Conveyancing Procedure Flashcards
Caveat emptor
Let the buyer beware. Seller is not obliged to disclose information about the property other than about the title and is not liable for any defects in the property which later come to light.
Buyer should not enter into any contract until they have carried out numerous searches, enquiries and a survey of the property.
Completion
Bulk of the purchase money is paid to the seller and the transfer deed is completed, transferring the property to the buyer.
Two milestones in a conveyancing transaction
Exchange of contracts and completion.
Three stages of the conveyancing process
- Pre-contract
- Pre-completion
- Post-completion
What happens in the pre-contract stage?
Solicitors take instructions
Seller’s solicitor investigates title and produces evidence of title to buyer and drafts contract (pre-contract package).
Buyers solicitor investigates title and raises pre-contract searches. Approves draft contract. Prepares pre-exchange report for buyer.
Exchange of contracts - prevents further requisitions and buyer pays deposit. Held by seller’s solicitor until completion.
What happens in the pre-completion stage?
Once contract is exchanged, parties are bound to complete.
Buyer’s solicitor drafts the transfer deed and mortgage deed if acting for lender. Pre-completion searches, checking no issues registering buyer’s title and making sure money will be available on completion date.
Seller’s solicitor approves draft transfer deed, responds to buyer’s enquiries and gives undertaking to discharge seller’s mortgage.
Completion - buyer pays purchase money and seller hands over keys.
What happens in the post-completion stage?
Seller’s solicitor ensures that any mortgage has been paid off an removed from the tittle - undertaking to do this.
Buyer’s solicitor ensure SDLT or LTT is paid and registers the buyer as the new owner and registers any mortgage.
What is The Law Society Conveyancing Protocol?
All firms that undertake residential conveyancing and want to be members of The Law Society’s Conveyancing Quality Scheme (CQS) are required to comply with the protocol, a Client Service Charter and mandatory training and enforcement procedures.
Membership of CQS is essential for any firm wanting to be on the panel of solicitors approved to act for lenders.
Regulations that are most relevant to property practice
Para 6 of the Code of Conduct dealing with conflicts of interest and confidentiality.
Can a solicitor act for a buyer and seller?
High risk of a conflict of interest especially where the parties do not have equal bargaining power.
Exception - substantially common interest does NOT apply to property transactions.
Exception - competing for same objection - NOT buyer and seller.
Can a solicitor act for a borrower and a lender?
Possible unless conflict of interest or a significant risk.
Risk is high if the mortgage is not a standard mortgage.
Must consider that duty of confidentiality might conflict with the duty of disclosure.
Commercial transactions - mortgage is likely to be subject to negotiations so parties will have separate solicitors.
Can a solicitor act for joint borrowers?
Acceptable provided no conflict exists or is likely to arise.
Etridge Guidlines where a spouse takes out a business loan over the house.
Etridge Guidlines
Lender is put on enquiry and should provide the solicitor advising spouse information on the purpose of the loan, amount of the borrower’s indebtedness, amount of overdraft, amount and terms of new loan and a copy of the application.
Solicitor should explain the purpose in which they have become involved, solicitor’s involvement will counter any undue influence and obtain confirmation that the spouse wants the solicitor to act for them.
Face to face discussions away from borrower.
If solicitor thinks the transaction is not in the spouse’s best interests, they should say. If ‘glaringly obvious’ the spouse is being ‘grievously wronged’, solicitor should decline to act.
One solicitor can advise both parties.
Solicitor’s duties in a pre-contract race
All prospective buyers must know that they are engaged in a race.
Para 1.4 of the Code of Conduct - solicitor must not mislead or attempt to mislead the buyers. Solicitor should inform all buyers immediately of the seller’s intention to deal with more than one buyer.
If the seller refuses to agree to such disclosure, the solicitor should immediately stop acting as they have a duty of confidentiality.
Solicitor’s duties in relation to finance
Must provide the client with the best possible information about the likely overall cost of their matter, at the beginning and at appropriate points throughout the transaction. - include payments such as Stamp Duty Land Tax/Land Transaction Tax, Land Registry fees and search fees.
