Key elements and structure of a freehold property transaction

Question 1

Conveyancing process

Answer 1

1) Pre-contract stage
2) Exchange of contracts
3) Pre-completion stage
4) Completion
5) Post-completion stage

Question 2

When are the parties bound?

Answer 2

They are no bound until they have exchanged contracts

Question 3

Buyer beware

Answer 3

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

Question 4

Pre-contract stage

Answer 4

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

Question 5

Exchange of contracts

Answer 5

Buyer will pay the deposit (10%)

Question 6

Pre-completion stage

Answer 6

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

Question 7

Completion

Answer 7

Buyer pays the balance of the purchase money and seller hands over keys to property

Question 8

Post-completion stage

Answer 8

1) Buyer pays SDLT and registers transfer at LR
2) Seller discharges mortgage

Question 9

Professional conduct issues in a property transaction

Answer 9

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.

Question 10

Sources of finance for a property transaction - What is the solicitor required to tell the client regarding cost?

Answer 10

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.

Question 11

Sources of finance for a property transaction - How to finance

Answer 11

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.

Question 12

Sources of finance for a property transaction - Types of mortgage - Repayment mortgages

Answer 12

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.

Question 13

Sources of finance for a property transaction - Types of mortgage - Interest-only mortgages

Answer 13

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

Question 14

Sources of finance for a property transaction - Certificate of title

Answer 14

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

Question 15

Property taxation - Residential property

Answer 15

Might have to pay stamp duty land tax or land transaction tax.

Question 16

Property taxation - Commercial property

Answer 16

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

Question 17

SDLT - Residential first time buyers

Answer 17

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

Question 18

SDLT - Residential not first time buyers

Answer 18

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%

Question 19

SDLT - Commercial

Answer 19

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%

Question 20

LTT- Residential

Answer 20

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%

Question 21

LTT - Commercial

Answer 21

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%

Question 22

Property taxation - Capital gains tax

Answer 22

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.

Question 23

CGT - Private residence relief

Answer 23

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.

Question 24

Property taxation - VAT - Basis of charge

Answer 24

Usually seller/landlord has to pay. Only some commercial transactions

Question 25

Property taxation - VAT - Exemptions

Answer 25

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

Question 26

VAT - Why they’d opt for VAT

Answer 26

To gain the money back that they’d already paid on VAT on works or professional fees

Question 27

Property taxation - VAT- Standard rate

Answer 27

VAT at this rate is applied to commercial property transactions where the property involved is new (less than 3 years old) 20%

Question 28

How to ensure a property is sold free from a mortgage

Answer 28

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

Question 29

Restrictive covenant indemnity insurance

Answer 29

This is cover for a breach of a restrictive covenant, either known or unknown

Question 30

What if the seller gave an indemnity covenant

Answer 30

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