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Property Practice > Chapter 3: Starting a Conveyancing Transaction (Stages 1 & 2) > Flashcards

Chapter 3: Starting a Conveyancing Transaction (Stages 1 & 2) Flashcards

1
Q

What will an estate agent do?

A

Market and show the property

Once an offer has been made and accepted, and a price with a prospective buyer is agreed, the estate agent will send out a memorandum of sale to all parties detailing the property, the price agreed, and the solicitors being used by the parties

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2
Q

What does an energy performance certificate contain?

A

Information about a property’s energy use and typical energy costs, plus recommendations about how to reduce energy use and save money.

Gives a property an energy efficiency rating from ‘A’ (most efficient) to ‘G’ (lease efficient) and is valid for 10 years.

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3
Q

What should be done if a property needs a new EPC?

A

It should be ordered (usually by the estate agent) before the property is marketed for sale or to rent.

There is an online EPC register where most EPCs can be viewed

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4
Q

When is an EPC not needed?

A

Not needed for a property that is a ‘listed building’.

If a seller still has a valid (less than 10-year-old) EPC for their property.

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5
Q

What will a commercial estate agent do?

A

Negotiate the ‘heads of terms’ (the agreed terms) between the landlord of the commercial premises and the prospective tenant.

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6
Q

What are the heads of term in a commercial lease?

A

The commercial equivalent of the memorandum of sale in a residential conveyancing transaction

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7
Q

What is the Code for Leasing Business Premises (the ‘Code’)?

A

Produced by the Royal Institution of Chartered Surveyors and it sets out best practice for landlords when negotiating the terms of a commercial lease with a tenant.

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8
Q

What does the Code for Leasing Business Premises (the ‘Code’) provide landlords must do?

A

Landlords must make offers in writing which include clear terms regarding matters such as the:
- Rent and length of the term,
- Any rights to break the lease,
- Rent review arrangements,
- Rights to assign, and
- Repairing obligations

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9
Q

What is usually needed if an existing tenant is assigning their lease in commercial contexts?

A

The landlord’s consent to the assignment will almost invariably be required.

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10
Q

Where will the details for obtaining the landlord’s consent to assign be in a commercial lease, and what is usually required?

A

The existing lease which is being assigned will contain the details for obtaining the landlord’s consent, but generally the landlord will need to be satisfied that the incoming tenant is of good standing + will be able to afford the rent.

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11
Q

What may a commercial landlord require of an incoming tenant when a commercial lease is being assigned?

A

Landlord will require the incoming tenant to provide references to demonstrate that they have the means to pay the rent and, if they have rented property before, that they have paid their rent on time + have been a good tenant.

The landlord will also want to take bank references or see business accounts for the last 3 years

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12
Q

What happens once the landlord is satisfied that the prospective tenant will be able to meet their commitments under the commercial lease?

A

The landlord’s solicitor will draft a licence to assign setting out the landlord’s conditions.

This document will be signed by all parties (landlord, tenant, and incoming tenant) to create privity of contract between them.

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13
Q

Why might a landlord ask for a rent deposit in a commercial lease?

A

May want extra security depending on the incoming tenant’s financial standing.

The landlord may require an incoming tenant to pay a rent deposit at the commencement of the tenancy.

This means that the landlord will require payment of an extra sum on completion in addition to the first rental payment.

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14
Q

How will a rent deposit be held by a landlord? (Commercial)

A

The money will be held in a deposit account and can be used by the landlord in the event of default by the tenant during the term.

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15
Q

When will a rent deposit be returned to the tenant? (Commercial)

A

If there has been no default, the deposit is returned to the tenant when the lease ends or when they assign the residue of the lease.

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16
Q

What is a typical amount of rent deposit in a commercial lease + where are detailed terms contained?

A

3 months’ rent is a typical amount for the rent deposit + the detailed terms are often contained in a rent deposit deed.

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17
Q

Why might a landlord wish to have a guarantor? (Commercial)

A

Landlord might wish to have extra security of a guarantor to guarantee the rental payments in the event of default by the tenant.

