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Property Law and Practice > Contract and Exchange > Flashcards

Contract and Exchange Flashcards

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1
Q

What is a mortgage offer?

A

It is a formal offer by the lender to lend. It is subject to the lender being satisfied with the transaction and the security (ie the property)

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2
Q

What is a certificate of title?

A

It is a document where the solicitor certifies that the title to the property is satisfactory for lending purposes

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3
Q

What are the formalities for a contract of sale?

A

Must:

  • be in writing
  • incorporate all the term which the parties have expressly agreed
  • be signed by, or on behalf of, each party to the contract
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4
Q

Why use a contract for the sale of land?

A
  • fix a completion date, so the parties know when they will need to have money and make practical arrangements
  • tie related transactions, eg if using the money from the sale to buy another property
  • set out related obligations, such as buying furniture and contents
  • include conditions, such as obtaining specific planning permission
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5
Q

When might a contract for land be unnecessary?

A
  • a gift of property between family members
  • land of low value
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6
Q

Must the Standard Conditions of Sale be incorporated into all residential contracts?

A

Not mandatory unless parties adopting the Law Society Conveyancing protocol

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7
Q

What is the standard set of conditions often used for commercial property?

A

The Standard Commercial Property Conditions

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8
Q

Can the Standard Conditions of Sale be amended?

A

Yes may be amended, excluded or supplemented with special conditions.

It is a matter for negotiations between the parties.

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9
Q

When can special conditions be added if the Law Society Conveyancing Protocol?

A

Only if the special conditions are absolutely necessary

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10
Q

What incumbrances does the seller not have a duty to disclose under the Standard Commercial Property Conditions but they do have under the standard conditions of sale?

A

Any incumbrances registered at the Land Registry, the Land Charges Registry and at Companies House they do not have to disclose under the SCPS but do for the SCS

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11
Q

What kind of title guarantees can the seller offer?

A
  • full title guarantee
  • limited title guarantee
  • no title guarantee
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12
Q

What is full title guarantee?

A

Means the property is free of all incumbrances other than those disclosed in the contract, and those which the seller didn’t and couldn’t reasonably have known about.

It should be offered unless there is good reason not to.

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13
Q

What is limited title guarantee? When should it be given?

A

Means there no incumbrances have been created over the property during the seller’s period of ownership.

Should be given by sellers with little knowledge of the property such as executors

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14
Q

What is no title guarantee and when should it be given?

A

Means that the seller does not guarantee the seller’s right to sell the property, nor that the property is free of incumbrances.

The buyer has no remedy against the seller if an issue with title arises after completion.

An administrator or liquidator selling the property might offer no title guarantee

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15
Q

If the completion date is not fixed by the parties, what is the default date under SCS and SCPS?

A

20 working days after the date of the contract

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16
Q

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

A

2 pm - means the money must be received by the seller’s solicitor by then

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17
Q

Under SCS and SCPS is time of the essence?

A

No

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18
Q

What is the consequence of a party failing to complete on time?

A

Until time is of the essence, then only damages is available.

Once time is of the essence then rescission is available.

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19
Q

When will time become of the essence?

A

When one party serves a notice on the other to complete

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20
Q

What deposit is to be paid under the SCS and SCPS?

A

10% on exchange of contracts although can be varied by special condition

21
Q

What happens if the parties agree a lower deposit but the buyer doesn’t complete on time and the seller serves notice to complete?

A

The buyer must immediately pay the balance of the 10% deposit (unless amended by special condition)

22
Q

Can a deposit be paid by cheque?

A

Yes under the SCS but only cheque from client account of law firm

23
Q

How must the deposit be paid under the SCPS?

A

Electronically

24
Q

What does it mean that the seller’s solicitor must hold the deposit as stakeholder?

A

Means the seller’s solicitor must keep the deposit safe and not pay it to the seller until completion

25
Q

What does it mean that the seller’s solicitor must hold the deposit as agent for the seller?

A

It means the seller may demand the deposit immediately after exchange,

Most buyers will not accept this as risk of loss to the deposit if the seller is unable to complete

26
Q

What is the default position under the SCS and SCPS in relation to how the deposit should be held?

A

Deposit should be held as stakeholder.

SCS does allow for deposit to be used for deposit on a related transaction

27
Q

What happens on exchange in relation to risk? What should be done?

A

Risk passes to the buyer on exchange under both SCS and SCPC. Buyer should take out insurance.

28
Q

If there are positive covenants and an unbroken chain of indemnity what will the seller require?

