1 - Freehold Transactions

Question 1

What are the SRA’s 7 principles?

Answer 1

You act:

1. In a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.
2. In a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.
3. With independence.
4. With honesty.
5. With integrity.
6. In a way that encourages equality, diversity and inclusion.
7. In the best interests of each client.

Question 2

When accepting instructions to act in a property matter, what conduct issues do you need to consider?

Answer 2

• Can you provide a competent and timely service?
• Are you authorised to act on your client’s behalf?
• Would you have any conflict of interest?
• Duty of confidentiality
• Duty of disclosure

Question 3

How to determine whether you can provide a competent and timely service?

Answer 3

As per CCS 3.2:

You must ensure that the service you provide to clients is competent and delivered in a timely manner.

Competence: You need the necessary skills and experience for the client’s request. If not, seek supervision or refer the matter to a more experienced lawyer. E.g., do you usually work with residential rather than high-value commercial properties?

Timeliness: If too busy to handle the matter promptly, consider referring it to another lawyer to maintain timely service.

Question 4

How to determine whether you are authorised to act on your clients behalf in a property transaction?

Answer 4

You must act only on instructions from your client or someone properly authorised to instruct on their behalf (CCS 3.1). If you suspect the instructions do not represent your client’s wishes, you must ensure they do before proceeding.

Instructions from the client: Verify the client’s identity through identity checks. Avoid accepting instructions from one spouse for another without written confirmation.

For companies, ensure the person instructing you is a validly appointed director or authorised through a board resolution.

Question 5

What are the conflict of interest considerations when determining whether you are authorised to act on behalf of a client?

Answer 5

Own Interest Conflict (CCS 6.1):
You must not act if your duty to the client conflicts with your personal or business interests. Examples include financial interests or personal and business relationships that may affect your objectivity.
There are no exceptions to this rule, you must not act if it arises.

Conflict of Interest Between Clients (CCS 6.2): You must not act if there is a conflict of interest between clients unless rare exceptions apply. For example, acting for both a buyer and seller could lead to conflicting duties.
There are (rare) exceptions to this rule.

Question 6

What are the exceptions to conflicts of interest between clients and conditions to the exceptions when deciding whether you have the authority to represent a client?

Answer 6

CCS 6.2:
You do not act in relation to a matter or a particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it unless:

a) The clients have a substantially common interest in relation to the matter or the aspect of it, as appropriate; or

b) The clients are competing for the same objective,

And the conditions below are met, namely that:
- All clients have given informed consent, evidenced in writing, to you acting.
- Where appropriate, you put in place effective safeguards to protect your clients’ CI (e.g., only allowing certain staff to access client files).
- You are satisfied that it is reasonable for you to act for all clients (e.g., if one client is more vulnerable than another, it would not be reasonable to act for both clients).

Question 7

What constitues a substantial common interest when identifying whether there is a conflict of interest in representing a client?

Answer 7

(SCI) – A situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved.

E.g., Two clients who buy properties together have a clear common purpose (to investigate the land through a solicitors report). If these two clients fall out and decide to negotiate separately against each other, there is no longer an SCI.

Question 8

What constitues ‘competing for the same objective’ when identifying whether there is a conflict of interest in representing a client?

Answer 8

CFSO refers to situations where two or more clients are competing for an asset, contract, or business opportunity that, if achieved by one client, will make it unattainable for the other clients.

In practice, this would apply to sophisticated clients in a structured competition process, such as an auction or tender. In this instance, you may act for two or more clients, as the process itself will mean that only one of the clients will be successful.

Question 9

Can you act for buyer and lender on a property transaction?

Answer 9

• Residential Transactions:

Permitted to act for both buyer and lender.
Common practice as both parties share a common interest in property value and marketability.
Standard forms and non-negotiated terms of loans help avoid conflicts.

