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PLP > Contract and exchange > Flashcards

Contract and exchange Flashcards

1
Q

Which of the following statements correctly describes the purpose of a certificate of title?

(a) 
The certificate is a guarantee of a clear and good title to a property.

(b) 
It confirms to the recipient matters relating to the property through a series of statements of facts and disclosures

(c) 
It sets out the terms of the security deed that the recipient is entering into.

(d) 
It confirms that the security over the property is valid and enforceable.

(e) 
It sets out the risks and issues relating to the property and provides advice and opinions on those risks/issues.

A

(b) 
It confirms to the recipient matters relating to the property through a series of statements of facts and disclosures


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2
Q

A company is buying a registered freehold property in England with funding from a corporate lending bank secured on the property with a first legal charge. The company’s solicitor is required to submit to the lender’s solicitor a CLLS Certificate of Title (COT) as a condition precedent to receiving the funding.
When should the company’s solicitor receive confirmation from the lender’s solicitor that the draft COT is approved?

(a) 
A couple of hours before completion.

(b) 
Before exchange of contracts.
(c) 
At completion.

(d) 
A week before completion.

A

(b) 
Before exchange of contracts.

A buyer’s solicitor should not exchange contracts unless the source of funds is confirmed. Exchanging without confirmation means the lender could have issues with the property and then not want to lend, leaving the buyer contracted to buy without access to the main source of funds. There would be financial penalties under the contract if the buyer did not complete.

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3
Q

What lending documents are involved in contract and exchange and what do each of them involve?

A
  1. Mortgage offer: A formal offer bythe lender to lend. It is subject to thelender being satisfied with thetransaction and the security (ie, theproperty) and will set out the terms and conditions of the loan. 


  2. Facility letter: Thecommercial equivalent of a mortgageoffer. 
This will setout the terms and conditions of the loan.
  3. Legal charge: The deed that creates the securityinterest and is registered at the LandRegistry. 

  4. Certificate of title: A document inwhich a solicitor certifies that the title tothe property is satisfactory for lendingpurposes
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4
Q

Who will draft the legal charge and other security documents including the certificate of title in contract and exchange involving a loan?

A

This will usually be the lender’s solicitor - for certificate of title, they can either draft it or ask the buyer’s solicitor to provide it.

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5
Q

Which one of the following correctly describes section 2 of the Law of Property (Miscellaneous Provisions) Act 1989?

(a) Contracts for the sale of land must be in writing and all the relevant terms must be incorporated into the contract.
(b) 
Implies certain covenants or obligations on the part of the seller.

(c) 
The interest of a person in actual occupation will bind a purchase of the property.


A

(a) Contracts for the sale of land must be in writing and all the relevant terms must be incorporated into the contract.

This is indeed two of the requirements for a valid land contract. The contract will also need to be signed by, or on half of the parties to the contract.


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6
Q

Which one of the following will be expressly incorporated into a contract for the sale of land?

(a) 
Law Society Conveyancing Protocol

(b) 
Solicitor undertakings

(c) Standard Conditions (either the Standards Conditions of Sale or the Standard Commercial Property Conditions)The standard conditions will always be incorporated into a contract for the sale of land. They contain conditions that are common to all transactions and it is far easier to incorporate these by reference rather than write them all out again in the contract

A

(c) Standard Conditions (either the Standards Conditions of Sale or the Standard Commercial Property Conditions)

The standard conditions will always be incorporated into a contract for the sale of land. They contain conditions that are common to all transactions and it is far easier to incorporate these by reference rather than write them all out again in the contract.

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7
Q

Your client is selling his home and you are about to start drafting the contract. Which ONE of the following contracts would you choose as a precedent?

(a) 
A tailor made contract for sale incorporating the standard commercial property conditions and special conditions

(b) 
A standard form contract for sale incorporating the standard conditions of sale and pre-printed special conditions.
(c) 
A standard form contract for sale incorporating the standard commercial property conditions only.

(d) 
A tailor made contract for sale incorporating the standard conditions of sale only.

