Key elements and structure of a freehold property transaction Flashcards
Conveyancing process
1) Pre-contract stage
2) Exchange of contracts
3) Pre-completion stage
4) Completion
5) Post-completion stage
When are the parties bound?
They are no bound until they have exchanged contracts
Buyer beware
The seller is not obliged to disclose information about the property. The onus is on the buyer to discover as much about the property before exchanging contracrs
Pre-contract stage
1) Take instructions from clients. For buyer’s solicitor this may be lender and buyer
2) Seller’s solicitor will investigate title and deduce title to the buyer
3) Buyer’s solicitor will investigate title making sure there’s no encumbrances and raise pre-contract searches and enquiries
4) Seller’s solicitor will reply to the buyer’s pre-contract enquiries and draft the contract
5) Buyer’s solicitor will approve draft contract and prepare pre-exchange report to client
Exchange of contracts
Buyer will pay the deposit (10%)
Pre-completion stage
1) Buyer’s solicitor drafts transfer deed and mortgage deed if also acting for the lender
2) Buyer’s solicitor raises pre-completion searches and enquiries and checking the buyer’s solvency if also acting for the lender
3) Seller’s solicitor replies to buyer’s pre-completion enquiries
4) Buyer’s solicitor submits report on title to lender
Completion
Buyer pays the balance of the purchase money and seller hands over keys to property
Post-completion stage
1) Buyer pays SDLT and registers transfer at LR
2) Seller discharges mortgage
Professional conduct issues in a property transaction
Can’t act for both buyer and seller. But they can act for both borrower and lender unless it is not a standard mortgage (commercial sales). You can act for joint buyers.
Sources of finance for a property transaction - What is the solicitor required to tell the client regarding cost?
Provide the client with the best possible information about the likely overall cost of their mater at the beginning and at appropriate points throughout the transaction. This has to be sent as a letter of engagement. Needs to include fees and any other payments they might have to pay e.g SDLT, searches, LR apps, restrictive covenant insurance policy.
Sources of finance for a property transaction - How to finance
Most clients will finance the transaction by borrowing the majority of the purchase price. A residential buyer may be able to take advantage of a Gov back scheme e.g help to buy where an equity loan of up to 20% of the value of a new-build home priced up to £600,000 is available.
Sources of finance for a property transaction - Types of mortgage - Repayment mortgages
Borrower will make monthly payments to the lender made up partly of instalments of the original amount borrowed and partly of interest chargeable on the loan. The advantage is that by the end of the mortgage term the borrower will have paid off everything they owe.
Sources of finance for a property transaction - Types of mortgage - Interest-only mortgages
Make monthly payments to the lender but those payments will only comprise interest chargeable on the loan. Advantage is that the monthly repayments for an interest-only mortgage are likely to be lower than under a repayment mortgage
Sources of finance for a property transaction - Certificate of title
Confirms to the lender that there are no legal problems with the property - it had a good and marketable title - so the lender can safely lend against it
Property taxation - Residential property
Might have to pay stamp duty land tax or land transaction tax.
Property taxation - Commercial property
Will pay stamp duty land tax or land transaction tax. May have to pay VAT and if owned by a company they will have to pay corporation tax on income and capital profits
SDLT - Residential first time buyers
If they intend to occupy the property as their main residence and the purchase price is less than £625,000 they do not pay anything up to £425,000 and pay 5% from £425,001 - £625,000
SDLT - Residential not first time buyers
1) So much as does not exceed £250,000 - 0%
2) So much as exceeds £250,000 but does not exceed £925,000 - 5%
3) As much as exceeds £925,000 but does not exceed £1.5 mill - 10%
4) The remainder - 12%
SDLT - Commercial
No relief for first-time buyers.
1) Does not exceed £150,000 - 0%
2) Exceeds £150,000 but does not exceed £250,000 - 2%
3) Exceeds £250,000 - 5%
LTT- Residential
There is no relief for first time residential buyers.
1) Does not exceed £225,000 - 0%
2) So much as exceeds £225,000 but does not exceed £400,000 - 6%
3) So much as exceeds £400,000 but does not exceed £750,000 - 7.5%
4) So much as exceeds £750,000 but does not exceed £1,500,000 - 10%
5) The remainder - 12%
LTT - Commercial
1) Does not exceed £225,000 - 0%
2) Exceeds £225,000 but does not exceed £250,000 - 1%
3) Exceeds £250,000 but does not exceed £1,000,000 - 5%
4) Does not exceed £1,000,000 - 6%
Property taxation - Capital gains tax
This is charged on gains made on ‘chargeable assets’. This includes freehold ad leasehold property and the interests of co-owners. The gain on a sale of property is calculated by deducting the purchase price of the property from its current sale price.
CGT - Private residence relief
If it is the sale of an individual’s dwelling house used as their only or main residence - they will not have to pay capital gains tax.
Property taxation - VAT - Basis of charge
Usually seller/landlord has to pay. Only some commercial transactions
Property taxation - VAT - Exemptions
1) All leases, assignments, surrenders, reverse surrenders or licenses to occupy any interest in land or buildings
2) Sales of freehold commercial property or civil engineering works more than 3 years old unless they opt to tax
3) All residential property
VAT - Why they’d opt for VAT
To gain the money back that they’d already paid on VAT on works or professional fees
Property taxation - VAT- Standard rate
VAT at this rate is applied to commercial property transactions where the property involved is new (less than 3 years old) 20%
How to ensure a property is sold free from a mortgage
The contract should be checked to ensure that the mortgage is excluded from the list of incumbrances affecting the property. The seller’s solicitor should provide an undertaking to discharge the mortgage immediately on completion
Restrictive covenant indemnity insurance
This is cover for a breach of a restrictive covenant, either known or unknown
What if the seller gave an indemnity covenant
If a seller gave an indemnity covenant when they purchased the property they will require the buyer to give an equivalent indemnity covenant in the transfer of the property so that the buyer will be liable to the seller