• Commercial Transactions:

Generally not permitted.
Conflicts of interest are likely due to differing priorities and negotiation issues.
The same solicitor cannot fairly represent both parties or negotiate with themself, for example, when negotiating the security documentation or the terms of a loan agreement.

Question 10

What is a solicitors duty of confidentiality in a property transaction?

Answer 10

CCS 6.3 -
Applies to both current and former clients.
Continues after a client’s death.
Includes clients from previous firms.

Exceptions:
Disclosure required or permitted by law (e.g., investigations by HMRC, National Crime Agency).
Compliance with a court order.

Question 11

What is a solicitors duty of disclosure and the exceptions to this in a property transaction?

Answer 11

CCS 6.4, General Duty:

• Inform the client of all material information related to the matter.
• Report on the extent and results of investigations and any limitations or unaddressed matters.
• Helps reduce the risk of a negligence claim.

CCS 8.6 Reporting to a client: You give clients information in a way they understand. Difference between commercial and non-commercial clients.

Exceptions:

• Disclosure could cause serious physical or mental harm.
• Legal restrictions or duty of disclosure to another client.
  Such exceptions are rare.

Question 12

What happens when the duty of confidentiality and disclosure conflict in a property transaction?

Answer 12

1. Ask for Client Consent:

E.g., Request the buyer’s permission to disclose the price discrepancy to the lender. Warn the buyer that this disclosure may impact their mortgage offer.

2. If the Buyer Consents:

E.g., Disclose the discrepancy to the lender. Proceed based on the lender’s response.

3. If the Buyer Does Not Consent:

E.g., You must cease acting for the lender. It is advised to stop acting for the buyer as well.

Question 13

What are the buyer’s concerns and solicitor’s aims in a freehold transaction?

Answer 13

Buyer’s Concerns:
- Time to complete the transaction
- Costs involved

Solicitor’s Role:
- Confirm seller’s right to sell the property
- Ensure property’s condition meets buyer’s needs and is worth the purchase price
- Identify all property rights and any third-party claims
- Ensure property is free from security interests like mortgages
- Reflect agreed terms in the contract
- Ensure adequate funds for the purchase

Question 14

What are the seller’s concerns and solicitor’s aims in a freehold transaction?

Answer 14

Seller’s Concerns:
- Receive money quickly from the sale
- Handle related purchases, if applicable

Solicitor’s Role:
- Ensure contract reflects agreed terms
- Provide buyer’s solicitor with necessary documents
- Coordinate sale with any related purchase
- Transfer legal ownership and responsibility to buyer
- Collect sale proceeds, repay mortgage, and account balance to the seller

Question 15

What are the lender’s and solicitor’s aims in a freehold transaction?

Answer 15

Lender’s Concerns:
- Property’s marketability and value, in case of buyer default

Solicitor’s Role:
- Confirm seller’s right to sell
- Ensure property’s condition and value cover potential losses
- Identify all property rights and third-party claims
- Ensure property is free from security interests
- Ensure contract reflects agreed terms
- Confirm valid mortgage and no discrepancies in borrower’s circumstances

Question 16

What are the three stages of the conveyancing process?

Answer 16

1. Pre-Contract to Exchange
2. Pre-Completion to Completion
3. Post Completion

Question 17

What happens during the Pre-Contract to Exchange stage of a conveyancing transaction?

Answer 17

Pre-Contract:
- Buyer decides to buy property and agrees on the price.
- Property is surveyed for value and condition.
- Buyer’s solicitor investigates title and raises pre-contract queries.
- Once the buyer is satisfied, they proceed to exchange.

Exchange:
- Seller and buyer enter into a contract to sell and buy the property.
- Buyer pays a deposit (usually 10%).
- From this point, neither party can withdraw without financial penalties.

This is where most of the work takes place.

Question 18

What happens during the Pre-completion to Completion stage of a conveyancing transaction?

Answer 18

Pre-Completion:
- Buyer’s solicitor arranges mortgage funds and ensures buyer’s funds are ready.
- Seller gathers paperwork to transfer the property.
- Residential buyers and sellers arrange moving services if applicable.

