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REP > 4. Contract Stage > Flashcards

4. Contract Stage Flashcards

1
Q

What is capital gains tax?

A

Tax charged on gains made on ‘chargeable assets’ within the meaning of Taxation of Chargeable Gains Act 92. Includes freehold and leasehold property, and interests of co-owners in jointly-owned property.

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2
Q

How are gains calculated?

A

Purchase price-current sale price

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3
Q

What is private residence relief?

A

a tax relief that allows you to avoid paying CGT on any gain you make when selling your main home (your primary residence), as long as you lived there the whole time you owned it.

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4
Q

Rule for private residence relief

A

Occupancy must be for primary residence for the duration of ownership[

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5
Q

Which absences does s223 Taxation of Chargeable Gains Act permit

A
  • Last 18 months of ownership to facilitate purchase of another property
  • First 12 months of ownership for any repairs or redecoration
  • Any period not exceeding 3 years (does not have to be consecutive)
  • Any period while owner was working outside the UK (not self employed persons)
  • Any period where owner was prevented from living in their house
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6
Q

Is letting a residence exempt from CGT

A

No, as it ceases to be individuals main residence

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7
Q

What is VAT

A

Tax chargeable in respect of a supply of goods or services made in the course of a business.

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8
Q

Input tax

A
  • VAT a business pays when it buys goods or services for its operations.
  • Can be recovered from HMRC
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9
Q

Output tax

A
  • The VAT a business charges when it sells goods or services.
  • Business must pay this to HMRC
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10
Q

VAT rule in residential transaction

A
  • Sale of a green field site - E with option
  • Construction and civil engineering- 0
  • Legal and other prof - standard
  • Sale or lease of a new house -0
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11
Q

VAT in commercial transactions

A
  • Sale of a green field site -E with option=
  • Construction and civil engineering- S
  • Legal and other prof- S
  • Sale of a new (one completed within 3 years prior to sale) freehold- S
  • Sale of an old freehold (property more than 3 years) - E with option
  • Grant or assignment of lease - E with option
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12
Q

What does option to tax mean?

A

Exempt tax can be converted to taxable one to recover any input tax incurred

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13
Q

What is stamp duty land tax

A
  • Charged on property transactions
  • Rates dependent on type of property, and value of transaction
  • Payable to HMRC within 14 days of completion
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14
Q

What do corporate bodies pay

A

15% on residential of over 500k

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15
Q

Tax on purchases of 6 or more in one transaction

A

Subject to rates for non residential

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16
Q

Tax on purchase of additional properties

A

Extra 3%

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17
Q

Are chattels subject to tax?

A

No- 0 SDLT

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18
Q

What is the purpose of the contract

A
  • Defines the land to be sold
  • Terms on which the seller is prepared to sell
  • Day of completion
  • Terms of transfer deed
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19
Q

(s2 LPMPA 1989) elements of a contract

A

Must be in writing, signed by all parties & contain all the terms

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20
Q

What does a contract for land comprise of

A
  • Particulars of sales
  • Standard conditions of sales
  • Special conditions
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21
Q

Particulars

A
  • Describe the estate in land being sold (whether freehold or leasehold) and physical extent of that land
  • References to easements or covenants benefiting the land
  • Plan
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22
Q

Part 1 standard set of conditions

A

general application and applies entirely to any contract

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23
Q

part 2 standard set of conditions

A

VAT, capital allowance and reversionary interest (specific to transactions, incorporated by special condition)

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24
Q

What are special conditions for?

A

Particular circumstances of the transaction

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25
Q

SC 3.1.1, SCPC 4.1.1

A

Seller sells property free from incumbrances other than that listed in SC 3.1.2 and SCPC 4.1.2

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26
Q

What if incumbrance is not covered by 3.12

A

buyer may have the right to rescind contract/claim damages

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27
Q

3.1.2b

A

matter discoverable by inspection pre contract

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28
Q

3.1.2C

A

matter seller does not/reasonably could not know about

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29
Q

3.1.2d

A

matters other than mortgages which the buyer knows about

30
Q

3.1.2e

A
  • entries made pre contract in public register except those by LR, LCR, CH
    • Any incumbrances at CH/entered on the register are not deemed to be disclosed and must be on contract
31
Q

3.1.2f Public requirements

A
  • Notice, order or proposal given or made by body acting on statutory authority
  • Likely revealed by LA enquiries
32
Q

