1.6 Freehold Estates - Contract Preparation & Exchange Flashcards
What is included in the Standard Commercial Property Conditions?
Part 1 - Conditions (UNLESS excluded)
1) General
2) Formation
3) Matters affecting the property
5) Leases affecting the property
6) Rent reviews + pending lease renewals
7) Title + Transfer
8) Risk + Insurance
9) Completion
10) Remedies
11) Leasehold property
12) Contents
Part 2 (must be incorporated)
- VAT
- Capital allowances
- Reversionary interest in flats
What are the Buyer’s methods of holding the deposit?
Upon exchange of contracts > Grant deposit (10% purchase price)
Buyer holds deposit as;
- Stakeholder
- Agent (Seller defaults)
What is the rule for insurance (Standard Conditions 5.1)?
Buyer/Lender > Insure property
Seller > Insure property
- Contract requires S’s insurance policy to continue
- S is obliged to insure > Maintain policy as much as possible + Allow B to inspect policy/terms
Damage pre-completion
- S to pay B > Policy monies received LESS sums used to repair/claimant rights
- Leasehold property > S to use reasonable efforts to ensure insurance maintenance until completion/S to assign policy monies to B
What are the basics of VAT in a contract?
20% (standard rate)
Payable
- Purchase price
- Rent
Chargeable item > Supply (UNLESS exempt)
Transactions of property > 3yo
- Exempt supply
- UNLESS B will pay VAT
Transactions of property < 3yo
- Chargeable supply
- Consideration assumed to induce VAT
- Otherwise clause must state consideration excludes VAT
Commercial investment property
- Special condition required > Avoid VAT
- E.g. Purchase price includes VAT, S warrants NOT to elect to waive VAT exemption
Standard Commercial Property Conditions of Sale
- Part 1 > S warrants property sale > NOT chargeable supply
- Part 2 (A1) > Sale > Chargeable supply
- Part 2 (A1.3) > B to pay VAT on purchase price in exchange for proper VAT invoice
- Part 2 (A2) > Transfer of going concern > S warrants property used for business > Lease to produce rental income
How may contracts be exchanged in person?
Better for single transaction
Exchange signed contracts
- Inspect at same time
- Includes completion dates
B provides deposit check
How may contracts be exchanged by post/document exchange (DX)?
S’s solicitor + B’s solicitor
- Exchange contract + deposit cheque
Postal rule
- 2nd contract posted/deposited at DX => Contract exists
UNLESS linked transaction
How may contracts be exchanged by telephone?
Formula A
- Solicitor A possesses BOTH signed parts of contract
- Solicitor B holds nothing
- Solicitor A to exchange contracts with Solicitor B
Formula B
- Solicitor A possesses signed part of contract
- Solicitor B possesses signed part of contract
- Each exchanges with each other
Formula C (chain transactions)
1) Party 1 > Release contract until 3pm > Party 2 > Release contract until 3pm > Party 3 > Release contract until 3pm > First Buyer
2) First Buyer > Exchange contract before 3pm > Party 3 > Exchange contract before 3pm > Party 2 > Exchange contract before 3pm > Party 1
What are the general consequences of exchange?
Agree completion date
Advise Client re exchange
S’s solicitor
- Advise S’s lender > Request redemption statement calculated to date of completion + daily rate of interest
- Contract estate agents > Advise exchange + completion date
B’s solicitor
- Ensure insurance policy activation after exchange
- Register contract as required
What are the effects of exchange?
Buyer
- Receives beneficial interest in property
- Receives benefit of increase in value
Seller
- Holds lien (balance of purchase price) over property
- Retains ownership (as qualified trustee)
- Must keep in reasonable care (same condition as at contract exchange date)
- Receive rents + profits
- Meet outgoing obligations
How may Buyer possess the property before completion?
As licensee
- NOT tenant > NO tenure security
Supervised visits
BOTH parties’ consent
- Plus Lender
S’s liability to maintain => Terminates
B to pay interest > Balance of purchase price
S should refuse substantial requests for possession until after completion
What happens if Party dies and PR takes over?
Advise other party ASAP
If delayed completion
- Party must consent
- Party NOT consent > Apply to Probate Registry for expedited/limited grant of representation
If co-owner dies => Check co-tenancy structure
If 1/3 co-owners dies => Continue transaction
Sole buyer’s death
- Likely withdraw mortgage offer
- PRs must find alternative funding
What happens if a party becomes bankrupt?
S becomes bankrupt
- Petition > Registered title will have notice
- Order > Registered title will have restriction
Unregistered land
- Land Charges Dept will register bankruptcy proceedings
Trustee (Liquidator/Administrator) > Transfers to Buyer
- Evidence of Order required
Bankruptcy Order
- Severs JT
- Co-owner’s beneficial interest > Vests in Trustee + Executes purchase deed with surviving co-owner
