Due Diligence

Question 1

Is it convention for the seller or buyer solicitor to draft the contract?

Answer 1

Seller solicitor

Question 2

Official title copies show the entries on three register. What are these three registers?

Answer 2

• property register
• proprietorship register
• charges register

Question 3

What does the property register contain?

Answer 3

• Information on whether it is freehold or leasehold;
• Information on any easements or rights benefiting the land and any obligations that come with them);
• whether certain things one would expect to come with the land are excluded from the title (eg rights of light and air over adjacent land).

Question 4

The proprietorship register tells you which one of the three types of title is held in respect of the property. What are these three types of title?

Answer 4

• Absolute Title (most common and usually required by the purchaser)
• Possessory Title (granted where the proprietor is in possession of the property but has lost title deeds/ is claiming through adverse possession)
• Qualified Title (where there is a specific defect with the title of the property which cannot be overlooked or cured by granting absolute title).

Question 5

Which types of encumbrances could the charges register identify that exist in relation to the property?

Answer 5

a) covenants affecting the property (restrictive or positive)
b) easements affecting the land
c) charges over the land
d) leases granted over the whole or part of the property
e) notices registered by third parties claiming interests in the property.

Question 6

What are the S44 LPA 1925 requirements of a good route of title?

Answer 6

• must show who owns the entire interest (legal and equitable) that is being sold by the current owner.
• contain a recognisable description of the relevant land
• do nothing to cast doubt on the sellers title
• be at least 15 years old.

Question 7

What is the first thing solicitors must check when dealing with what appears to be unregistered land?

Answer 7

Check whether the land is already registered/ or is the subject of a pending application for first registration.

Question 8

If title has not been registered, how is the title proven and analysed?

Answer 8

By examining the title deeds.

Question 9

Describe the process of verification of title (a pre completion step).

Answer 9

Buyer’s solicitor examines the original title deeds against the copies they received prior to exchange of contracts to check they are the same.

Question 10

Where an entry on the proprietorship register contains a restriction on the rights of light and air (eg which will prejudicially affect the use of the adjoining land) what must the buyer do?

Answer 10

Enquire further about the restrictions, and in particular the extent and location of the adjoining land owned by the vendor at that time, in order to establish whether their intended use of the property will conflict with such a restriction.

Question 11

With registered land it will be assumed the equitable interest is held as a joint tenancy unless what provision is contained on the register?

Answer 11

Wording to the effect of ‘no disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court’.

Question 12

Regarding registered property: the title investigation shows the property is jointly owned, what happens where:

a) one of the co-owners is selling and the other co-owner is alive;
b) one of the co-owners is dead.

Answer 12

a) Both joint owners must be a party to the contract and transfer of the property.

b) The living co-owner can sell the property (provided both there legal and equitable title were held as joint tenants).

Question 13

What are the three conditions which need to be fulfilled for a buyer to assume that the equitable title to unregistered land in between the owners has not be severed?

Answer 13

1) Absence of severance on the conveyance of the property to the joint tenants;

2) There are no bankruptcy proceedings registered against either of the joint tenants at the Land Charges Register; and

3) The transfer by the surviving joint owner to the buyer contains a statement that the survivor is solely and beneficially entitled to the land.

Question 14

What are the requirements for a legal lease under the parol lease exception (s54(2) LPA 1925)?

Answer 14

1) The lease must be for less than three years;
2) The lease must be at best rent;
3) There must not be a penalty/ fine payment made;
4) Lessee must be allowed immediate possession.

Question 15

True or false, the transfer of land and the creation of a legal lease require a deed.

Answer 15

1) Transfer of land - yes;
2) Creation of a legal lease - yes but only where it is exceeding three years and therefore not subject to the parol exception).

Question 16

What are the three requirements needed for a contract for the sale of land to create an equitable interest?

Answer 16

1) It must be in writing;
2) (where contracts are being exchanged) both contracts must contain identical expressly agreed terms; and
3) Those identical copies must have been signed by both the buyer and seller (or on their behalf ie by a solicitor, provided that solicitor has been given the authority to do so).

Question 17

Name the three possible ways of removing a restrictive covenant?