A

(b) 
A standard form contract for sale incorporating the standard conditions of sale and pre-printed special conditions.

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8
Q

Which of the following statements correctly describes the role of special conditions in a property contract?

(a) 
Special conditions may be used in commercial property contracts only to add to or amend the standard conditions

(b) 
Special conditions are incorporated into both residential and commercial transactions though there are different conditions depending upon the nature of the transaction. Both conditions are updated from time to time to take account any changes in law.

(c) 
Special conditions may be used in both residential and commercial property contracts to add to or amend the standard conditions.
(d) 
Special conditions may be used in residential property contracts only to add to or amend the standard conditions

A

(c) 
Special conditions may be used in both residential and commercial property contracts to add to or amend the standard conditions.

The Standard Conditions of Sale may be amended, excluded or supplemented by ‘special conditions’. This applies in respect of both residential and commercial property transactions. Though, in respect of residential transactions, if the seller’s solicitor is following the Law Society Conveyancing Protocol, special conditions may only be added if ‘absolutely necessary for the purposes of the transaction’.


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9
Q

True or false: a contract for sale of land constitutes the deed for its transfer.

A

False - a contract for sale of land does not constitute a deed and so can’t in and of itself, transfer the land

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10
Q

Which of the following will sell with limited title guarantee?

(a) 
A seller who is the owner but has fully let the property out to a tenant.

(b) 
A seller who is a mortgagee in possession

(c) A seller who is a trustee

(d) A seller who is the owner and occupier.

A

(c) A seller who is a trustee


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11
Q

A seller must disclose latent incumbrances and defects in title. Both the SCS and SCPC amend this duty. What is the duty under each?

A
  1. SCS: The seller needs to disclose any incumbrances (rights burdening the property that are not apparent on inspection) that are registered at the Land Registry (reg land), the Land Charges Registry (unreg land) and at Companies House
  2. SCPC: The buyer is deemed to buy the property subject to any incumbrances which would be revealed by a prudent buyer’s searches and enquiries.
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12
Q

What is the time for completion under both the SCS and the SCPC?

A

2pm

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13
Q

Time is usually of the essence under both the SCS and the SCPC.
Is this statement true or false?

A

False - Both SCS and SCPC state that ‘time is NOT of the essence until a notice to complete is served’. This means that if a party fails to complete, the non-defaulting party cannot not yet walk away from the transaction.

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14
Q

If, immediately following exchange of contracts, the seller wishes to use the deposit payable by the buyer, the seller’s solicitor must ensure that the contract provides for the deposit to be held in which of the following capacities?

(a) 
By the seller’s solicitor as agent for the seller.
(b) 
By the seller’s solicitor as agent for the seller’s estate agent.

(c) 
By the seller’s solicitor as stakeholder.

(d) 
By the seller’s solicitor as agent for the buyer.



A

(a) 
By the seller’s solicitor as agent for the seller.

Holding the deposit as agent for the seller means the money belongs to the seller and the seller is free to use it from exchange of contracts. If the deposit was held as stakeholder this means that the seller’s solicitor is custodian of the deposit for both parties: the deposit may not be released to the seller until completion.


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15
Q

What are the three types of title guarantee?

A
  1. Full title guarantee: standard under SCS and SCPC and should be offered unless there’s a good reason not to and mens that the property is free from incumbrances besides those in contract and those which seller didn’t/couldn’t reasonably know about
  2. Limited title guarantee: given by seller’s with little knowledge eg executor or trustee and means that no incumbrances were created during seller’s period of ownership
  3. No title guarantee: seller doesn’t guarantee their right to ownership or that land is free from incumbrances - would be used by a liquidator or administrator
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16
Q

What is the difference between the seller’s solicitor holding the deposit as a stakeholder and as an agent?

A

As stakeholder: seller’s solicitor must keep deposit safe and not pay seller until completion

As agent: seller may demand deposit immediately after exchange

Default position under SCS and SCPC is to hold it as stakeholder

17
Q

How may the deposit be paid by buyer in residential and commercial transactions?