Matters not requiring disclosure

A
  • Interests of BIUT overreached
  • Physical defects
  • Restrictive covenant indemnity insurance
    • Who obtains/pays is for negotiation between buyer and seller
    • If buyers intended use breaches covenant it will be for buyer to arrange and pay for insurance
    • If sellers is in breach, usually for seller to assume this
      • Special condition inserted detailing sum insured, approving terms of policy
33
Q

SC4.1/ SCPC 7.1

A

sets out doc evidence of title seller will provide

34
Q

What is an implied covenant

A

Possible to give buyer benefit of implied covenants under LPMA 1944

35
Q

Inclusion of seller sells with full title guarantee

A

Land disposed of is free from incumbrances other than those seller does not know about/could reasoably know

  • Seller has right to dispose of land
  • Seller will do all they reasonably can to transfer title
  • If leasehold, lease subsists and there is not covenant making lease liable to forfeiture`
36
Q

No reference to title guarantee =

A

seller sells with full title (SC 4.6.2/SCPC 7.6.2)

37
Q

Seller needs to specify by special condition whether the property being sold is vacant/subject to occupational leases

A
  • Necessary to ensure occupier vacates on completion
  • Occupier must have no legal/equitable interest
  • Confirmed in writing
38
Q

when is actual date for completion entered

A

in contract, on exchange

39
Q

What if no completion date on exchange

A

SC 6.1.1/SCPC 9.1.1 sees completion as 20 working days after contract date

40
Q

Compensation for delayed completion

A
  • SC 6.1.2/SCPC 9.1.2
    • If completion monies are received after 2pm, completion deemed to have occurred on next working day
    • Buyer to pay if they default
41
Q

How is amount of default payment calculated

A
  • at contract rate
  • Defined as being the law societys rate from time to time n force (SC 1.1.1)
42
Q

Why would someone purchase indemnity covenant

A
  • If seller entered into a covenant when they purchased property, they are liable even after disposing of property (unless contract states otherwise)
  • Whilst seller is bound, if buyer breaches covenant seller may be liable of being sued
  • Seller to take indemnity covenant from buyer
  • Indemnity may be included in transfer (SC 4.6.4/7.6.5)
43
Q

Fixture/fittings terms

A
  • Fixtures pass automatically with land, unless special condition gives seller right to remove
  • Chattels to be specifically identified by special condition or by using printed special conditions
    • ‘Contents’ - itemised list attacked to contract
44
Q

How much deposit is customary

A

10% is customary (SC 2.2/3/2)- acts as part payment

45
Q

If seller is asked to accept reduced deposit amount, what must the solicitor consider

A
  • Risk of sale going off
  • Amount of buyers mortgage offer
  • Loss seller would suffer if buyer defaulted
  • Sellers solicitor must explain risks of accepting reduced deposit and obtain express authority before agreeing to accept Morris v Duke Cohan & Co (prof negligence to accept without authority)
46
Q

What is bridging finance

A
  • For linked transactions
  • Undertaking to repay bridging loan from sale proceeds
  • High interest rate for bridging finance
  • May be preferable to take advantage of lower interest overdraft facility
47
Q

Deposit guarantee

A
  • Insurance policy bought by buyer and tendered to seller in place of money deposit
  • Seller’s consent must be obtained
  • Sellers consent must be obtained, contract amended
48
Q

Rule in relation to clearing funds

A

Buyers solicitor must ensure they receive deposit in sufficient time for cheque to be cleared through solicitor cl account

49
Q

Permitted - Method of payment under sc2.2.4/3.2.2

A
  • Must be paid via electronic means from solicitor’s account with clearing bank to seller’s solicitors account
  • Permissible to use cheque drawn on solicitors cl bank account
  • If cheque bounces, this is a fundamental breach of contract
    • Seller can keep contract alive/discharge and sue for damages Millichamp v Jones
    • Seller to inform buyer of contract discharge within 7 working days of being informed of the cheque being dishonoured
50
Q

Interest on deposit SC 2.2.6/3.2.2

A
  • Where deposit is held in capacity of stakeholder, interest payable to seller on completion
  • If buyer is to be credited, special condition to that effect must be inserted
51
Q

Why might a buyer purchase insurance from exchange

A
  • Risk of accidental damage passes to buyer from contract exchange

(except where seller lacked proper care Clarke v Ramuz; Phillips v Lamdin)

52
Q

What if solicitor fails to advise cl on insurance

A

May be liable for negligence

53
Q

Insurance is effected via

A
  • Noting property on block policy held by buyers solicitor, covering all properties handled by firm
  • Lender insures on being requested to do so by buyers solicitor
54
Q

