relevant Standard Condition provision and sets out which provisions of the contract are to remain in full force and effect so far as they remain to be observed and /or performed after completion. It is also important to identify any warranty covenant or indemnity given in the contract which needs to remain in force post completion. :

Tips:

  • the upgraded wording can be built into contracts for sale or agreements for lease;
  • consider if your contract should be executed as a deed – agreements under hand generally benefit from a 6-year limitation period, agreements executed as a deed have a 12-year limitation period;
  • if you need an obligation to endure for a long period / attach to the land consider;
    • backing up the relevant obligation into the conveyance or lease;
    • protecting an obligation with a positive covenant / restriction;
    • remember the underlying contract will eventually disappear.

If you have any enquiries, please get in touch with our Real Estate team.

Authors: Julie Simms, Lee Pickett, Tom Hubbard and Mathew Abiagom

Further Reading