Freehold transactions Flashcards
What must the solicitor ensure when acting for a buyer in a property transaction?
- Seller has right to sell
- Physical condition of land/buildings adequate
- Identify all rights property enjoys and is burdened by (TP rights)
- Property free from security interest (e.g. mortgage)
- Contract reflects terms agreed
- Sufficient funds to finance purchase
All above is same for lender - but additional: no discrepancies in lender’s understanding of transaction/borrower’s circumstances and security document is valid and enforceable
Will a lender care about how long a transaction takes/whether it happens?
No - so long as property is marketable and value is sufficient to cover any losses if buyer defaults
What are the 3 distinct stages of the conveyancing process?
- Pre-exchange (to exchange)
- Pre-completion (to completion)
- Post-completion
What happens at pre-exchange?
- Agrees price
- Surveyor reports on value and condition
- Investigation and reports on title
What is the difference in buyer and seller’s steps at pre-exchange?
- Seller: prepare draft contract, deduce title, answer pre-contract enquiries and queries on title
- Buyer: pre-contract searches, investigate title, report on title, approve draft contract
What happens on exchange? Can parties pull out after this?
- Parties enter into contract to sell/buy property on completion date and buyer pays deposit
- From here on, neither can pull out without serious financial consequences
What happens at pre-completion?
- Buyer’s solicitor orders mortgage funds and ensures full money from client in time for completion date
- Seller ensures all necessary paperwork to transfer property on completion
- (For residential: book removal vans etc.)
What is the difference in buyer and seller’s steps at pre-completion?
- Seller: approve purchase deed, reply to pre-completion requisitions
- Buyer: prepare purchase deed, pre-completion requisitions and searches
What happens on completion?
- Buyer’s solicitors send purchase price to seller’s solicitors
- Seller’s solicitors agree to send necessary paperwork to transfer property to buyer’s solicitors
- Buyer gets keys
What happens at post-completion?
- Seller’s solicitor pays off mortgage and pays balance to seller
- Buyer’s solicitor pays SDLT/LTT and registers buyer as new owner at Land Registry
What does caveat emptor mean?
Buyer takes property as they find it, and after exchange they cannot withdraw because they subsequently find a problem with the property
But can withdraw up to any point before exchange of contracts
Is the seller under any obligation to give buyer all relevent information that buyer requires?
No - is buyer’s solicitors job to investigate as thoroughly as possible and report to buyer
Where does information about the property come from?
Re buyer investigating
- Title to property (Land Registry official copies / deeds)
- Seller’s replies to enquiries (standard or specific)
- Searches (from various bodies e.g. local authority, Land Reg)
- Survey of property (surveyor’s report on value, structural defects and necessary repairs)
What are the the 2 exceptions to caveat emptor?
- Misrepresentation
- Latent encumbrances and title defects
What is a misrepresentation and what can it arise from?
A false statement inducing a buyer to contract to buy, may arise from: estate agents’ particulars of sale, remarks made by seller on viewing property, any communication from seller or seller’s solicitors to buyer
E.g. Stating in written replies to enquiries that there have been no neighbour disputes and saying that the neighbours are “good and friendly” when both are untrue.
Will concealing physical defects count as misrepresentation?
E.g. painting over damp patches
Yes!
When will a buyer have remedies under misrepresenation and what will they rely on?
- Have remedies if they have been induced by conduct/statement to enter into contract
- Will rely on sale contract in practice
What is a latent encumbrance and what is the seller’s obligation with regards to them?
- Latent incumbrance = something not apparent/not discoverable when inspecting property
- Seller under a duty to disclose latent encumbrances of which it is aware or has means to know
Is the rule on latent encumbrances the same for title defects?
Defect in title = matter that brings into question seller’s ownership of the property/rights that burden the property
Yes - seller must disclose title defects
Typically the result of missing title deeds e.g. if a deed contacting a restrictive covenant has been lost it is unknown how the buyer’s use of the property might be restricted.
Is reliance necessary for a claim of misrepresentation?
Yes as per Hardy v Griffiths
Illustrates importance of buyer fully investigating property
Hardy v Griffiths - sale of property for £3.6m, buyers alleged that sellers had misrepresented property in not revealing dry rot costing £600,000 to rectify - court held that it was for the buyer to discover this
- Buyers did not commission professional, structural survey prior to exchange
- Seller stated in replies to pre-contract enquiries they were not aware of dry rot issues (which was true), but no evidence buyers had even read replies
- No reading = could not rely = no misrepresentation
What 2 things can happen if there is something wrong with the property before exchange?