Answer 17

1) Apply to Upper-Tribunal to remove the restrictive covenant;

2) Try and get the permission of whoever has the benefit of the covenant and obtain their consent to use the property in a way which does not comply with the covenant;

3) Obtain restrictive covenant indemnity insurance.

Question 18

Which means of protecting a client against a restrictive covenant is the most time efficient?

Answer 18

Obtaining restrictive covenant indemnity insurance policy (note where the facts say the client wants it solved quickly - there are other ways but this is the quickest).

Question 19

Explain how you would advise the client (as a buyer solicitor) where the following entry is found on the property register for 26 Otterburn RD:

“The right for the Purchaser and their successors in title and all other persons entitled to a like right to the free and uninterrupted passage and running of soil water gas or electricity from and to the Property through the sewers drains watercourses pipes cables wires or other channels or conductors which are now laid in or under or passing through the Vendor’s retained land being 24 Otterburn Road Newcastle upon Tyne subject to the Purchaser paying towards the cost of the maintenance of the said services”.

Answer 19

• This is about the right to use drains being shared with the neighbouring property.
• Advise the client accordingly:

1) Inform the buyer of the entry;

2) Raise further requisitions asking the seller solicitor for confirmation as to which facilities the property shares with number 24, and whether any contribution needs to be made or received in relation to maintenance;

3) Advise buyer to make a personal inspection of shared facilities/ make sure these are inspected by a surveyor.

Question 20

Why should a seller be concerned about the absence of a BRC (Building Regulation Certificate)?

Answer 20

BRC’s indicate that works undertaken on the property have been undertaken in a safe manner which complies with relevant building regulations. the absence of the certificate will mean that there is no guarantee the work has been undertaken safely.

A potential buyer (where the sale property has had work done and there is no BRC) should expect this to be provided in order to be sure the property has been subject to work completed in accordance with these safety regulations.

Question 21

Does the principle of caveat emptor apply to property transactions in respect of physical defects?

Answer 21

Yes.

Question 22

Regarding registered property, what happens when one of the registered proprietors is dead and the property was held beneficially as tenants in common?

Answer 22

An entry on the proprietorship register along the lines of ‘No disposition by a sole proprietor of the registered estate (except a trust or corporation) under which capital money arises is to be registered unless authorised by an order of a court’ will be apparent. This tells you it is held as beneficial tenants in common in equity.

Where this is the case, if one of the tenants in common is dead, their death certificate will need to be produced to the land registry, and another trustee will need to be appointed alongside the surviving owner in order to sell the property.

Question 23

What is the rule arising from Halsall v Brizell in respect of easements registered with the land registry?

Answer 23

One must not receive a benefit without accepting the burden of it (ie if there is an easement registered on the title of a property to have access to a driveway, but subject to repairing and maintaining it, the right of access can only be a benefit where the burden to repair is also accepted).

Question 24

What is the deadline to pay SDLT following completion?

Answer 24

SDLT is payable within 14 days of completion.

Question 25

What price is SDLT payable on?

Answer 25

The total purchase price plus any VAT.

Question 26

What is the rule regarding chargeable VAT on commercial property?

Answer 26

VAT is payable on new commercial property (Ie property built 3 years ago or less). If the property is ore than 3 years old, seller can opt to tax (allowing them to then get a rebate on input tax for any refurbishment/ improvement works undertaken.

Question 27

What is the effect of having a VAT sensitive buyer?

Answer 27

If the property is deemed an old commercial property the seller can opt to tax. However, this may make the buyer want a reduction in the purchase price/ make the deal unattractive to them. Typical VAT buyers would be insurance companies etc as they are VAT exempt.

Question 28

How does the PPR system apply to multi-use properties (eg top half house lower part dental surgery)?

Answer 28

PPR will still be available, but it cannot be claimed in respect of the part used as a business (ie a dental surgery, book store etc).

Question 29

What course of action should a seller take when the spouse of a seller is in occupation of a property?

Answer 29

The solicitor acting for the buyer should check if the husbands right of occupation is protected by a notice on the Charges Register (as non-owning spouses are protected under the Family Law Act 1996 when inoculation of a property).

If their interest is registered, a buyer should obtain from the non-owning occupier, a release of all rights in the property and an agreement to vacate the premises prior to completion.