Send a letter of engagement to the client setting out the costings at the beginning of the transaction.
Restrictions on solicitors when they provide financial advice.
Must be authorised under the FSMA 2000 to carry out a regulated activity (arranging or advising) on a regulated mortgage contract (borrower is an individual and 40% of the property is intended for occupation by the borrower or a member of their family).
Giving generic advice such as the differences between types of mortgage, or arranging the execution of a mortgage chosen independently by the client or on the advice of an authorised person is fine.
Exception - solicitors can carry out regulated activities if they are incidental to the provision by the firm, ie services regulated by the SRA.
Solicitor must comply with the SRA Financial Services (scope) Rules and SRA Financial Services (Conduct of Business) Rules.
Solicitor should refer client to authorised person if they need advice on a specific mortgage product.
Types of Mortgages
- Repayment - Monthly payments made up of instalments of the original amount borrowed and interest.
Interest can be at the lender’s standard variable rate (SVR). Or fixed for a period or a tracker rate - will revert to the SVR after the agreed period. - Interest only - monthly payments just comprise interest.
- Other options - Bank may buy the property and resell it to buyer at a higher price or rents the property from the bank.
Residential Freehold Property - Stamp Duty Land Tax (‘SDLT’) in England.
- First time buyers will not pay anything on purchases up to £425,000 and pay 5% on the portion from £425,000 - £625,000. -
- must intend to occupy property as main residence.
- Non-first time buyers pay nothing on first £250,000:
- 5% on £250,000-£925,000,
- 10% on £925,000-£1,500,000
- 12% on the remainder.
Only the land is subject to SDLT, so amount for chattels will not be included but must be a fair value or fraud is being committed.
Higher rates of SDLT if the buyer already owns a property and is buying an additional property or if the buyer is not a UK resident.
Must be paid within 14 days of completion or the transfer of the property will not be registered by the Land Registry.
Residential Freehold Property - Land Transaction Tax (‘LTT’) in Wales.
No relief for first time buyers.
0% up to £225,000
6% on £225,000 - £400,000
7.5% on £400,000 - £750,000
10% on £750,000 - £1,500,000
12% on the remainder.
Higher rates if buyer already owns a property.
Must be submitted within 30 days of completion to the Welsh Revenue Authority.
Capital Gains Tax for Residential Freehold Property
Seller who makes a capital gain by selling the property for more than they bought it for will NOT have to pay capital gains tax (CGT) if they have used the property as their main residence (private residence relief).
Gain on excess of gardens more than 0.5 hectares are chargeable unless necessary for the reasonable enjoyment of the house.
If they have more than one residence they can chose which house will qualify.
Commercial Freehold Property - SDLT England
No concession for first time buyers and rates are different.
* Nothing up to £150,000
* 2% on £150,000-£250,000
* 5% on anything over £250,000
Must be paid within 14 days of completion or the transfer of the property will not be registered by the Land Registry.
Commercial Freehold Property - LLT Wales
- 0% up to £225,000
- 1% on £225,000 - £250,000
- 5% on £250,000 - £1m
- 6% on the amount that exceeds £1m
- Must be submitted within 30 days of completion to the Welsh Revenue Authority.
Commercial Freehold Property - VAT
- Must be a taxable person - turnover over the past year exceeds £85,000.
Taxable supplies: - Sale of ‘new’ freehold building - building completed within 3 years.
- Sale of an old freehold building is exempt subject to the option to tax.
Grant of a lease is exempt subject to the option to tax.
If the seller opts to tax, the buyer will usually be able to recover the VAT paid unless it makes exempt supplies such as insurance or financial supplies.
VAT paid will be added to property purchase price for purpose of SDTL and LTT so the buyer will have to pay more.
Taking Instructions
Solicitors for both parties take instructions at the start of the transaction.
Buyer must be provided with an Energy Performance Certificate (EPC) within 7 days of first marketing and in any event within 28 days.
Identify outstanding issues.