A
  1. Residential: under SCS deposit can be paid by cheque from buyer’s solicitor’s client account (not directly from buyer) or electronically
  2. Commercial: under SCPC must be paid electronically
18
Q

True or false: risk passes to buyer on completion.

A

False - once contracts are exchanged, risk passes to buyer so if property is damaged between exchange and completion, the buyer must still complete.

19
Q

What happens if the parties agree to vary the deposit of exchange to a reduced amount and the buyer doesn’t complete on time, causing the seller to serve a notice to complete?

A

In that case, the buyer must immediately pay the balance of 10% (standard deposit rate under SCS and SCPC) - unless there’s a special condition about this agreed in contact.

20
Q

Your client is buying a house from a man who is an owner and an occupier of the house. Your review of the official copies reveals the registered proprietors as the man and woman who hold the property as tenants in common. You have been informed that the woman has died. Which ONE of the following would you include in the contract?

(a) 
The man is to transfer the property with limited title guarantee

(b) 
The man is to transfer the property with full title guarantee and agrees to appoint a second trustee who will give limited title guarantee in the transfer deed.
(c) 
The man is to transfer the property with limited title guarantee in the transfer deed and appoint a second trustee who will give full title guarantee in the transfer deed.

(d) 
The man is to transfer the property with full title guarantee.

A

(b) 
The man is to transfer the property with full title guarantee and agrees to appoint a second trustee who will give limited title guarantee in the transfer deed.

A buyer from a sole surviving tenant in common would be expecting a title guarantee from both the surviving tenant in common AND from the second trustee appointed to overreach any beneficial interest in the property. However, the second trustee is often not appointed until completion. The sole surviving tenant in common will be named as the ‘Seller’ in the contract and will agree (by way of a special condition) to appoint the second trustee on completion. A trustee will usually agree only to give limited title guarantee as it has limited knowledge of the property.


21
Q

You are acting for the buyer of a residential property. In the replies to enquiries, the seller disclosed that their adult child occupiers the property with them.
Which pre-written special condition would you expect to be included in the contract in light of this?

(a) Title guarantee - this should be included so that the title guarantee given by the seller is varied from full to limited

(b) The property is sold with vacant possession - this should be included to include the details of the adult son in occupation

(c) Occupier consent’s - the adult son should sign the contract to confirm they will vacate on or before completion

(d) 
This cannot be covered by a pre-written special condition. Rather, a tailor made special condition would need to be drafted

A


(c) Occupier consent’s - the adult son should sign the contract to confirm they will vacate on or before completion

The seller’s solicitor would need to obtain the signature of the adult child, who would need to be advised to seek independent legal advice.

22
Q

A buyer and seller have agreed that the washing machine and dryer (not integrated)should be included in the sale of a property.
How should the buyer ensure this is documented in the contract?

(a) 
The buyer does not need to do anything as all fixtures will pass automatically to the buyer on completion of the sale

(b) 
The buyer does not need to do anything as the standard conditions of sale include a condition that all fittings /chattels will pass automatically to the buyer on completion of the sale

(c) 
The buyer does not need to do anything as all fittings/chattels will pass automatically to the buyer on completion of the sale

(d) 
The buyer should ensure a tailor made special condition is drafted and included in the contract documenting the fittings/chattels the buyer would like including in the sale.

(e) 
The buyer should ensure pre-written special condition 3(a) is included and attach a list of any other fittings/chattels that are agreed the buyer will purchase

A

(e) 
The buyer should ensure pre-written special condition 3(a) is included and attach a list of any other fittings/chattels that are agreed the buyer will purchase

The washing machine and dryer are not fixtures and will not therefore pass automatically to the buyer on a purchase. Fittings / chattels that the buyer would like including need to be expressly included in the contract. In a residential contract there is a pre-written special condition that allows the parties to specify any fittings / chattels (also called contents) that are to be included in the sale and any fixtures which are to be excluded.

23
Q

A five year old commercial property is being sold. The seller has not opted to tax. The seller is drafting the contract, which includes the SCPC.
Which one of the following correctly sets out the contractual VAT provision(s) required and the reason why? (Refer to the text of SCPC if you need to.)