This may be a requirement if the landlord has any doubts about the tenant’s ability to pay the rent or if the tenant is a limited company.

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18
Q

What is the effect of a personal guarantee?

A

Personal guarantees give the landlord an extra layer of security and another potential remedy in the event of tenant default.

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19
Q

How will a guarantor be addressed in the grant of a new lease?

A

Guarantor could be an additional party to the lease which the landlord and tenant are entering into

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20
Q

How will a guarantor be addressed on an assignment of an existing lease?

A

Guarantor and landlord will enter into a separate deed of guarantee

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21
Q

What can the landlord require as a condition of giving consent to an assignment?

A

Landlord can require the outgoing tenant to enter into a written obligation called an ‘Authorised Guarantee Agreement’ (AGA), in which the outgoing tenant will act as guarantor for their immediate successor in title.

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22
Q

What may a landlord do re requiring an AGA in a commercial lease?

A

Landlord may include a provision requiring the tenant to provide an AGA on assignment.

The inclusion of the AGA is a matter of negotiation between the landlord and the tenant.

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23
Q

What does a seller’s solicitor investigating the seller’s title involve?

A
  1. Obtaining title deeds
  2. Remedying defects in the title
  3. Undertaking to pay off any mortgage
  4. Obtain confirmation of title plan
  5. Deduce title
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24
Q

How does the seller’s solicitor obtain the seller’s title deeds if the property is registered?

A

If the title is registered at HMLR, the seller’s solicitor will download an official copy of the register of title, title plan, and any additional available documents mentioned on the register from the HMLR Portal.

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25
Q

What will the seller’s solicitor check to see if there is any mortgage over the property in registered property?

A

Will check the charges register of the seller’s title to establish whether the seller has any mortgages over the property.

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26
Q

How will the seller’s solicitor obtain title deeds if the title to the property is unregistered?

A

The seller’s solicitor must locate the title deeds.

If the property is in mortgage, the lender will hold the title deeds.

The seller’s solicitor will write to the lender to obtain the deeds and give an undertaking not to part with the deeds until such time as the mortgage redeemed out of the sale proceeds on completion.

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27
Q

What must be done if there are any defects in the title?

A

E.g., missing documents or name discrepancies.

The Law Society Conveyancing Protocol requires the seller’s solicitor to take care of them as part of their investigation of the seller’s title (rather than waiting for the buyer’s solicitor to raise it as an enquiry).

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28
Q

What will the seller’s solicitor do if the seller tells them they have a mortgage on the property?

A

The seller’s solicitor will ask the lender for an indicative redemption figure to ensure that the sale proceeds will be sufficient to redeem the existing mortgage on completion.

This is because the seller’s solicitor will give an undertaking (for which the solicitor is personally liable) to redeem any mortgages out of the sale proceeds on completion.

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29
Q

What is a title plan?

A

The title plan is a map showing the location of the property being sold and a red outline of the land included in the title.

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30
Q

Why should the seller’s solicitor send the title plan of the property to the seller?

A

To get the seller to confirm that the property outlined on the plan represents the full extent of the land being sold.

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31
Q

What is ‘deducing title’?

A

When the seller’s solicitor sends a copy of the title to the buyer’s solicitor.

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32
Q

What is important for the buyer’s solicitor to check when investigating the title?

A

Must check the title to ensure that the seller is entitled to sell the property - this process is also known as ‘investigating title’.

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33
Q

Why is it important for the buyer’s solicitor to check any discrepancies with the title are resolved prior to exchange of contracts?

A

Because after completion, the buyer’s solicitor must make an application to register the buyer’s title to the property with HMLR

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34
Q

What duty does a seller have to disclose?

A

Seller is under a limited duty of disclosure in relation to the contract for sale.

Seller must disclose latent defects and latent burdens on the land, but need not disclose patent defects or encumbrances.

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35
Q

What are latent defects and encumbrances ?

A

Things that would not be apparent from an inspection of the property, e.g., an underground easement for a pipeline or a restrictive covenant.

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36
Q

What are patent defects or encumbrances?

