Contract and exchange Flashcards
Acting for lender?
- To a lender only interests is whether property has sufficient value and marketability to repay their loans.
Residential transactions - Same solicitor usually acts for both buyer and lender – their aims are similar so no conflict of interest
- To ensure that the property is worth what the buyer has paid
- To ensure its suitable for purpose
- Need to be easy to sell
Additionally, conflict is low because - A high street lender had standard non-negotiable mortgage terms
- Solicitors’ discretion in acting for a lender is tightly controlled by standard instructions.
Lenders in commercial transactions?
- Much more likely for conflict of interest so separate lawyers
- Will:
- Specify what enquires and searches are needed
- Ask the buyer’s solicitor to send copies of all searches and replies to enquires
- Review them and ask the buyers solicitor make such additional enquires as lenders solicitor requires
- Draft the legal charge
- Either draft the certificate of title or ask the buyers solicitor to provide
Lending documents?
Lending documents
- Mortgage offer
- Certificate of title – a document where a solicitor certifies that the title to property is satisfactory for lending purposes (for residential purposes – usually a one page from which is competed and signed)
- A facility letter is roughly commercial equivalent of a mortgage offer
- Legal charge is the deed that created the security interests and is registered at the land registry.
- The charge gives the lender right to repossess
The CLLS certificate of title?
- Similar to report on title but unlike how it can be in any format the certificate of title is prescriptive.
- Industry standard if City of London law society certificate of title
- Solicitor after completing the certificate must give a disclosure if any of these statements is incorrect.
The property contract?
Seller
- Prepare draft contract
Buyer
- Approve draft contract
Formalities of a contract for the sale of land
- Must follow requirements of s2, Law of property Act 1989
- Be in writing
- Incorporate all terms expressly agreed
- Be signed or on behalf of each party to the contract
Why use a property contract?
- Fix a completion date
- Tie related transactions
- Set out related obligations
- Include conditions – such as obtaining specific planning permission
May be unnecessary if
- A gift between family members
- Low value
Different types of contracts
Standard form
- Residential transactions always use a standard form
- This refers to the standard conditions of sale
- Similar contract for commercial transactions – this incorporated the standard commercial property conditions
Tailor made
- Commercial transactions commonly use precedent bank or from sources such as practical law
- Contracts tend to run to more pages
- Usually incorporated standard commercial property conditions and amend them as required
Standard conditions of sale?
- If parties are adopting the law society conveyancing protocol, then the standard conditions of sale are obligatory
- May also be used for simple or low value commercial transactions
Commercial standard form contracts - Practical law precedent – contract for sale of freehold land with vacant possession
- Form 75 in volume 36 of encyclopaedia of forms and precedents
Special conditions - Standard conditions of sale may be amended, excluded or supplemented with special condition
Contract conditions? Standard conditions of sale?
SCS3.1.2
- Incumbrances subject to which the property is sold are
- Those specified in contract
- Discoverable by inspection
- Thos that seller does not reasonably know about
- Those other that mortgages which the buyers know about
- Entries made before the date of the contract in any public registrar
- Public requirements.
Standard commercial property conditions?
The incumbrancers to which the property is sold are
- Those species in contract
- Those discoverable by inspection
- Those the seller does not and could not reasonably know about
- Matters other than mortgages
Title guarantee?
exception to caveat emport is title guarantee – seller can offer one of two types of guarantees or none as to the quality of title of the property
- Both types – confirm that seller has the right to sell the property
Full title guarantee – this is the default and should be offered unless there is a good reason not to
Limited title guarantee – is given by seller with little knowledge of the property such as executors of the deceased state – so no incumbrances have been created during seller period of ownership
No title guarantee – means seller does not guarantee sellers right to sell the property – buyer has no remedy against seller if a title issue arises after completion
Title guarantee IS DIFFERENT TO CLASS OF TITLE
- TITLE GURANTEE IS A GURNATEE GIVERN BY SELLER
Completion time and date?
- Usually fixed by the parties
- If they don’t fix it the SCS and SCPC default is 20 WORKING days after the date of the contract. Time for completion is 2pm – money must be received by seller’s solicitor before 2pm.
Both SCS and SCPC state that time is not of the essence until a notice to complete is served - This is meaning a defaulting party that fails by specified time and date – the other party can claim damages against but cannot yet walk away from the transaction.
- Contract rate sets the interests that is payable by defaulting party for the delayed completion.
If time is of the essence – the wording means that the contract must be performed by the specified time and if not, then non-defaulting party can walk away from the contract and claim damages for the breach.
The deposit?
- Both SCS and SCPC require the buyer to pay a 10% deposit on exchange of contract. This can be varied by special condition.
- If they agree on lower – but buyer doesn’t complete on time and the seller serves notice to complete the buyer must immediately pay the balance of the 10% deposit
- Under SCS the deposit must be paid by a cheque from buyer’s solicitor client account or electronically
- Under SCPC – deposit must be paid electronically.
Deposit may be held by SELLERS solicitor as stakeholder or agent
Stakeholder – it means seller solicitor must keep deposit safe until completion
Agent – holds the deposit as agent for the seller – the seller may demand the deposit immediately after exchange
Default position – is to be held as stakeholder
VAT on property?
Residential property
- Usually, an exempt supply or a zero-rated supply – no vat payable
- Purchase price is inclusive
Commercial property
- Vat ALWAYS needs to be considered
- Standard rated
- There are exceptions – if property is over 3 years old the seller has not made an option to tax, then there will be no VAT to pay.
Risk and insurance?
- Once contracts are exchanged risk passes to the buyer under both SCS and SCPC
- Buyers’ solicitor should advice buyer to obtain insurance quotes before exchange ready to insure the property from date of exchange. Lender may also want this confirmation.
Indemnity covenants
- In title investigation – burden of positive covenants can be passed by a chain of indemnity covenants
- If chain is unbroken then the seller can require the buyer to give an indemnity covenant and continue the chin. THIS IS AN OBLIGATION IN BOTH.
- But if seller did not give an indemnity covenant, then this obligation does not apply.
Special conditions in a property?
Can amend the title guarantee from default of full to limited.
allows the parties to specify included and excluded contents on an attached list
There are 2 special conditions - vacant possession - sold without occupiers
Agree to different time for completion
Gives seller some protection against misrep -
Adult over 18 who live in the property
VAT treatment?
Vat treatment of different types of property
Standard rates
- Newly constructed commercial property
- Older commercial property that has opted to tax
Exempt supplies
- Residential property except for newly developed property
- Commercial property over 3 years old – that owner has not opted to tax
Zero rates
- Newly constructed property is zero rated – can recover input tax
Option to tax
- Enquiry 28.3 of Commercial Property Standard Enquiries (CPSE) 1 asks the seller whether an option to tax has been made, and if so, to provide a copy of the option and any related correspondence with HM Revenue & Customs.
- For commercial transactions – sellers solicitor needs to consider the VAT treatment when drafting the contract
- Condition 2 provides the default is standard rated
- Special condition 9 provides tick boxes
- Tick box a1 – brings in condition that overdue condition 2
o Seller warrants that the property is not subject to VAT
o Seller agrees not to exercise the option to tax - Tick box a2 – brings in conditions that override condition 2 – treated transfer of going concern