Completion:
- Buyer’s solicitor transfers the purchase price to the seller’s solicitor.
- Seller’s solicitor provides paperwork to transfer the property.
- Buyer receives keys and both parties move house.

Question 19

What happens during the Post Completion stage of a conveyancing transaction?

Answer 19

Post-Completion:
- Seller’s solicitor repays the seller’s mortgage and sends remaining funds to the seller.
- Buyer’s solicitor pays Stamp Duty Land Tax (SDLT) or Land Transaction Tax (LTT).
- Buyer’s solicitor registers the buyer as the new owner with the Land Registry.

Question 20

What is the legal meaning of caveat emptor and what are its consequences?

Answer 20

Caveat emptor means “buyer beware” in Latin.

• The buyer must accept the property as it is and investigate any issues before purchase.
• After exchange of contracts, the buyer cannot withdraw for discovering property problems, unless limited exceptions apply.
• The seller is generally not obligated to disclose all property details, so it is the buyer’s solicitor’s duty to thoroughly investigate.

Question 21

How can the buyer find out information about the property?

Answer 21

Information sources include:

1. The title to the property (Land Registry official copies, if registered, or deeds, if not registered).
2. The seller’s replies to pre-contract enquiries.
3. Searches from local authorities, the Land Registry, Statutory Undertakers and other bodies (e.g., water companies).
4. A property survey, where the surveyor inspects the property assesses value and defects (e.g., structural defects and necessary repairs) and may flag issues for further solicitor investigation (e.g., physical evidence of rights of way or boundary discrepancies).

Question 22

What happens if there is something wrong with the property before exchange of contracts?

Answer 22

• The buyer can walk away without legal liability if contracts have not yet been exchanged.
• The buyer cannot recover costs from the seller.
• The buyer may also require the seller to fix any issues before completion, which can be included as a condition of the sale contract.

Question 23

What advice must a solicitor give the buyer on the Energy Performance Certificate at the start of the transaction?

Answer 23

• The seller must commission an Energy Performance Certificate (EPC) before marketing the property and provide it to the buyer free of charge.
• An EPC reports on the energy efficiency of the property and recommends improvements.
• It is valid for 10 years and available on a public register.
• The solicitor should check the EPC is provided when accepting instructions.

Question 24

What advice must a solicitor give the buyer on the likely timescale and costs at the start of the transaction?

Answer 24

Discuss likely timescales and costs at the outset.

Timescales depend on arising issues and how quickly other parties’ solicitors act:
- Residential sales typically take 6-8 weeks.
- Large commercial transactions may require faster timelines (e.g., exchange in 2 weeks, completion in 4 weeks).

Costs may be fixed or time-based, and an estimate or range should be provided.

Question 25

What advice must a solicitor give the buyer on the Co-ownership at the start of the transaction?

Answer 25

Legal ownership:
- Up to 4 owners can be registered at the Land Registry.
- All legal owners must be over 18.
- Legal ownership can only be held as a joint tenancy (owners collectively own the whole property).
- Legal owners hold the property on trust for beneficial owners.

Beneficial ownership:
- Not limited to 4 people, can include any age.
- Beneficial owners are not registered at the Land Registry.
- Ownership can be as a joint tenancy (equal share, automatic inheritance to co-owners on death - the right of survivorship) or tenancy in common (individual shares, can be unequal and passed on via will).

Buyers need to decide how both legal and beneficial ownership will be structured, as it impacts inheritance and control over the property.

Question 26

Why is it important for a solicitor to record co-ownership arrangements at the start of a property transaction?

Answer 26

Get clear instructions from your client on co-ownership and carry them out. Failing to do so is a common area of professional negligence.