A

Things which would be revealed by an inspection, such as a visible right-of-way over the land (e.g., one from a road to the property behind the property being sold.)

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37
Q

What may happen if the seller breaches their duty of disclosure?

A

The buyer may have the right to withdraw from the contract after exchange + claim damages for losses.

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38
Q

What does the duty to disclose latent defects in the contract not extend to?

A

Physical defects in the property (e.g., rotted timbers within the walls) due to the doctrine of ‘caveat emptor’, which means ‘buyer beware’.

It is the buyer’s responsibility to inspect the property for physical defects.

Caveat emptor is the reason the buyer’s solicitor will advise the buyer to have a survey of the property carried out.

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39
Q

What happens if a seller tries to cover up a patent defect?

A

E.g., by painting over cracks in the wall.

This amounts to wilful deceit, and the seller could be sued by the buyer in tort.

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40
Q

How does the seller’s duty to disclose with respect to the contract differ to other scenarios?

A

Seller’s duty to disclose with respect to the contract is fairly limited.

The seller has a much greater obligation to disclose when filling out the Property Information Form + in their responses to the buyer’s pre-contract enquiries.

If the seller makes any misrepresentation on the form or in their responses, they may be sued by the buyer for misrepresentation

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41
Q

Who drafts the contract?

A

The seller’s solicitor drafts the contract + sends the contract package to the buyer’s solicitor.

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42
Q

What will the contract package include?

A
  1. Draft contract in duplicate
  2. The Property Information Form (PIF) and Fittings and Contents Form (F&C) both completed by the seller
  3. A copy of the title, any relevant documents, and title plan, and
  4. Any guarantees or copy planning permission
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43
Q

What happens if a lease is for over 7 years? (Commercial)

A

If a new lease is for a term of over 7 years + registrable, the landlord must deduce title which will enable the tenant to register the lease with title absolute

44
Q

How does a contract package for the grant of a new lease differ to that of an existing lease? (Commercial)

A

Contract package on the grant of a new lease is similar to the package for an existing lease, but it should also include replies to standard pre-contract enquiries, dealing with such issues as:
- Boundaries,
- Disputes,
- Services supplied to the flat.

45
Q

What will the contract package include for the grant of a new lease ? (Commercial)

A
  1. Draft contract with the draft lease annexed to it
  2. Seller’s freehold title
  3. Property Information Form
  4. Replies to standard pre-contract enquiries (dealing with such issues as boundaries, disputes, services supplied to the flat),
  5. If a newly built block, a copy of the planning permission + buildings regulations consent
  6. If the building is less than 10 years old, a new build warranty
  7. If a new build development, a service charge budget, and
  8. If applicable, details of any management company that has the responsibility for maintaining the common parts of the development.
46
Q

What happens if consent is required for the assignment of an existing lease (commercial)?

A

The seller/assignor must apply for consent at their expense + use all reasonable endeavours to obtain this consent.

To assist with obtaining this consent, the buyer must provide information required by the landlord.

47
Q

When does the buyer have the right to rescind the contract in the case of an assignment of an existing commercial lease?

A

If the landlord’s consent is not obtained by 3 working days before completion.

48
Q

What will the contract package include in the assignment of an existing lease? (Commercial)

A
  1. Copy of the outgoing tenant’s leasehold register of title
  2. Copy of the existing lease
  3. Property Information Form and Leasehold Information Form
  4. Copies of the last 3 years’ service charge accounts (if any)
  5. A copy of the landlord’s freehold register of title, and
  6. If the property is less than 10 years old, a copy of any new build warranty, planning permissions, and building regulations consent.
49
Q

What is good leasehold title? Effect?

A

Situation where the landlord’s freehold title wasn’t produced to HMLR upon first registration of an unregistered leasehold title.

If the upcoming buyer is buying with a mortgage, this is unlikely to be acceptable to the buyer’s lender as title absolute is generally required.

50
Q

What should the buyer’s solicitor do if the lease only has good leasehold title? (Commercial)

A

The buyer’s solicitor should insist on requiring the landlord produce a copy of the freehold title so that prior to the exchange the outgoing seller’s solicitor can apply to HMLR to upgrade the good leasehold title to absolute leasehold title.

