PP 4 - Exchange of contracts Flashcards
Why can a buyer’s solicitor usually act for the lender in residential transactions without a conflict of interest?
- Lender uses standard, non-negotiable documents
- CML Handbook provides strict instructions
- Property’s value is lender’s primary concern
Why do commercial lenders typically instruct their own solicitors?
- Documentation is complex and negotiable
- Lenders may want site control if borrower defaults
- Higher risk of conflict of interest
What is the purpose of a Certificate of Title?
It confirms the property’s title is suitable as security for the loan. The lender relies on it and can sue for material errors.
What’s the difference between residential and commercial Certificates of Title?
- Residential: Simple, one-page form
- Commercial: Complex, follows CLLS format, prescriptive and detailed
What are the legal requirements for a valid property contract under LPMPA 1989?
- In writing
- Includes all agreed terms
- Signed by both parties
What are the purposes of a property contract?
- Fix completion date
- Link related transactions
- Set out obligations & conditions
When is a contract not required for a land transaction?
- Gifts between family
- Small-value transfers (e.g., part of garden)
What are the types of property contracts?
- Standard form (SCS or SCPC)
- Tailor-made (customized contracts using precedents)
What are specified incumbrances and how do SCS & SCPC differ?
- SCS: Seller discloses registered incumbrances
- SCPC: Buyer accepts incumbrances discoverable by prudent searches
What are the types of title guarantee?
- Full – default, unless reason not to
- Limited – used by executors
- None – no buyer protection
What is the standard completion date & time under SCS/SCPC?
20 working days after contract
2pm on the completion day
When does ‘time become of the essence’ in property contracts?
Only after a notice to complete is served.
What is the contract rate?
Interest payable by the defaulting party for late completion
What are rules around the deposit in SCS/SCPC?
- 10% standard
- SCS allows solicitor’s cheque/electronic
- SCPC requires electronic
- Held as stakeholder (default) or agent (risky for buyer)
Who bears risk of property post-exchange?
Buyer — they must insure from exchange
What is an indemnity covenant?
Buyer promises to uphold existing obligations (e.g., positive covenants) through chain of indemnity
What’s a special condition in a property contract?
Custom clause added to amend, exclude, or supplement standard terms
Name 3 examples of pre-written residential special conditions.
- Amend title guarantee
- Specify contents included
- Change 2pm completion time
Name 3 examples of pre-written commercial special conditions.
- Tick box for limited title guarantee
- Deposit from alternate account
- VAT/capital allowances tick boxes
What is the VAT registration threshold for businesses?
£85,000 taxable turnover per year
What types of property transactions are standard-rated (20%)?
- Newly built commercial properties
- Older ones if seller opts to tax
What property transactions are zero-rated or exempt?
- Zero-rated: New residential buildings
- Exempt: Residential property (unless new), commercial property >3 yrs without option to tax
What is a Transfer of a Going Concern (TOGC)?
A property rental business sale that is not subject to VAT if HMRC rules are followed (e.g., buyer registers for VAT)
What is the Option to Tax in VAT terms?
Seller chooses to charge VAT on commercial property; personal to them
What is included in the buyer’s pre-exchange checklist?
- All searches/replies in
- Buyer satisfied with survey
- Insurance arranged
- Deposit funds cleared
- Report on title sent
- Contract signed
- Authority to exchange received
What is included in the seller’s pre-exchange checklist?
- Redemption figure obtained
- Contract engrossed
- Enquiries answered
- Authority to exchange received
How is exchange done under Law Society Formula B?
- Phone call between solicitors
- Agree blanks/special conditions
- Agree completion date
- Confirm exchange and post contracts
- Deposit sent as agreed
What are alternative methods of exchange?
- Formula A: One solicitor holds both signed contracts
- Formula C: Used in chain transactions
- Release mechanism: Exchange treated as done if related transaction exchanges by set time
What happens post-exchange?
- Memorandum filed
- Buyer arranges insurance
- Completion preparations begin
- Certificate of title sent to lender
- Mortgage funds requested