- Buyer can walk away from deal with no legal liability
- Buyer can require seller to take steps to remedy problem
When taking instructions from a client at the start of a transaction, what should be addressed?
- Likely timescale and costs (should provide estimate if costs are fixed/on time basis)
- Co-ownership
- Surveys
- Tax
When is beneficial more suitable for joint tenants and tenants in common?
- Joint tenants - married couple/CP; seen as single entity and right of surivorship applies
- Tenants in common - where co-owners wish to leave an interest in the will or have contributed unequal proportions to share price or where it is a business relationship (can share propety in whatever proportions they choose in the trust deed)
Where will co-ownership arrangements be recorded? Who must sign?
- Recorded in a declaration of trust in the transfer deed (TR1) and singed by declarants
- If they are to hold property on trust, must add wording to confirm what share each B entitled to
Why should a buyer always be advised to instruct a surveyor to undertake physical survey of property?
- Identify any physical defects (expensive which may affect value of property)
- Renegotiate price, require contribution from seller or withdraw from exchange
- Lender may refuse to lend if physical defects are serious
What are the 3 types of survey?
- Basic valuation
- Homebuyer report
- Full structural survey
Why would a basic valuation survey be used? What happens in it? Is it okay to only use this?
- Lender will insist on it (to ensure they can recover losses)
- 15-30 minute inspection where surveyor gives valuation and identifies major obvious defects
- Buyer should be advised to obtain fuller survey
What is a homebuyer report survey suitable for? What does it provide?
- Most properties in reasonable condition aged < 150 years
- Provides how much it would cost to fix problems e.g. damp
Homebuyer report = How much it would cost to fix
What is a full structural survey suitable for? Should it ever be advised against?
- Suitable for any property but should be especially considered where property is listed, had extensive renovations or where extensive alterations are planned
- Most expensive, but should never be advised against and never inappropriate
What are the 3 different types of taxes that could be payable in property transaction? Which will not usually be payable on residential sales?
- SDLT/LTT
- CGT
- VAT
CGT (Private Residence Relief) and VAT not usually payable on residential sales
When is SDLT/LTT payable?
Where property/land is over a certain price - threshold figures different depending on residential/commercial
When is LTT payable?
If sale completed in Wales after 1 April 2018
What are the 3 usual funding options for a residential purchase?
- Client’s own resources
- Mortgage loan
- Proceeds of related sale
What are the 3 kinds of mortgage loans for a residential transaction?
- Capital repayment mortgage -
- Interest only mortgage
- Endowment mortgage - interest only mortgages topped up w payment invested in endowment policy (not really used and failed in UK)
What is the difference between a capital repayment mortgage and an interest only mortgage?
- Capital repayment mortgage = repay capital sum + interest monthly
- Interest only mortgage = repay interest only until sale of property on which capital is paid (but borrower can still have equity through increased value)
Should a client’s mortgage offer be received before or after exchanging contracts?
Before - so have necessary funding in place before committing
What are the funding options available to a commercial buyer?
- Raised from a group of lenders (syndicate)
- Using equity finance
- Development whereby lender provides money to buyer not only to buy land but to develop buildings on it
If a lender provides money to buyer to develop buildings on land, what will they require?
The power to step in to complete development if buyer fails to carry it out
Can the substantially common interest exception to conflicts of interest apply in propety transactions?
Yes - e.g. divorcing couple on sale of matrimonial home; have a clear and common purpose (sale of house) and strong consensus on how to achivee it (obtaining sale proceeds in full ASAP)
Cf seller and buyer - have a clear and common purpose (deal agreed ASAP) but lack a strong consensus on how it is achieved (seller wants quick as possible, buyer does not)
Can a solicitor act for both buyer and lender?
- Commercial transactions - does not usually happen: will involve negotiations and two parties have different approaches re resolvint matters arising during transaction
- Residential transactions - usual to act for both - unlikely to be negotiation on terms of loan/security documentation and standard reporting document used
When acting for a buyer, what does the duty of disclosure extend to in terms of results of investigations?
Extent and results of investigations and limitations/matters not covered (less likely to be sued for negligence)
What should be kept in mind re duty of disclosure for commercial and residential clients?
Commercial clients likely to understand complex/technical language unlike residential clients; if you give complex report to residential buyer who does not understand, you have not complied
What happens when duties of disclosure and confidentiality collide between lender and client?
The party to whom you owe confidentiality must consent to disclosure to other party, if they do not, should cease to act for other party (and maybe original party too!)