51
Q

What is required of a contract for the sale or lease of property?

A

It must be in writing

52
Q

What form of contract is typically used in residential conveyancing transactions, whether freehold or leasehold?

A

Produced by the Law Society and is called the Contract Incorporating the Standard Conditions of Sale.

53
Q

How is the Contract Incorporating the Standard Conditions of Sale divided?

A

Into 3 parts.

  1. The particulars of sale
  2. The standard conditions of sale, and
  3. The special conditions of sale
54
Q

What is needed for an issue agreed between seller + buyer to be legally binding in residential conveyancing transactions?

A

Any issue agreed between the seller + buyer must be included in the contract for the issue to be legally binding

55
Q

What form of contract is used in commercial transactions?

A

The Standard Commercial Property Conditions (SCPS)

56
Q

What is different about the Standard Commercial Property Conditions compared with the Standard Conditions of Sale?

A

The SCPC require the same basic information as the Contract Incorporating the Standard Conditions of Sale, but the SCPC are more detailed + are likely to be more appropriate in a commercial transaction.

E.g., the SCPC addresses issues such as if the property is being sold subject to existing leases, or if the business being transferred is a going concern.

57
Q

How is the SCPC divided?

A

Into 2 parts.
Part 1 + Part 2

58
Q

What does Part 1 of the SCPC include?

A

Contains general conditions covering issues such as:
i. service of notice,
ii. encumbrances,
iii. VAT,
iv. title,
v. risk
vi. insurance
vii. transfer of a business as a going concern, and
viii. taxation allowances

59
Q

What does Part 2 of the SCPC include?

A

Contains provisions that will apply only is expressly incorporated.

This part includes more detail on VAT, transfer of a business as a going concern, and taxation allowances.

60
Q

Where are the particulars of sale found in the Contract Incorporating the Standard Conditions of Sale?

A

The front page

61
Q

What do the particulars of sale in the Contract Incorporating the Standard Conditions of Sale include?

A

The following key transaction details:
i. the date,
ii. the names of the parties,
iii. the details of the property (including whether it is freehold/leasehold),
iv. any specified encumbrances,
v. the title guarantee (full or limited),
vi. the completion date,
vii. the purchase price, and
viii. contents price - price being paid for any items in or on the property not included in the purchase price

62
Q

What are the Standard Conditions of Sale?

A

The ‘small print’ in the middle of the contract.

63
Q

What issues do the Standard Conditions of Sale cover?

A

Issues such as:
i. formation of the contract,
ii. service of notices,
iii. matters subject to which the property is sold,
iv. physical condition of the property,
v. the right of the buyer to occupy the premises between exchange + completion,
vi. details regarding completion, and
vii. remedies for late completion or no completion

64
Q

What do the Standard Conditions of Sale provide re VAT?

A

The purchase price and the contents price include any VAT

65
Q

What do the Standard Conditions of Sale require re deposit?

A

Requires the buyer to pay 10% of the purchase price on exchange of contracts.

66
Q

What can parties agree re deposit?

A

Whilst 10% is the amount recommended by the Law Society, the parties can agree a different amount + smaller deposits are common, especially when there are multiple sales in the chain of transactions.

67
Q

How can a seller use the deposit paid by the buyer?

A

If the seller has a related purchase of a property for their residence in England and Wales, they can use the deposit received on their sale towards the deposit required on that related purchase transaction.

This allows the deposit to be passed along in a chain of transactions.

68
Q

When may a deposit not be used for a related purchase?

A

Deposit may not be used for a related purchase that is not in England and Wales or that will not be used as the party’s residence.

69
Q

How is the deposit held under the Standard Conditions of Sale?

A

Under the Standard Conditions of Sale, on exchange of contracts, the buyer’s deposit is held by the seller’s solicitor as a stakeholder.

70
Q

What does it mean to hold a deposit as stakeholder?

A

Means that the seller’s solicitor holds it in their firm’s client account on behalf of both parties.