This can be included in:
- A declaration of trust of land, which must be in writing and signed by the declarant(s).
- The standard Land Registry form transfer deed (most commonly TR1) provides a panel to include a declaration of trust.
If this option is selected, the buyer will need to add wording to confirm the share that each beneficiary is entitled to, e.g., X - 40%, Y - 60%.

Question 27

What advice must a solicitor give the buyer on the Surveys at the start of the transaction?

Answer 27

• Always advise the buyer to commission a physical survey to identify defects.
• Defects can impact property value and may allow price renegotiation or withdrawal before exchange.
• If defects are serious, the lender might refuse to lend until resolved, which could prevent the buyer from proceeding.

Question 28

What are the different types of survey in a property transaction?

Answer 28

**Basic valuation: **
- If a mortgage is being obtained, the lender will insist on at least a basic valuation.
- It is the cheapest option.
- The surveyor will give a valuation and identify any major obvious defects.
- It is intended to ensure that the lender will be able to recover any losses by selling the property, and is not detailed.
- A buyer should be advised to obtain a fuller survey.

Homebuyer report:
- More detailed than the basic valuation.
- Suitable for most properties in a reasonable condition, aged less than 150 years.

Full Structural Survey:
- Suitable for any property, but should only be considered where the property has extensive renovations, or where extensive renovations are planned.
- It is the most expensive option.

Question 29

What advice must a solicitor give the buyer on the different tax considerations at the start of the transaction?

Answer 29

Capital Gains Tax (CGT):
- CGT is a tax on the profit made from selling assets that have appreciated, including property.
- Only the gain (increase in value), not the sale price, is subject to CGT.
- If the buyer intends to sell the property in the future and it has increased in value, CGT may be applicable.
- The buyer should be aware of their potential tax liability on the gain when selling, especially for second homes or investment properties.

Stamp Duty Land Tax (SDLT), and in Wales, Land Transaction Tax (LTT).
- A buyer must pay Stamp Duty Land Tax (SDLT), and in Wales (for sales completed on or after 1 April 2018), Land Transaction Tax (LTT) if it buys a property or land over a certain price in England and Wales.
- If the property price does not exceed the threshold figures, no SDLT is payable.
- Tax differs depending on if the property is commercial or residential.

Value Added Tax (VAT):
- A tax that is added to the price of certain goods and services, inc property transactions on the sale price.
- Residential properties are VAT exempt.

Question 30

What will be buyer need to have sufficient funds for to complete the purchase?

Answer 30

• Cash to pay the deposit on exchange
• The balance of the price on completion
• The agreed price for any extras, such as contents that come with the property
• Tax (SDLT or LTT, CGT, VAT as appropriate)
• The solicitor’s fees, which will be subject to VAT (irrespective of the VAT treatment of the property itself)
• The solicitor’s disbursements – such as search fees and Land Registry fees

Question 31

Where does the buyer’s funding usually come from for residential purchases?

Answer 31

• The client’s own resources: Personal savings or funds available to the buyer.
• A mortgage loan: Borrowed funds from a lender to cover part or all of the purchase price.
• Proceeds of any related sale: Funds obtained from selling another property that are used to finance the new purchase.

Question 32

Where does the buyer’s funding usually come from for commercial transactions?

Answer 32

• Syndicate: A group of lenders who collectively provide the funding, reducing individual risk exposure.
• Equity finance: Public companies may raise funds by selling shares on the stock market.
• Development finance: Lender provides funds for both purchasing the property and developing it; the lender may take control if the buyer fails to complete the development.

Question 33

What are the different types of residential mortgage?

Answer 33

Capital Repayment Mortgage:
- Monthly payments: Includes both capital and interest.
- End of term: Loan is fully repaid.

Interest Only Mortgage:
- Monthly payments: Only interest is paid.
- End of term: Capital remains outstanding; generally repaid through property sale.

Endowment Mortgage:
- Structure: Interest only with an additional payment into an endowment policy.
- Purpose: Policy aims to repay the capital at the end of the term, though many have fallen short. (Note: These are largely unavailable now.)