Due diligence Flashcards
What are the key elements of a freehold property transaction at pre-contract stage?
- Taking instructions
- Pre-contract packages are sent to the buyer’s solicitor with a draft contract and evidence of the seller’s title
- The buyer’s solicitor will carry out pre-contract searches and enquiries and negotiate the contract as appropriate
- Once searches are complete, the results are reported to the buyer and the contract is finalised once in an acceptable form.
- Exchange of contracts will taker place and buyer will pay a deposit which will be held by the seller until completion
What are the key elements of a freehold property transaction at pre-completion stage?
- The transfer deed will be prepared by the buyer’s solicitor.
- Pre-completion searches will be obtained to check all information remains accurate.
- Completion takes place and the buyer will pay the balance money and the seller will hand over the keys to the property.
What are the key elements of a freehold property transaction at post-completion stage?
- Seller’s solicitor must ensure any mortgage the seller had is paid and removed from title
- SDLT and LTT must be paid.
- The buyer’s solicitor must register their client as the new owner and register any new mortgage over the land.
What is the Law Society Conveyancing Protocol?
A standardisation of documents to residential conveyancing transactions.
This must be complied with to be included in the Law Society’s Conveyancing Quality Scheme.
Can a solicitor act for a buyer and a seller in a property transaction?
A solicitor cannot act for both parties if there is a conflict of interest or significant risk of an interest unless they have a substantially common interest or the same objective.
This will usually not apply for property purchases.
Can a solicitor act for a borrower and a lender?
Yes, unless there is a conflict of interest.
Conflicts usually arise if the mortgage is not a standard form mortgage and/or the solicitor does not use the approved certificate of title.
Can a solicitor act for joint borrowers?
Yes, unless there are no conflicts that arise. However, a solicitor should be wary of married couples remortgaging on the basis of security for a loan as there may be undue influence.
How should a solicitor approach a potential case of undue influence?
The solicitor should meet with the spouse face to face and:
- Explain why the solicitor is involved
- Explain the lender will rely on the solicitor’s involvement
- Obtain confirmation from the spouse that they wish the solicitor to act for them in the transaction and to advise them on the legal and practical implications.
- Ask the spouse if they want to proceed
- Ask the spouse whether they want the solicitor to write to the lender confirming that matters have been explained to them.
- If the solicitor thinks the transaction is not in their best interests they should give reasoned advice to that effect.
Who should be disclosed of a contract race?
A solicitor should inform all buyer’s of the seller’s intention to deal with more than one buyer.
If the seller refuses to disclose, the solicitor must not disclose and cease acting.
What are the types of mortgages?
- Repayment mortgage - borrower will make monthly payments to the lender made up of instalments of the amount borrowed and interest.
- Interest only mortgage - the borrower will make monthly payments to the lender, but those payments will only comprise interest chargeable on the loan.
- Other types - the bank buys the property and leases it to the buyer for rent. At the end of the lease the bank transfers the property to the buyer.
What are the SDLT rates for residential freehold property?
Excluding first time buyers:
Does not exceed £250,000 = 0%
Between £250,000 - £925,000 = 5%
Between £925,000 - £1.5m = 10%
The remainder = 12%
For a property worth £300,000
This is taxed in stages e.g. the first £250,000 of a property is 0%, then the remaining amount £50,000 above that would be taxed at 5% etc.
What are the SDLT rates for non-residential property for mixed use freehold property?
Does not exceed £150,000 = 0%
Between £150,000 to £250,000 = 2%
Exceeds £250,000 = 5%
When does SDLT need to paid and who to?
It should be paid to HMRC within 14 days of completion.
What are the LTT rates for residential freehold?
Does not exceed £225,000 = 0%
Between £225,000 - £400,000 = 6%
Between £400,000 - £750,000 = 7.5%
Between £750,000 - £1.5m = 10%
The remainder = 12%
What are the LTT rates for non-residential or mixed use property?
Does not exceed £225,000 = 0%
Between £225,000 - £250,000 = 1%
Between £250,000 - £1m = 5%
Exceeds £1m = 6%
When does LTT need to be paid and to who?
It should be paid to the Welsh Revenue Authority within 30 days of completion.
What is Capital Gains Tax charged on? How is it calculated?
It can be charged on freehold and leasehold property and the interests of co-owners in the case of jointly-owned property.
It can be calculated by deducting the purchase price of the property from its current sale tax.
What tax exemption is there from Capital Gains Tax?
Private residence relief may apply if it is the sale of an individual’s dwelling house used as their own and main residence.
What constitutes an “old” property for VAT purposes, and what does it mean in terms of VAT status
Property is “old” for VAT purposes and will be exempt from the purchase price of a commercial property.
What happens if a seller waives the exemption?
It will move to a different chargeable supply at the standard rate of 20% which is payable to HMRC.
How is VAT charged on “new” properties?
VAT is compulsory on new commercial properties.
How is ‘development’ defined under planning law?
The carrying out of building, engineering, mining or other operations in, on, over to under the land, or the material change in the use of any buildings or other land.