The deposit cannot be paid over to the seller until completion.

71
Q

When may the seller’s solicitor propose to amend the Standard Conditions to allow the deposit to be held as agent for the seller?

A

Can occur if the buyer is buying a new build property.

72
Q

What does holding the deposit as agent for the seller mean?

A

Allows the seller’s solicitor pay over the buyer’s deposit to the seller immediately after exchange has taken place

73
Q

What do the Standard Conditions of Sale require of the seller re title?

A

Requires the seller to prove their title + their ability to transfer it.

74
Q

How does the seller prove title?

A

By production of an official copy of a registered title or by production of an ‘epitome of title’ if the title is unregistered.

Unless the parties agree otherwise, the standard conditions provide that the seller sells the property with full title guarantee.

75
Q

What is an ‘epitome of title’?

A

A chronological list of documents proving title to the land with copies of those documents attached

76
Q

What does full title guarantee do?

A

Includes a guarantee that:
1. the seller is entitled to sell the property,

  1. they will, at their own cost, do all in their power to transfer the purported title to the buyer, and
  2. the seller is selling the property free from all charges or encumbrances other than those disclosed in the contract
77
Q

What is the effect of the full title guarantee post completion?

A

The buyer is entitled to rely on the promises it includes after completion.

78
Q

When will full title guarantee generally be given?

A

By a seller who owns the full legal and equitable interest + has lived on the property

79
Q

What is a limited title guarantee?

A

Narrower in scope.

The seller merely warrants that the seller has not created any charges or granted any rights during their period of ownership that have not been disclosed in the contract.

80
Q

When is a limited title guarantee typically given?

A

By a seller with less knowledge or involvement with the property (e.g., a personal representative)

81
Q

When is land conveyed without any title guarantee?

A

Typically when a seller has no knowledge of the property at all.

E.g., a mortgagee in possession or someone disposing of the property by way of gift

82
Q

What is an ‘indemnity covenant’?

A

If the contract discloses obligations relating to the property which will bind the buyer (e.g., to maintain a fence for the benefit of the property owner next door), the Standard Conditions of Sale provide that the buyer agrees to perform the obligation + to indemnify the seller if the buyer breaches the obligation in the future.

This provision is included in the transfer document + is called an ‘indemnity covenant’.

83
Q

What do the Standard Conditions of Sale provide re risk?

A

Risk in the property passes to the buyer on exchange of contracts.

This means that if the property is destroyed or damaged between exchange and completion, the buyer must still go ahead with the purchase

84
Q

What do the Standard Conditions provide re insurance?

A

The seller does not have to insure the property between exchange and completion.

In practice, however, most properties are insured by both the seller + the buyer between exchange of contracts and completion

85
Q

What do the Standard Conditions provide re completion date?

A

If the completion date is not inserted into the contract on exchange (in most cases, it will be), the Standard Conditions of Sale provide that completion will take place 20 working days after exchange.

86
Q

What are the special conditions included in the standard conditions of sale?

A

Section on the last page of the contract for adding special conditions.

Special conditions are those specific to the particular transaction.

Despite being specific to a transaction, some of these conditions are assumed to be applicable for most transactions, and so are pre-printed on the contract.

87
Q

What special conditions will usually be pre-printed on the contract?

A
  1. Whether the property being sold will be vacant on completion or whether there will be a tenant in situ
  2. Whether a different time for completion has been agreed
  3. Whether there are any occupiers on the property, such as the seller’s relative
88
Q

What is needed under the special conditions if there will be a tenant in situ upon completion?

A

The tenancy agreement subject to which the property is being sold will be inserted

89
Q

When might a different time for completion be agreed in the special conditions?

A

A time prior to 2pm is often desired by the parties if their purchase is part of a long chain of transactions.

90
Q

What will be needed if the special conditions say there will be occupiers on the property?

A

The occupiers will need to confirm their relinquishment of any rights on completion

91
Q

In a Protocol transaction, who is the Property Information Form completed by?

A

PIF is completed by the seller

92
Q

What is the Property Information Form designed to do?

