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Property > 3. The contract > Flashcards

3. The contract Flashcards

1
Q

What is the standard rate of VAT?

A

20%

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2
Q

What is the reduced rate of VAT?

A

5%

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3
Q

What rate of tax is charged on the sale of newbuild houses by developers?

A

Zero rated supply

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4
Q

What constitutes a “new” commercial property?

A

Within 3 years from completion

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5
Q

Is the sale of a new commercial building liable for VAT?

A

Yes

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6
Q

What other property transactions can be made into taxable supplies by the seller exercising the “option to tax”?

A

The sale of a greenfield site

The sale of an old freehold building

Grant of a lease

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7
Q

Why would the seller make the option to tax?

A

In order to recover the cost of the input tax incurred in relation to the building

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8
Q

What is the impact of the seller making the option to tax?

A

Seller charges VAT on purchase price - buyer can recover the input tax if they make taxable supplies

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9
Q

What is the function and purpose of a contract in property transactions?

A

Provides certainty as to nature and extent of property, financial terms, timetable etc

DOES NOT transfer the land, as deed is needed for this

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10
Q

Who usually drafts the contract?

A

Seller’s solicitor

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11
Q

What are the two standard sets of conditions?

A

The Standard Conditions of Sale (residential)
The Standard Commercial Property Conditions (commercial)

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12
Q

Where are all of the burdens against the property listed in the contract and by who?

A

Under “Specified incumbrances”

Seller’s solicitor

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13
Q

When would a seller provide full title guarantee?

A

When they own the entire legal and equitable interest

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14
Q

What would a seller provide limited title guarantee?

A

When they have a more limited knowledge of completeness of title, e.g. executor or trustee

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15
Q

What is the implied covenant of limited title guarantee?

A

That the seller has not incumbered title to the property and seller is not aware anyone else has since last disposition for value

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16
Q

What is the implied covenant of full title guarantee?

A

Land is disposed free from incumbrances other than those seller doesn’t know about and could not reasonable know about

S 6 LP(MP)A limits this covenant to exclude matters to which the disposition is expressly made subject, matters about which the buyer knows at the time of the disposition and matters which at the time of the disposal were entered on the registers of title

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17
Q

What is the contract rate?

A

Rate of interest charged on purchase price that will be charged if a party is late in completing

18
Q

What is commonly used as the rate of interest?

A

“Law Society’s interest rate from time to time in force” which is 4% above base lending rate of Barclays Bank (currently 5.25%, therefore rate would be 9.25%)

19
Q

How do SCs and SCPCs require the deposit to be held?

A

As stakeholder

20
Q

When a contract uses SCPC, what is the position regarding the deposit under 3.2?

A

Buyer pays 10% deposit

Paid by electronic means

Will be held by seller’s conveyancer as stakeholder

21
Q

Can a deposit be used to fund a deposit on a related purpose, e.g. money from completion of another sale?

A

SCs = yes

SCPCs = no

22
Q

What are special conditions in a contract?

A

Terms which appear at the back of the contract relating to the individual characteristics of the property and particular circumstances of the transaction

23
Q

Are special conditions fixed?

A

No, they can be amended, or new ones incorporated

24
Q

What is the position regarding fixtures and chattels in the sale of a property?

A

Fixtures pass to buyer unless special condition included giving seller right to remove it

Chattels only included if special condition saying this

25
Q

Where could an indemnity covenant be included in the contract?

A

In the special conditions

26
Q

When does risk of damage to property pass?

A

On exchange of contracts

Therefore, buyer will want to put insurance arrangements in place at moment of exchange

27
Q

What does SC 1.4 provide in the purchase of residential properties?

A

That purchase price and contents price are inclusive of any VAT and it is expected no VAT will be charged or paid

28
Q

What are the three ways in which the contract for the sale of commercial properties can deal with VAT?

A
  1. Purchase price is exclusive of VAT and VAT will be added on top (SCPC 2)
  2. Purchase price is inclusive of VAT so that VAT, if any, cannot be added on top (SC 1.4 or a special condition in an SCPC contract)
  3. Purchase price exclusive of VAT, so VAT can be added on top if the law changes between exchange of contracts and completion to make an exempt supply chargeable at the standard rate, but seller is contractually obliged not to opt to tax (SCPC Part 2 Condition A1)
29
Q

When would a commercial seller choose to exclude VAT on purchase price and then add it on top (SCPC 2)?

A

Standard rated supply of a commercial building where seller has no choice to charge VAT (“new” buildings)

OR

Seller needs to opt to tax to recover VAT paid on refurbishment and/ or professional costs and the buyer is not VAT-sensitive

30
Q

When would a commercial seller choose to include VAT in purchase price (SC 1.4 or special condition in an SCPC contract)?

A

May be appropriate for supply of an old commercial building where the seller does not have input VAT to recover and so has no reason to opt to tax

Popular option with VAT-sensitive buyers who cannot recover VAT paid on purchase price

31
Q

When would a commercial seller choose to exclude VAT but with the option to add if law changes (SCPS Part 2, Condition A1)?

A

Supply of an old commercial building where seller does not have input VAT to recover so does not need to opt to tax, but is not willing to take the risk that there will be a change in the tax regime between exchange and completion

32
Q

How are mortgages made legal?

A

By deed and completed by registration at Land Registry

33
Q

In what event can a solicitor not act for both the buyer and lender?

A

Commercial property transactions where the facility / loan agreement is not offered on standard terms

34
Q

What element of a commercial transaction could the buyer’s solicitor also do for the lender?

A

Prepare certificate of title for lender which confirms good and marketable title to the property

However, would not act for both parties on terms of loan

35
Q

What is the purpose of the certificate of title provided to the lender and what information is confirmed within it?

A

Confirms that the property is adequate security for the loan

No legal problems

Who will own property once sale is completed

Completion date when funds are needed

36
Q

What is the certificate of title?

A

A conditional opinion that the title to the property is good and marketable - subject to any disclosures made and due registration at Land Registry of the transfer of the Property from the seller to the buyer

37
Q

What is the certificate of title produced by the City of London Law Society and when would it be used?

A

Commercial transactions

Structured as a series of statements about the property which are pre-prepared and cannot be changed, which the solicitor then declares if they are correct or incorrect

38
Q

If information is wrong in the certificate of title, who can the lender sue?

A

The firm who provided the certificate, as there are warranties as to the correctness of information contained within it

39
Q

In regards to exchange of contacts, what is Law Society Formula A?

A

One solicitor holds both parts of the contract duly signed, and deposit sent by electronic means

40
Q

In regards to exchange of contacts, what is Law Society Formula B?

A

Each solicitor holds their own client’s signed parts of the contract

Undertaking provided that buyer’s solicitor pay by banker’s draft / solicitor’s client account cheque - variation required for electronic transfer

Undertaking provided that contract sent same day via first-class post or DX - variation required for next day

41
Q

In regards to exchange of contacts, what is Law Society Formula C?

A

Complex method used in residential property where there is a chain transaction

42
Q

What is the consequences of exchange on legal / equitable title in the property?

A

Seller retains legal title until completion but holds the beneficial interest on behalf of the buyer

Seller must pay outgoing charges until completion

Property (7 decks)

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