Mercury Tax – exchanging contracts?

It is interesting to learn that the London Property Support Lawyers Group is taking its own advice from counsel on the implications for property of the Mercury Tax case. Already, the City of London Law Society has taken the advice of Mark Hapgood QC (see Execution of deeds and documents – Mercury Tax) and has published its findings in the form of its ‘virtual closing’ protocol (VCP), designed to facilitate exchanges and completions where a signatory to an instrument is absent. However, concerns exist as to whether the VCP, having been prepared mainly in the context of corporate transactions, and not specifically with land contracts as the main focus, holds up in the light of rules relating to the formation of land contracts. In particular, it must be questionable as to whether the practice suggested by Option 1 of the VCP – that of printing off merely an execution page for later attachment in PDF format to a final version of the contract, can result in a “contract” signed by the client. Further, even if the client prints off and signs a full original version, the fact that the original will not be in the hands of the solicitor conducting the exchange must raise doubts as to whether a valid exchange of contracts can be achieved. First, there is no case law to support such an exchange: Domb v Isoz [1980] 1 All ER 942 supports the constructive mutual release of contracts which are in the physical possession of solicitors, but nothing further. Further, Law Society formulae for exchanging contracts clearly envisage having the client’s signed contract in one’s possession. Exchanging contracts without possession of the original involves departing from Law Society formulae, and raises questions as to what undertakings should be given and accepted.