A

Designed to give the buyer practical information about the property.

The buyer is entitled to rely on the answers that the seller gives to the PIF + any pre-contract enquiries raised by the buyer’s solicitor.

93
Q

What issues does the PIF cover?

A
  1. Position of the property’s boundaries
  2. Any disputes with neighbours about the property
  3. Any building work and/or alterations by the seller to the property
  4. Any notices received by the seller about the property
  5. Any guarantees or warranties
  6. The seller’s property insurance details
  7. Any flooding of the property
  8. Anyone exercising any informal rights over the property (these should be included in the contract)
  9. Any services that cross the property (e.g., pipes and wires serving neighbouring property)
  10. Parking arrangements for the property
  11. Occupiers of the property, and
  12. Utilities the property is connected to (e.g., gas, water, electricity, foul drainage).

(No need to memorise but good to have an understanding of types of things included)

94
Q

What must the buyer’s solicitor check re anyone occupying the property?

A

The buyer’s solicitor must check who occupies the property to see that this accords with the information given in the contract.

A non-owning occupier must agree to sign the contract as confirmation that they will relinquish any rights in the property + move out of the property on completion

95
Q

What is the Fittings and Contents Form?

A

Lists the items which are at the property + included in the sale price and those which are excluded from the sale price.

This list is annexed to, and forms part of, the contract.

96
Q

What could happen if the seller takes anything listed as ‘included’ on the Fittings and Contents Form?

A

Seller could be sued.

97
Q

What happens if the buyer has agreed to purchase any items from the seller over and above the sale price of the property?

A

This sum will be indicated on the Particulars of Sale (next to ‘contents price’) and the items that the buyer is purchasing will be listed + included in the contract.

98
Q

What is ‘investigation of title’?

A

Process of checking that the seller has a good title that they can convey

99
Q

When should the seller’s solicitor carry out ‘investigation of title’?

A

When they are drafting the contract

100
Q

When should the buyer’s solicitor undertake ‘investigation of title’?

A

When they receive the contract package

101
Q

What is the purpose of investigating title?

A

To check that the buyer will receive good title when the buyer’s solicitor makes the application for registration after completion + also to identify if there are any issues with the title that may adversely affect the buyer’s future plans for the property

102
Q

What happens if, upon investigation of title, there are issues with the title that require resolution?

A

The buyer’s solicitor will ask questions of the seller’s solicitor - ‘raising requisitions on title’.

This is often done now as part of the process of raising pre-contract enquiries.

The buyer’s solicitor will require all of their enquiries to be resolved before advising their client to proceed to exchange of contracts

103
Q

When are defects in title usually discovered?

A

Any defects in the title should come to light when the seller’s solicitor investigates the seller’s title.

These defects should be disclosed in the contract.

Many defects, however, are not discovered until the buyer’s solicitor investigates the title + considers the contents of the PIF, the seller’s replies to the buyer’s enquiries, and the search results.

104
Q

What should the buyer’s solicitor do if they discover the problem with the seller’s title?

A

They should raise it with the seller’s solicitor, request that the seller’s solicitor provide a draft insurance policy, confirm that the seller will pay the cost of the policy, and include this agreement as a special condition in the contract.

105
Q

What is the best way of resolving a problem if a defect in title is identified?

A

Best way of resolving the problem is to enter into a deed of variation or deed of rectification to put the problem right.

However, this might not always be practical in terms of. cost or time.

Or the agreement to such a course of action by someone whose consent is required (e.g., an adjoining landowner) might simply be refused

106
Q

What should be done if a deed of variation or deed of rectification is not possible to remedy a defect in title?

A

When this is not possible, indemnity insurance may be purchased to cover future losses that might arise from the defect.

Indemnity insurance policies may cover specific title issues, such as an undisclosed covenant, a missing deed in the chain of title, a breach of covenant, or adverse possession.

107
Q

What could be done if the seller has built on the land that is subject of a no build covenant?

A

Indemnity insurance might be a solution that can allow the transaction to proceed

Property Practice (15 decks)

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