Introduction to Freehold Transactions

Question 1

What are the aims of the different parties to a freehold transaction?

Answer 1

Buyer
* Check seller has good title (right to sell) + condition of land + benefits / burdens securities
* Check the contract reflects the terms agreed
* Check that they have sufficient funds to finance the purchase

Lender
* Wants to know if property has good marketability (affects their ability to get money back if buyer defaults on mortgage)
* Check the security document is valid and enforceable.

Seller
* Sell the property and receive payment asap
* Tie the timing of the sale to a related purchase
* Transfer legal ownership

Question 2

What are the different stages of the conveyancing process?

Answer 2

1. Pre-exchange
   * buyer’s solicitor will investigate title and surveys will be done
   * Can pull out without legal consequences
2. Exchange
   * Contractually bound to go ahead with the sale
   * Gives an equitable right in the land (land contract)
3. Pre-completion
   * Parties agree terms of contract and completion date
   * Buyer pays deposit and buyer’s solicitor orders the mortgage funds
4. Completion
   * Buyer sends purchase price and seller sends paperwork for transfer of ownership over
5. Post-Completion
   * Seller solicitor discharges mortgage and transfers balance to the seller
   * Buyer’s solicitor pays SDLT or LTT and registers the buyer as the owner at the Land Registry.

Question 3

What is the likely timescale for the sale of a freehold?

Answer 3

Residential = 6-8 weeks from agreement to completion
Commercial = 2-4 weeks from agreement to completion.

Question 4

Which surveys should be carried out?

Answer 4

• Buyer should always be advised to undertake physical survey

1. Basic Valuation = where there is a mortgage, the lender will insist on a basic evaluation.
2. Homebuyer Report = suitable for properties less than 150 years old and in reasonable condition
3. Full Structural Survey = where property is lisred or there are extensive renovations or alterations planned or previously done.

Question 5

What other preliminary considerations are there when selling a freehold?

Answer 5

1. Tax (SDLT, CGT and VAT)
2. Co-ownership = does the person have the right to sell the property?
   * if advising the buyer, perhaps advise tenants in common where commercial arrangement, unequal contributions or wish to pass a share in a will.
3. Rights of way = consider maintenance, adequacy, adoption and registration of burdens.

Question 6

What is the principle of caveat emptor?

Answer 6

Let the buyer beware

It is the job of the buyer’s solicitor (through enquiries etc) to investigate the property; however, the seller MUST disclose:
* Misrepresentations in the particulars of sale, estate agent’s particulars, remarks made by the seller on viewing the property or in correspondence and concealed physical defects.
* Latent encumrances (cannot be discovered on inspection) which the seller is aware of or has the means to know acting reasonably and diligently.
* Defects in title (i.e benefits and burdens which bring into question the seller’s ownership of the property).

Question 7

What are the different types of mortgages that a residential buyer may give?

Answer 7

1. Capital Repayment = payment of sum monthly + interest. At end of term, mortgage has been repaid in full.
2. Interest only = borrower pays interest only and capital is outstanding, generally only repaid on sale of the property.
3. Endowment = rare. Interest only mortgage topped up with payment invested in an endowmen policy.

Question 8

When will CGT be payable in a freehold transaction?

Answer 8

When an individual seller disposes of a property which is:
1. NOT their home (but can be a second home or property they let out);

AND makes a profit / gain.