C16/17: Conveyancing 4 Flashcards
What are stages B, C and D of the Law Society Conveyancing Protocol?
Stage B – pre-exchange – submitting a contract;
Stage C – prior to exchange of contracts; and
Stage D – exchange of contracts.
How is the Protocol relevant when it comes to exchanging contracts?
Some examples of matters which the Protocol deals with here are:
- sharing information with others (e.g. other parties, lenders and estate agents);
- making all necessary searches before exchange;
- raising any necessary additional pre-contract enquiries;
- reporting to the client about the title and other matters;
- considering mortgage instructions and any conditions imposed by the lender;
- approving the contract, and agreeing any transfer supplied before exchange;
- advising the buyer about survey, insurance and deposit arrangements;
- confirming the completion date;
- asking the buyer to sign the contract; and
- checking any mortgage discharge arrangements.
When does the Protocol say that the TA13 form and draft transfer should be dealt with?
It contains provisions about dealing with the draft transfer and the Completion Information and Undertakings Form (TA13) at an early stage, prior to exchange of contracts. These matters are traditionally dealt with after exchange. However, the Protocol also recognises these matters as steps to be dealt with after exchange, so the timing may vary between firms. The introduction to the Protocol recognises that transactions may not always proceed in a fixed order
What are the two main elements to the Report to Client?
Information from:
- Pre-contract searches and enquiries
- Title investigation
What kinds of things will the buyer’s lawyer specify in the Report to Client?
It will contain:
- a summary of the conveyancer’s overall view (e.g. that there are no major problems);
- a summary of the property (e.g. current ownership and a copy of the plan);
- a summary of the title and matters burdening and benefiting it (e.g. easements and covenants), highlighting any problems;
- a summary of the source of funding for the purchase (e.g. details of the buyer’s new mortgage);
- information about the draft contract (the report will often be sent with the contract for signature by the client); and
- information about the conveyancing transaction generally (e.g. explaining the work still to be carried out).
Pre-contract searches:
- a summary of the main points arising from the pre-contract searches and enquiries, highlighting any problems;
- roads
- boundaries
- benefitting property and if they are private (e.g. septic tank)
- Third party interests
- Disputes with neighbours
- Local authority action
- Physical information
- Overriding interests
What is a Report to Client?
Once the buyer’s conveyancer has all the search results, has investigated the title, and has satisfactory answers to any queries, they will give the buyer client a report about the title and the property.
Identify and explain six matters a seller’s conveyancer must check prior to exchange.
The seller’s conveyancer will:
(1) Reply to any outstanding queries.
(2) Ask the client to sign their part of the contract (which has been approved by the buyer’s conveyancer).
(3) Check that any linked (dependent) transaction is also ready (e.g. the seller’s linked purchase).
(4) Ensure that they have redemption figure/s for all charges which the conveyancer will be undertaking to redeem on completion.
(5) Advise their seller client to keep the buildings insurance on the property on risk until completion.
(6) Arrange the method and timing of the exchange with the buyer’s conveyancer.
Identify and explain 12 matters a buyer’s conveyancer must check prior to exchange.
The buyer’s conveyancer will:
(1) Check the answers to the pre-contract enquiries, checks all pre-contract information supplied (including the provision of an Energy Performance Certificate prior to exchange) and resolves any queries.
(2) Check the results of all searches and resolve any queries.
(3) Investigate the title and resolve any queries.
(4) Approve the contract, returning one copy to the seller’s conveyancer so that the seller can sign it prior to exchange.
(5) Ask the buyer to sign the contract in readiness for exchange (they may send the contract to the client with the title report).
(6) Discuss a suitable completion date with the buyer and attempt to agree this with the seller’s conveyancer.
(7) Check that the buyer is satisfied with the result of the survey.
(8) Ask the buyer to physically inspect the property and report any obvious problems (e.g. unclear boundaries, other adults living in the property).