Lenders instructions to solicitor to ensure that

A
  • Amount of cover is adequate (property value and risks covered)
  • Property is on cover from time of exchange
  • Lenders insurance requirement does not conflict with terms of contract/lease to which property is subject
55
Q

To advise on insurance contracts, you must

A
  • Be authorised by FCA or;
  • Rely on professional services exemption
56
Q

Insurance for property in the course of construction

A
  • Seller liable for damages until completion
  • Buyer need not take out their own policy
  • Exclude S47 LPA 1925 (otherwise gives buyer the right to claim off sellers policy in event of damage)
57
Q

What if insurance amount to buyer reduces due to sellers insurance policy

A

SC 5.1.5/8.2.4(b) where there is a reduction in payment to buyer due to seller’s policy, purchase price is to be reduced

58
Q

Other relevant types of insurance

A
  • Contents insurance
    • When buyer moves fittings into property
  • Life assurance
    • Proceeds available to buyers PR in the event of death pre completion
    • If buyer dies, PR could be forced to complete sale without proceeds would not have the funds to do so as mortgage offer would be revoked
59
Q

Once searches and enquiries have been completed, and draft contract agreed

A
  • Report to cl in writing , explaining investigation results
  • Terms of contract
  • Mortgage offer
  • Buyers report to cl
60
Q

Both parties must sign to satisfy s2 LPMPA 1989

A
  • Signature need not be witnessed
  • Solicitor needs express authority to sign on behalf of cl Suleman v Shahsavari
  • Unless solicitor holds valid power of attorney, recommended to obtain consent via writing
  • Cl to be informed of consequences of giving authoirty (creates a binding contract)
61
Q

Is physical exchange of contracts required

A

no

62
Q

Once contracts are exchanged, is it possible to withdraw

A

no

63
Q

Formulae for exchange

A
  1. Solicitor holds both parts of the contract before exchange is initiated
  2. At the time of telephone exchange, each party’s solicitor is in possession of their own client’s signed contract
  3. Designed to be used in chain transactions
64
Q

Postal exchange

A
  • Buyers solicitor sends cl signed contract & deposit cheque to seller’s solicitor who posts cl’s signed contract back to buyer.
  • Follows the postal rule- contract is formed when seller posts part of their contract to the seller irrespective of whether it gets lost in the post
65
Q

can contract be effected by email

A

Contracts for sale of land must be in writing, cannot be done electronically via email

66
Q

Effects of exchange

A
  • Binding contract exists whereby neither party can withdraw without incurring liability
  • Beneficial ownership passes to the buyer
    • They are entitled to increase in value & bears risk of loss or damage → effective insurance from date of exchange
  • Seller retains legal title until completion
  • Seller is entitled to remain in possession and any rental income until completion & must pay outgoings
  • Seller owes duty of care to buyer & is liable for damages if loss is caused via neglect Clarke v Ramuz
    • Continues whilst seller is in possession
67
Q

Can buyer possess property until completion

A

Seller will be in physical occupation of property until completion and is entitle to retain possession until completion (unless it has been agreed otherwise)

Buyers occupation before completion is as a licensee, not a tenant sc5.2 governs this

68
Q

Does death affect contract validity

A
  • Death does not affect contract validity
    • Benefit/burden pass to deceased’s personal representatives who are bound to complete
69
Q

What if completion does not pass on contractual completion date

A
  • If completion does not pass on the contractual completion date, breach of contract occurs → remedies for innocent party (compensation, damages)
  • If time is not of the essence, notice to complete sent to deceased address & executor named in the seller’s will
    • Copy to be sent to public trustee (same if they died intestate)
70
Q

Death by one co seller

A

If there are at least 2 trustees, transaction can proceed to completion, otherwise another trustee is appointed so the min number of 2 can be achieved

71
Q

Death of buyer

A
  • personal reps bound to complete
  • Transfer deed is redrafted to reflect change in parties and cannot be completed until PR receive grant of representation
  • Death revokes a mortgage offer where revelant and PR may have insufficient funds
72
Q

Pre-completion steps

A
  1. Preparation of transfer deed
  2. Dealing with redemption of sellers mortgage and creation of buyers mortgage
  3. Pre completion searches
  4. Ensuring financial aspects of transaction are in order
    - interval between exchange and completion used to be 4 weeks, now cl will want faster completion (14 days)
    - Pre completion searches to be made as close to the date of actual completion because of the protection period given to buyer as a result

REP (8 decks)

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