PLP WK 4

Question 1

What are the two main interests of a lender in a property transaction?

Answer 1

The lender wants to be sure that:

● The property is worth the purchase price, including the amount they are lending.

● The property is suitable security for the loan.

Question 2

What is meant by “substantially common interest” in the context of a solicitor acting for both the buyer and lender?

Answer 2

It means that both the buyer and the lender share a clear common purpose in the transaction, and they are in agreement on how to achieve that purpose.

Question 3

Why is it common for the same solicitor to act for both the buyer and lender in residential property transactions?

Answer 3

In residential transactions, the interests of the buyer and lender are often aligned. Both want to ensure that:

● The property is worth the agreed price.
● The property is suitable for its intended use.
● The property is marketable and could be easily sold if necessary.

Question 4

What factors contribute to the low risk of conflict when a solicitor acts for both the buyer and lender in a residential transaction?

Answer 4

● Most residential mortgages have standardized terms and conditions set by high street lenders.

● Solicitors are bound by the Council of Mortgage Lenders (CML) Handbook, which limits their discretion and ensures consistency in handling mortgage transactions.

Question 5

What are some specific tasks that a lender’s solicitor might undertake in a commercial property transaction?

Answer 5

● Conduct searches and enquiries.
● Review documentation from the buyer’s solicitor.
● Request additional enquiries.
● Draft the legal charge and other security documents.
● Prepare the certificate of title.

Question 6

What is a “certificate of title,” and what is its purpose in a property transaction?

Answer 6

A certificate of title is a legal document prepared by a solicitor to assure the lender that the property title is satisfactory and suitable for lending purposes. It helps the lender assess the security of their loan.

Question 7

How does the complexity of a certificate of title differ between residential and commercial transactions?

Answer 7

● Residential transactions: The certificate of title is typically a simple, one-page form.

● Commercial transactions: The certificate of title is often more complex and detailed, often following the City of London Law Society (CLLS) format.

Question 8

What is the purpose of a mortgage offer in a residential transaction, and what is its equivalent in a commercial transaction?

Answer 8

● Residential: A mortgage offer is a formal offer from a lender to provide a loan for the purchase of the property.

● Commercial: The equivalent of a mortgage offer is a facility letter, which sets out the terms and conditions under which the lender will provide financing.

Question 9

What is a “charge by way of legal mortgage,” and what rights does it give to the lender?

Answer 9

A charge by way of legal mortgage is the legal document that creates a security interest in the property in favor of the lender. It is registered at the Land Registry and gives the lender the right to repossess and sell the property if the borrower fails to repay the loan.

Question 10

What is the structure and significance of a City of London Law Society (CLLS) certificate of title?

Answer 10

The CLLS certificate of title is a formal, standardized document that sets out the details of the property’s title. It requires the solicitor to make specific disclosures if any standard statements are inaccurate. Lenders rely heavily on the accuracy of this certificate.

Question 11

What legal action might a lender take if there are errors or omissions in a certificate of title?

Answer 11

Lenders rely on the solicitor’s certificate of title to make informed lending decisions. If errors or omissions are discovered that impact the security of the loan, the lender could pursue legal action against the solicitor for negligence.

Question 12

In a property contract, what is the difference between “full title guarantee” and “limited title guarantee”?

Answer 12

● Full title guarantee: The seller guarantees that they have the right to sell the property and that the title is free from any undisclosed incumbrances.

● Limited title guarantee: The seller guarantees they have done nothing to encumber the title during their ownership but does not guarantee the title was free from incumbrances when they acquired it.

Question 13

When is a “limited title guarantee” commonly used?

Answer 13

Limited title guarantee is often used in sales by executors or trustees who may not have full knowledge of the property’s history.

Question 14

What does “no title guarantee” mean in a property contract?

Answer 14

No title guarantee means the seller is not providing any assurance about the property’s title. It’s typically used in sales by liquidators or administrators who have no personal knowledge of the property.

Question 15

What are “specified incumbrances” in a property contract?