(a) 
SCPC special condition A1 should be expressly incorporated and the purchase price should state it is exclusive of VAT because VAT is chargeable on the sale.

(b) 
SCPC 2 is incorporated in the contract and the purchase price should state it is exclusive of VAT because VAT is chargeable on the sale.

(c) 
SCPC special condition A1 should be expressly incorporated because VAT is not chargeable on the sale.

(d) 
SCPC 2 is incorporated in the contract because VAT is not chargeable on the sale.

A

(c) 
SCPC special condition A1 should be expressly incorporated because VAT is not chargeable on the sale.

The sale of an old commercial property where the seller has not opted to tax is not chargeable to VAT. SCPC special condition A1 is the relevant provision to incorporate to reflect the position that VAT is not payable in the contract.

24
Q

The draft sale contract for a commercial property incorporates the SCPC, including SCPC 2. Special Condition A1 from the SCPC is not incorporated in the draft contract.
Which one of the following most accurately sets out the implication of this drafting and the reason(s) why the contract would have been drafted this way? (Refer to the text of SCPC if you need to.)

(a) 
VAT is not chargeable on the sale of the property. The property is either a new (up to 3 years old) commercial property or an old (more than 3 years old) commercial property with an option to tax.

(b) 
VAT is chargeable on the sale of the property. The property is either a new (up to 3 years old) commercial property or an old (more than 3 years old) commercial property with an option to tax.
(c) 
VAT is chargeable on the sale of the property. The property is an old (more than 3 years old) commercial property with no option to tax.

(d) 
VAT is not chargeable on the sale of the property. The property is an old (more than 3 years old) commercial property with no option to tax.

A

(b) 
VAT is chargeable on the sale of the property. The property is either a new (up to 3 years old) commercial property or an old (more than 3 years old) commercial property with an option to tax.

SCPC 2 is the default position which is that VAT is chargeable on the sale of the property. The purchase price should state it is exclusive of VAT. The possible reasons why the sale of a commercial property would be chargeable to VAT are that it is a new commercial property or an old commercial property where the seller has made an option to tax.


25
Q

In which one of the following situations is it most important for the purchase price in the sale contract to be expressly stated to be exclusive of VAT?

(a) 
A residential property is being sold.

(b) 
A new (up to 3 years old) commercial property is being sold.
(c) 
An old (more than 3 years old) commercial property is being sold. No option to tax the property has been made.

A

(b) 
A new (up to 3 years old) commercial property is being sold.

VAT is chargeable on the sale of a new (up to 3 years old) commercial property but the default position is that the purchase price is deemed to be VAT inclusive unless the contract states otherwise. If the purchase price was not expressly stated to be exclusive of VAT it will be deemed to be VAT inclusive. The seller will have to account for the VAT element out of the purchase price to HMRC and will be left only with the remainder.


26
Q

What is the VAT treatment of different types of property?

A
  1. Stand-rated supplies (20%): newly constructed commercial property (less than 3 years old) and older commercial property if seller has opted to tax
  2. Exempt supplies: residential property (except for newly developed property) and commercial property over 3 years old, where owner has not opted to tax
  3. Zero-rated supplies: newly constructed property (buyer doesn’t pay VAT but bc output is taxable, seller can recover input tax from HMRC)
27
Q

What is an option to tax?

A

A notice to HMRC that has effect of making commercial property over three years old standard-rated instead of exempt.

28
Q

True or false: any business with a VAT taxable turnover must register for VAT with HMRC.

A

False - any business with a VAT taxable turnover of over £85,000 per year is obligated to register.

29
Q

How often is VAT collected by HMRC?

A

Every three months

30
Q

SCPC and VAT: which conditions apply to which category?

A

Condition 2: standard-rated

A1: exempt supply

A2: TOGC

31
Q

What is a transfer of going concern?

A

Transaction where seller uses property for business of letting to produce rental income, the buyer will do the same and meets certain other requirements. Transaction that qualifies as TOGC is not taxable supply for VAT.

