Freehold transactions Flashcards
Aims when acting for a buyer
- seller has the right to sell the property
- the physical condition of the land and buildings is adequate for the buyer’s needs and the property is worth the money being paid
- you identify all the rights that the property enjoys
- you identify any third party rights affecting the property
- the property is free from any security interest (such as mortgages) or will be on completion
- the contract reflects the terms agreed between the parties
- there are sufficient funds to finance the purchase
Aims when acting for lender
- lender’s needs and the property is worth enough to cover any losses if the buyer fails to repay the mortgage
- there are no discrepancies in the lender’s understanding of the transaction and the borrower’s circumstances
- the security document (mortgage) is valid and enforceable
Lender’s aims in a freehold transaction:
- property is marketable
- that the property’s value is sufficient
Aims when acting for seller
- the contract reflects the terms agreed between the parties
- provide the buyer’s solicitor with what they need to proceed with the purchase
- tie the timing of the sale to any related purchase
- transfer legal ownership (and responsibility) of the property to the buyer
- collect money from the sale, repay the mortgage and account to the seller for the balance
Three stages of conveyance
- Pre-contract to exchange
Seller:
- deduces title
- answers pre contract enquiries
- prepares draft contract
Buyer:
- investigates title
- pre-contract searches
- pre-contract enquiries
- report on title
- the buyer’s mortgage
- approve draft contract - Pre-completion to completion
Seller:
- draft/approve transfer deed
- reply to completion information
- prepare for completion
Buyer:
- draft/approve transfer deed (TR1)
- Request completion information
- pre-completion searches
- prepare for completion - Post completion
Seller:
- sends the completed TR1 and any discharged mortgage to the buyer
Buyer:
- SDLT/LTT
- Companies House application to register mortgage (if buyer is a company)
- Land Registry application
At what point in a property transaction do the parties become contractually committed to the deal?
At exchange of contracts, the buyer will pay a deposit (usually 10% of the purchase price), and a legally binding contract comes into existence.
At what stage in a property transaction is the buyer recognised as the new legal owner?
Legal title to the property will not pass until the transfer deed is registered at the Land Registry
Caveat emptor
The seller is generally under no obligation to give the buyer all the relevant information that the buyer may require. It is the buyer’s solicitor’s job to investigate as thoroughly as possible and report to the buyer.
Exceptions:
- misrepresentation
- latent encumbrances
How does the buyer’s solicitor find out information about the property?
- The title to the property: the land registry official copies (if registered) or the deeds (if not).
- The seller’s replies to enquiries: whether standard or the buyer’s solicitor’s own specific enquiries.
- Searches: (requests for info) from various bodies such as the local authority, the Land Registry and statutory undertakers (eg water and drainage supply companies)
- A survey of the property: surveyor will inspect the property and report on value, structural defects and necessary repairs. May also flag issues for further investigation by the solicitor (such as evidence of rights of way or boundary discrepancies)
Misrepresentation
A false statement that induces a buyer to contract to buy.
Can arise from:
- Estate agents; particulars of sale or auction particulars
- Remarks made by the seller on viewing the property
- Any communication from the seller or the seller’s solicitors to the buyer
- Concealing physical defects (note: no onus to disclose them, if haven’t hidden them (and were unaware and said they were unaware) - on the buyer to discover them)
Examples:
- stating in written replies to enquiries that there have been no neighbour disputes and saying neighbours are good and friendly when they are not
- overstating the floor area of a building
- stating that there have been no objections to a particular use of the property when there have
- painting over damp patches
Remedy for misrepresentation
Remedies in common law or under statute.
- will probably rely on the sale contract (standard conditions) do not require the buyer to prove that they were induced to rely on the conduct or statement - sufficient to prove there was an error or omission.
Latent incumbrances and or defects in title
A seller MUST disclose latent incumbrances and/or defects in title.
Latent incumbrace: something which is not apparent or cannot be discovered when inspecting the property. A seller is under a duty to disclose latent incumbrances of which it was aware or which it has the means to know if acting reasonably and diligently. (difficult to tell what is discoverable on inspection and if in doubt safest to disclose the incumbrance)
Defect in title: matter that brings into questions seller’s ownership of the property or the rights and burdens that affect the property. Typically result of missing title deeds.
What happens if there is something wrong with the property before exchange?
- Up until the point at which contracts are exchanged, the buyer can walk away from the deal without any legal liability. No legal right to recover any costs from the other party.
- Buyer can require the seller to take steps to remedy the problem before completion. This could be a condition of the sale contract.
Timescale and costs
- should discuss likely timescale and costs with your client
- it can be difficult to predict how long the transaction will take
- usually residential sale takes 6-8 weeks
- commercial matters usually shorter
- costs may be fixed or on a time basis(estimate and range)
Co-ownership
Where there are two or more owners.
Legal ownership:
- The owner(s) registered at the Land Registry
- Maximum number of four legal owners
- Must be over 18
- Can only be sole or a joint tenancy
- The legal owners hold the property on trust for the benefit of the beneficial owners
Beneficial ownership:
- May or may not be the same as the legal owners
- Not registered at the Land Registry (unless also legal)
- No maximum number of beneficial owners
- Can be any age
- Can be sole, joint tenancy, or tenancy in common
Beneficial ownership: joint tenancy
Suitable for married couple, civil partnership or cohabitees in a stable relationship. Not suitable for a co-owner who wants to pass a share of the property in their will. Not generally suitable for business relationships.
Co-owners collectively own the whole of the beneficial estate with each other. They are seen as a single entity.
Right of survivorship apples - if any co-owner dies, then the surviving co-owners hold the property between them. The deceased co-owner cannot pass an interest by their will or intestacy.