(9) Check that the buyer will have sufficient funds to pay for the property on completion. (If the buyer is obtaining a new mortgage, the conveyancer must check that a firm and satisfactory offer will be made before exchange. Prior to exchange, the conveyancer must ensure that they have received formal mortgage instructions from the lender and that the terms accord with those of the client’s offer.)
(10) Check that any linked transaction is also ready, for example, the buyer’s linked sale.
(11) Discuss the matter of property insurance with the buyer.
(12) Discuss deposit arrangements and asks for the funds to be provided in time for cleared funds to be available on exchange.
What does SCS 2.2.4 provide about the deposit?
Except in the case of a sale by auction, SC 2.2.4 requires payment of the deposit either:
(a) by electronic means from the buyer’s conveyancer’s account maintained at a clearing bank to an account in the name of the seller’s conveyancer maintained at a clearing bank (or where SC 2.2.5 applies, to a conveyancer higher up the chain); or
(b) by cheque drawn on the buyer’s conveyancer’s client account to the seller’s conveyancer (or where SC 2.2.5 applies, to a conveyancer higher up the chain).
This means that the deposit can be paid electronically (through a bank funds transfer) or by cheque, but both methods are linked to conveyancers’ bank accounts. This is to try to minimise opportunities for fraud and money laundering.
Explain who is in charge of the buildings insurance between exchange and completion
This is important in case the property is damaged or destroyed between exchange and completion (e.g. by fire or burst pipes). The fifth edition of the SCS provide that the property is at the risk of the buyer from the date of the contract. This means that the buyer must insure the property from exchange onwards. This was usually done previously in any event, as mortgage lenders required the property to be insured by the buyer in their capacity as borrower.
What does SCS 5.1.2 state about building insurance?
SC 5.1.2 states that the seller is under no obligation to the buyer to insure the property unless the contract provides otherwise, or the property is let on terms under which the seller (whether as landlord or tenant) is obliged to insure.
Even though the seller may not be obliged to insure, this does not mean that they are not entitled to do so. Many sellers will continue to insure, and will indeed be required to do so by their own mortgage lenders. This means that there may well be double insurance (i.e. two policies in effect at the same time), each covering the same risks.
To cater for this possibility, SC 5 states that if the property is damaged, and a payment under a policy taken out by the buyer is reduced because of insurance held by the seller, the purchase price is to be reduced (abated) by the amount of the reduction.
Where the seller is obliged to insure (e.g. as a tenant under a lease), SC 5 requires the seller to maintain the policy and, if the property is damaged, to pay the buyer the amount of the policy proceeds which the seller has received (so far as not used in repairing the property), or to assign the insurance claim to the buyer.
What is “simultaneous exchange”?
When two or more properties need to have their contracts exchanged at the same time. The seller of one property may be buying another one and the buyer of another property may need to sell their own property first.
What are the three methods in which a conveyancer could exchange? (Not Formulas) Explain their pros and cons.
(1) Physical (personal) exchange
The conveyancers for seller and buyer may meet and exchange the part contracts in person. This method is very rare – it is not practicable for chain transactions and is only possible where the two firms of conveyancers are located close to each other.
(2) Postal exchange
Contracts may be exchanged through the post. Normally, the buyer’s conveyancer posts the buyer’s part contract and sends the deposit to the seller’s conveyancer. The seller’s conveyancer then posts their client’s part contract to the buyer’s conveyancer. Exchange takes effect when the second part contract (usually the seller’s part) is placed in the post. This method is not practicable for chain transactions. Postal exchange may be appropriate where there is no chain and the matter is not urgent.
(3) Telephonic exchange
Two conveyancers agree over the telephone that contracts should be treated as exchanged even though the documents have not been physically exchanged (i.e. the binding moment is the moment of agreement on the telephone). Exchange by telephone is very common for all types of transaction and is the only truly satisfactory method for chain transactions. The Law Society has developed three alternative sets of rules (formulas) to be followed when exchanging by telephone. Conveyancers adopting the Protocol are obliged to use one of the formulae when exchanging by telephone.
What is the most common method to exchange through?
Over the telephone.
What is the Law Society formula A?