Answer 15

Specified incumbrances are rights or interests that burden the property, such as easements, covenants, or leases, which the seller is disclosing to the buyer.

Question 16

How do the Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC) differ in their approach to disclosing incumbrances?

Answer 16

●SCS: The seller must disclose any incumbrances that are registered at the Land Registry, the Land Charges Registry, and Companies House.

● SCPC: The buyer is expected to conduct their own thorough searches and is generally assumed to be buying subject to any incumbrances that would have been revealed by those searches.

Question 17

What is the standard completion time for property transactions under the SCS and SCPC?

Answer 17

2 pm on the completion date.

Question 18

What is the “contract rate” in a property contract?

Answer 18

The contract rate is the interest rate applied if either party delays completion beyond the agreed date.

Question 19

What happens if no specific contract rate is specified?

Answer 19

If no contract rate is specified, the interest payable on late completion will be calculated using the Law Society’s interest rate, which is published periodically.

Question 20

How is interest calculated for late completion?

Answer 20

The interest is calculated on a daily basis and is added to the final purchase price payable by the buyer to the seller. The specific method of calculation and the applicable rate will depend on whether the SCS or SCPC apply.

Question 21

Can the buyer withdraw from the transaction without penalty after exchange of contracts?

Answer 21

No. Once contracts are exchanged, the buyer is legally bound to complete the purchase. Withdrawing would constitute a breach of contract, and they could lose their deposit and face other legal consequences.

Question 22

What is the purpose of a deposit in a property transaction, and what is the standard amount?

Answer 22

● Purpose: A deposit is a sum of money paid by the buyer to the seller on exchange of contracts, demonstrating their commitment to the purchase.

● Amount: Typically 10% of the purchase price, but this can be varied by agreement between the parties.

Question 23

Who typically holds the deposit in a property transaction?

Answer 23

The seller’s solicitor usually holds the deposit as a stakeholder, meaning they hold it on behalf of both parties until completion. In rare cases, the deposit might be held by the seller’s solicitor as agent for the seller.

Question 24

What is the VAT treatment of residential property in the UK?

Answer 24

● Existing residential properties: Exempt from VAT.
● Newly constructed residential properties: Zero-rated for VAT.

Question 25

What does it mean for a property to be “zero-rated” for VAT?

Answer 25

Zero-rated means that the buyer does not have to pay VAT on the purchase price. However, the seller, if VAT-registered, can still recover any VAT they paid on inputs related to the construction or development of the property.

Question 26

What is the VAT treatment of commercial property in the UK?

Answer 26

● New commercial property (less than 3 years old): Standard-rated for VAT (20%).

● Older commercial property (more than 3 years old): Exempt from VAT unless the seller has opted to tax.

Question 27

What does “opting to tax” mean in relation to commercial property?

Answer 27

Opting to tax is a decision made by the owner of a commercial property to charge VAT on the sale or lease of the property. This makes the transaction a taxable supply.

Question 28

What is the effect of opting to tax on an older commercial property?

Answer 28

It makes the sale of the property, and any rental income derived from it, subject to VAT at the standard rate (20%).

Question 29

Does the option to tax transfer to the buyer automatically when the property is sold?

Answer 29

No. Opting to tax is personal to the seller and does not transfer to the buyer. The buyer would need to make their own option to tax if they wish to charge VAT on any future sales or rentals.

Question 30

How do the Standard Commercial Property Conditions (SCPC) address the issue of VAT in property transactions?

Answer 30

● Condition 2: Assumes that the property is standard-rated for VAT and that the buyer will pay VAT on top of the purchase price.

● Special Condition 9: Provides tick boxes that can be used to indicate different VAT treatments, including exemption and the Transfer of a Going Concern (TOGC).

Question 31

What is a “Transfer of a Going Concern (TOGC)” in relation to VAT and property?

Answer 31

A TOGC applies when a business is sold as a going concern, including the property used for the business. If the buyer intends to continue the same business, the transaction is treated as a TOGC and is not subject to VAT.