A

They will require the buyer to give an indemnity covenant to continue the chain

29
Q

What property is standard rated for VAT?

A
  • newly constructed commercial property (less than 3 years old)
  • older commercial property where the seller has opted to tax
30
Q

What property is exempt from VAT?

A
  • residential property, except for newly developed property
  • commercial property over 3 years old and the owner has not opted to tax
31
Q

What property is zero rated for VAT?

A
  • newly constructed property
32
Q

What is the option to tax?

A

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

33
Q

What is a transfer of going concern and what effect does it have on VAT?

A

A transaction where the seller uses the property for the business of letting to produce rental income, the buyer will do same and meets certain other requirements.

A qualifying transfer of going concern is not a taxable supply for VAT

34
Q

Who prepares the draft contract?

A

The seller’s solicitor drafts the contract with reference to heads of term and title

35
Q

Who checks the draft contract?

A

The buyer’s solicitor will check it against the heads of terms and the buyer’s instructions.

They will want to amend anything that is weighted to much towards the seller or take into account matters that arise during investigations

36
Q

What is the buyer’s checklist before exchange?

A
  • check that they have receive all search results and replies to enquiries, and followed up any issues arising from them as needed
  • check that buyer has received survey and is satisfied with it
  • advise buyer that insurance must be in place from exchange of contracts
  • check that funds have cleared from the buyer for the deposit (10%)
  • for a commercial transaction, ensure that the lender’s solicitor has approved the draft certification of title
  • ensure that they have reported fully to the buyer on title and advised them of any issues of concern
  • send contract to the buyer for signature
  • obtain instructions on proposed completion date
  • obtain authority of the buyer to exchange contracts (do not rely on merely having a signed contract as authority to exchange)
37
Q

What is the seller’s checklist before exchange?

A
  • obtain a redemption figure from the lender to check that the proceeds of sale will cover it
  • reply to any outstanding additional enquiries
  • prepare engrossments of the contract and send on copy to the seller for signature and the other to the buyer’s solicitor
  • 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
38
Q

How is exchanged almost always carried out nowadays?

A

Over the telephone according to Law Society Formula B

39
Q

What much each solicitor have before starting Law Society Formula B process?

A

They must have their respective client’s signed contract.

40
Q

What does the exchange conversation for Law Society Formula B involve?

A
  • identifying any blanks left in the contract and agreeing what wording/figures need to be inserted
  • agreeing any handwritten amendments or special conditions
  • agreeing and writing in the completion date in the appropriate space
  • once both are happy that the contracts are complete and identical, they agree they will exchange under Law Society Formula B and agree the date and time of exchange and give each other their names to write on the contract
41
Q

What is the effect of completing Law Society Formula B?

A

The contracts are exchanged and from that point onwards the parties are legally bound to complete

42
Q

After exchange, what undertakings does Law Society Formula B impose on the solicitors?

A
  • to hold the signed contract to the other solicitor’s order - this means that the buyer’s part belongs to the seller and vice versa
  • to post the signed contract to the other solicitor that day by first class post or DX or by hand delivery
  • in the 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
43
Q

When is Law Society Formula A used?

A

When the same solicitor holds contract signed by both seller and buyer.

It may be appropriate where a solicitor knows that they will be abroad at the time of exchange.

The solicitors have a similar conversation as to Law Society Formula B but the solicitor who holds both parts undertakes just to send their client’s signed contract to the other solicitor

44
Q

When will Law Society Formula C be used?

A

Where there is chain transaction, meaning the money from one property is used to buy the next. A chain may involve two or more properties.

Normally Formula B is just used and the transactions are tied together to avoid the complexities of Formula C

45
Q

What should be done if related properties are being exchanged?

A
  • related sales and purchases must be tied together.
  • a solicitor will release the contract to the solicitor who is dealing with the related transaction. This means that if the solicitor manages to exchange on the related transaction by an agreed time, the first contract is treated as exchanged but if not the exchange is cancelled
46
Q

What should solicitor’s do after exchange?

A
  • they should prepare a memorandum of exchange with the key contract terms for the file
  • should keep a copy of the signed contract in case the original is lost in the post to the other solicitor
47
Q

What will the parties do post-exchange?

A
  • buyer will want to have insurance in place as risk has passed
  • buyer will start to make arrangements for completion such as submitting certificate of title to the lend and requesting mortgage funds in time for completion
48
Q

What does the buyer gain in lawyer post completion aside from risk?

A
  • an equitable interest in the property which may be protected by notice on the register or for unregistered land a class c(iv) land charge

Property Law and Practice (12 decks)

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