Formula A is used where one conveyancer holds both signed parts of the contract. This will be the case where one conveyancer (usually the buyer’s conveyancer) has sent their client’s signed contract to the other conveyancer (usually the seller’s conveyancer) in advance of exchange to hold in readiness for exchange. Formula A is not used as often as Formula B.
When using Formula A, one conveyancer will telephone the other to exchange. They will first agree the completion date. The conveyancer holding the contracts inserts the completion date into each part contract and confirms that the contents of both parts are identical. The conveyancers then agree that exchange shall take place from that moment (this is the binding moment) and the conveyancer holding the contracts undertakes to send their client’s signed part that day to the other conveyancer. The buyer undertakes to send any deposit due. The conveyancers should each prepare a memorandum to record:
the date and time of exchange;
the use of Formula A and the exact wording of any variations adopted;
the completion date;
the deposit to be paid; and
the identities of the parties to the conversation.
What is the Law Society formula B?
Formula B (more commonly used in practice) is appropriate where each conveyancer holds their own client’s part contract. Again, one conveyancer telephones the other, the completion date is agreed, the parties confirm that the part contracts are identical, the completion date is inserted and the contracts are agreed to be exchanged (the binding moment). Each conveyancer undertakes to send out their client’s signed part contract that day together with, in the buyer’s case, the deposit. A memorandum should again be prepared by each conveyancer to record the exchange. This will be as given earlier, except that it will verify the use of Formula B.
What is the Law Society formula C?
Formula C is designed for use in linked transactions (i.e. where there is a chain). Essentially, each conveyancer holds their own client’s signed parts of the contract and agrees to release the contracts for exchange for a specific period. This allows all parties to be ready to exchange so that, as soon as the party at the end of the chain is ready, all contracts can be exchanged almost simultaneously.
The conveyancer must obtain the client’s specific authority before exchanging contracts on a Formula C basis, mainly because of the complexity and associated risk element. Formula C takes effect in two stages. Stage 1 takes place when the two conveyancers confirm that they hold their clients’ signed contracts. The buyer’s conveyancer undertakes to exchange if, by a set time that day (the time must be agreed there and then), the seller’s conveyancer so requests. Stage 2 occurs when the seller’s conveyancer requests exchange by the agreed time and the contract is binding. The conveyancers also give undertakings in relation to sending out their part contracts and, in the buyer’s case, regarding the deposit.
Which Law Society formula would be used in no chain properties?
Formula B
Which Law Society formula would be used in properties with a chain?
Formula C
Which court case approved the use of telephone exchange?
The practice of telephone exchange was approved by the Court of Appeal in Domb and Another v Isoz [1980], although it did make some reservations, suggesting it should only be done by a partner or sole practitioner. The standard contracts, however, envisage that any conveyancer can effect one. The main danger is the difficulty of having to prove what each party has agreed if one party decides not to proceed, but the formulas and the use of detailed attendance notes should meet the reservations in Domb.
Identify and explain eight matters which must be addressed during exchange of contracts.
The following issues should be addressed in a memorandum:
(1) Buildings insurance.
(2) Client’s authority to proceed.
(3) Utilisation of deposit.
(4) Method of deposit payment.
(5) Agreed completion date.
(6) Method and timing of exchange.
(7) Record keeping (e.g. the memorandum of exchange. When using Formula C there must be two memoranda to reflect the fact that the formula is in two stages). It is also important to ensure that attendance notes are made and kept on file as well.
(8) Correspondence and communications.
There are various communications that should be made following exchange.
The conveyancers may have to send out part contracts to other parties when there has been an exchange by telephone. The buyer’s conveyancer may need to send a deposit cheque if the deposit money has not been transmitted by direct credit transfer.
(a) The conveyancers must keep their clients fully advised with regard to exchange. The clients should be notified of exchange (and confirmation of the completion date) as soon as exchange has taken place.
(b) The conveyancers will also need to tell other parties that exchange has taken place (e.g. estate agents or lenders).
(c) The conveyancers must stress the effect of exchange to their clients. The main effect is that the contract is now binding.