Question 32

What are the key legal requirements for a valid contract for the sale of land?

Answer 32

Under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, a contract for the sale of land must:

● Be in writing.
● Incorporate all agreed terms.
● Be signed by or on behalf of both parties.

Question 33

Does a signed contract transfer legal ownership of the land?

Answer 33

No. A contract is an agreement to transfer the land in the future. The actual transfer of legal ownership occurs later, at completion, through a deed (usually a transfer deed).

Question 34

Why is it important to use a written contract for property transactions?

Answer 34

A written contract provides certainty and helps prevent disputes by clearly setting out:

● The agreed purchase price
● The completion date
● Any special conditions or obligations of the parties.

Question 35

Are contracts always necessary for transferring land ownership?

Answer 35

No. Some land transfers may not require a formal contract, such as:
● Gifts of property between family members.
● Transfers of low-value pieces of land between neighbours.

Question 36

What are the main types of property contracts?

Answer 36

● Standard form contracts: Used in most residential transactions and incorporate the Standard Conditions of Sale.

● Tailor-made contracts: More common in commercial transactions, allowing for greater flexibility in drafting specific terms.

Question 37

What are the key differences between standard form contracts and tailor-made contracts?

Answer 37

● Standard form contracts: Pre-drafted contracts with standard terms and conditions.

● Tailor-made contracts: Drafted specifically for a particular transaction and can include unique terms negotiated between the parties.

Question 38

What are “standard conditions of sale” in a property contract, and what are the two main sets of standard conditions used in the UK?

Answer 38

● Standard conditions of sale are pre-drafted clauses covering common aspects of property transactions, such as payment, completion, and risk.

●The two main sets are:
○ Standard Conditions of Sale (SCS): Used primarily for residential transactions.
○ Standard Commercial Property Conditions (SCPC): Used for commercial transactions.

Question 39

How often are the SCS and SCPC updated?

Answer 39

The SCS and SCPC are updated periodically to reflect changes in law or practice.

Question 40

What are “special conditions” in a property contract, and what is their function?

Answer 40

Special conditions are clauses added to a property contract to amend, exclude, or add to the standard conditions of sale. They address specific requirements or agreements negotiated between the buyer and seller.

Question 41

What is the process for negotiating special conditions?

Answer 41

In residential transactions, special conditions are typically limited to those necessary to adjust the standard terms. In commercial transactions, special conditions may be more extensively negotiated between the parties.

Question 42

What is the typical completion date in a property contract?

Answer 42

The completion date is usually agreed upon by the parties and specified in the contract. If no specific date is agreed upon, the default completion date under the Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC) is 20 working days after the contract is exchanged.

Question 43

How is risk allocated between buyer and seller in a property contract?

Answer 43

Generally, the risk of damage to the property passes to the buyer once contracts are exchanged. This means that even if the property is damaged between exchange and completion, the buyer is still obligated to complete the purchase.

Question 44

What is the purpose of an indemnity covenant in a property contract?

Answer 44

An indemnity covenant is a promise by one party to compensate the other party for any losses they might incur as a result of a specified event.

Question 45

Provide an example of an indemnity covenant in a property contract.

Answer 45

If a seller knows of a potential issue with the property, such as a boundary dispute or an environmental problem, they might agree to provide an indemnity covenant to the buyer, promising to cover any costs or losses the buyer might face related to that issue.

Question 46

What is the significance of the Law Society Conveyancing Protocol?

Answer 46

The Law Society Conveyancing Protocol is a set of best practices for residential conveyancing transactions. It promotes efficiency, transparency, and good communication between solicitors acting for buyers and sellers.

Question 47

What are the consequences for a solicitor who breaches the Law Society Conveyancing Protocol?

Answer 47

Breaching the Protocol can lead to consequences, including a requirement to explain the breach to the Law Society. In serious cases, it could lead to monitoring or even removal from the Conveyancing Quality Scheme (CQS).