32
Q

What undertakings does a seller’s solicitor give when using Law Society Formula B to exchange contracts?

(a) 
To send the seller’s part of the contract to the buyer’s solicitor on that day.

(b) 
To send a client account cheque for the deposit to the buyer’s solicitor on that day.

(c) 
To discharge the seller’s mortgage.

(d) 
To send the seller’s part of the contract to the buyer’s solicitor on receipt of the buyer’s part of the contract.

A

(a) 
To send the seller’s part of the contract to the buyer’s solicitor on that day.


33
Q

Which one of the following steps is taken by the buyer’s solicitor pre-exchange of contracts where the buyer is purchasing with the aid of a mortgage?

(a) 
Draft a certificate of title and send it to the lender.
(b) 
Preparing engrossments of the final version of the contract.

(c) 
Obtaining a redemption figure from the seller’s lender.

(d) 
Replying to enquiries.

A

(a) 
Draft a certificate of title and send it to the lender.

If the purchase is being funded with the aid of a mortgage the solicitor must draft a certificate of title and send it to the lender. If the lender is satisfied with the content of the certificate then the loan will be available to the buyer on the day of completion. There are different certificates of title for commercial and residential transactions. However in both cases it will set out the same type of information about the property as a report on title (ie that the title to the property is good and marketable and acceptable security for the lender)


34
Q

What is the most common form of exchange of contracts?

(a) 
By post, whereby the buyer’s solicitor sends his client’s part of the contract and the deposit cheque to the seller’s solicitor.

(b) 
By telephone, whereby each solicitor has their client’s part of the contract and they agree to exchange during a telephone call.

(c) 
In person, whereby the buyer’s solicitor attends the seller’s solicitor’s office.


A

(b) 
By telephone, whereby each solicitor has their client’s part of the contract and they agree to exchange during a telephone call.


35
Q

What is on the buyer’s solicitor’s checklist before exchange of contracts?

A
  1. Check they have received all search results and replies to enquiries, and followed up any issues arising from them as needed
    2. Check that buyer has received survey and is satisfied with it
  2. Advise buyer that insurance must be in place from exchange of contracts
  3. Check that have cleared funds from the buyer for the deposit (usually 10%)
  4. For a commercial transaction, ensure that the lender’s solicitor has approved the draft certificate of title
  5. Ensure that have reported fully to the buyer on title and advised on any issues of concern
  6. Send contract to the buyer for signature
  7. Obtain instructions on proposed completion date
  8. Obtain authority of the buyer to exchange contracts (do not rely on merely having a signed contract as authority to exchange!), and if necessary check again just before exchange
36
Q

What is on seller’s solicitor’s checklist before exchange of contracts?

A
  1. Obtain a redemption figure (ie, the amount needed to pay off the loan in full) from the lender to check that the proceeds of sale will cover it
  2. Reply to any outstanding additional enquiries (the buyer’s solicitor will likely refuse to exchange without this in any case)
  3. Prepare engrossments (final versions) of the contract and send one copy to the seller for signature, and the other to the buyer’s solicitor
  4. Obtain seller’s authority to exchange contracts (again, do not rely on the signed contract as authority), and if necessary check again immediately before exchange
37
Q

What does a solicitors’ exchange over telephone involve?

A
  1. Identifying any blanks left in contract and agreeing what wording or figures needs to be inserted
  2. Agreeing any handwritten amendments or special conditions
  3. Agreeing and writing completion date in appropriate space
38
Q

What undertakings does the Law Society Formula B impose upon solicitors?

A
  1. To hold the signed contract to the other solicitor’s order - this means that the buyer’s signed part belongs to the seller and vice versa
    2. To post the signed contract to the other solicitor that day by first class post or DX (the document exchange used by solicitors and certain other professionals) or by hand delivery
  2. In case of the buyer’s solicitor, to send the deposit in the form of payment specified by the contract (eg, solicitors’ client account cheque in the first class post, or same day electronic transfer
39
Q

Who creates the draft contract?

A

The seller’s solicitor

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