Contract and Exchange Flashcards
What are the lending documents?
Mortgage offer = formal offer by a residential lender to lend.
Certificate of title = solicitor certifies that the title to the property is satisfactory for lending purposes.
Facility letter = roughly commercial equivalent of mortgage offer.
Legal charge = deed that creates the security interest and is registered at the Land Registry.
What is the certificate of title for commercial property?
Industry standard is CLLS certificate of title.
What is the residential certificate of title?
There is a standard one approved and drafted by Law Society and UK Finance.
Most high street lenders will have their own short version of the certificate.
What are the formal requirements for a contract for the sale of land?
s2LPMPA 1989:
Be in writing, incorporate all the terms which the parties have expressly agreed, be signed by or on behalf of each party to the contract.
IT IS NOT A DEED, CANNOT TRANSFER LAND
What are the different types of property contract?
Standard form - Residential transactions almost always use. Refers to the Standard Conditions of Sale. (Commercial = standard commercial property conditions).
Tailor made- commercial transactions commonly use precedents from firms own precedent bank - tend to run more pages, usually incorporate Standard Commercial Property conditions and amend them as required.
What are specified incumbrances and how are they dealt with in the SCS and SCPC?
Rights adversely affecting the property, such as easements, covenants, public rights of way.
SCS: Those encumbrances subject to which the property is sold are: those specified in the contract, those discoverable by inspection of the property before the date of this contract; those the seller doesn’t and couldn’t reasonably know about, those other than mortgages that the buyer knows about, entries made before the date of the contract in any public register except those maintaned by land registry or land charges dept or companies house.
SCPC: Incumbrances subject to which property is sold are specified in contract, discoverable by inspection of the property before the date of this contract, that the seller doesn’t and couldn’t reasonably know about, matters other than mortgages disclosed or which would have been disclosed by searches and enquiries which a prudent buyer would have made before entering into contract and public requirements.
Main difference = SCPC also includes matters other than mortgages that prudent buyer Would have made before entering into contract.
What is the title guarantee?
An exception to caveat emptor.
Full title guarantee should be offered unless there is good reason to not. Means property is free of all incumbrances other than those in contract and which seller did not and could not reasonably have known about.
Limited = given by sellers with limited knowledge about the property.
No title guarantee = seller does not guarantee sellers right to sell property (administrator might offer this).
What is the default completion date in the SCS and SCPC?
20 working days after the date of the contract at 2pm. However, this is rare in practice.
Both also state that time is not of the essence until a notice to complete is served.
What do the SCS and SCPC say about the deposit?
Both require 10% deposit on exchange, but this can be varied by special condition.
If parties agree a lower deposit but the buyer doesn’t complete on time and seller serves notice to complete, the buyer must immediately pay the balance of the 10% deposit - unless this is also amended by special condition.
SCS and SCPC both provide that the deposit is held by the seller’s solicitor as a STAKEHOLDER rather than AGENT.
Residential property & VAT?
Residential property is usually exempt supply or zero-rated supply i.e. no VAT is payable.
Under SCS the purchase price is inclusive of VAT.
Commercial property & VAT?
Default under SCPC is that property is a standard-rated supply, VAT payable at normal rate on top of purchase price.
Exceptions e.g. property is over three years old and the seller has not made an option to tax.
Once contracts are exchanged, who hold the risk?
Buyer under SCS and SCPC - if property damaged between exchange and completion, buyer must still complete.
Should obtain insurance quotes before exchange.
Who are taxable persons?
Any business with a VAT taxable turnover of more than £85,000 each year must register for VAT with HMRC.
Businesses with less than £85k turnover may voluntarily register - advantage is that business will be able to offset the input tax it has paid to suppliers against the output tax it charges its customers.
Some businesses only make exempt supplies (not taxable for VAT) and are therefore unable to recover input tax.
VAT treatment of different types of property
Standard-rated supplies - 20% = newly constructed commercial property (less than three years old). Older commercial property is also standard-rated if it has opted to tax.
Exempt supplied = residential property, except for newly developed property is exempt. Also commercial property older than three years where the owner has not opted to tax.
Zero-rated supplies = newly constructed residential property. Buyer does not pay VAT but because the output is taxable, the seller can recover its input tax from HMRc.
SCPC and VAT
Condition 2 provides by default that the property is standard-rated.
Special condition 9 provides tick boxes that bring in sets of conditions in Part 2 of the contract
Tickbox A1 brings in conditions that override condition 2, and are relevant for properties that are exempt from VAT
Tickbox A2 brings in conditions that override condition 2, and are relevant for transactions that are treated as a Transfer Of a Going Concern (TOGC).
