PP - Preparation for Exchange* Flashcards
What is the purpose of a certificate of title for the lender?
Solicitor certifies that the title to the property is satisfactory for lending purposes
When does final certificate of title need to be ready
By completion
But draft needs to be ready pre-exchange
Difference between report on title & certificate of title
ADD FROM COLLAB SLIDES
What can lender do if there are material errors/omissions in the certificate of title
Sue - the solicitor must give disclosure after a statement if any are incorrect
What 3 conditions must a contract for land satisfy under s2 LPA 1989?
- be in writing
- incorporate all the terms which the parties have expressly agreed.
- be signed by, or on behalf or, each party to the contract.
What 4 things can a property contract do
- Fix a completion date
- Tie related transactions
- Set out related obligations
- Include conditions
NB: cannot transfer land
When might a contract not be necessary
- Gift of property between family members
- Land of low value (e.g. garden land to neighbour)
Are the standard conditions of sale obligatory
Only if the parties adopt the Law Society Conveyancing Protocol
Can the standard conditions of sale be changed
Yes - can be excluded, amended or supplemented with special conditions
If the seller’s solicitor is following the Law Society Conveyancing Protocol, can they add special conditios?
Can only add other special conditions if absolutely necessary
What are special conditions in a property contract?
Special conditions may be used in both residential and commercial property contracts to add or amend the standard conditions.
What are the standard conditions for residential property relating to incumbrances?
The seller needs to disclose any incumbrances registered at:
- Land Registry
- Land charges Registry
- Companies House
If they don’t, the seller is in breach
What must the seller disclose?
- Latent incumbrances (rights burdening property that are not apparent on inspection)
- Defects in title (issues that cast doubt on seller’s ownership or rights)
NB: this duty is amended by standard conditions
What are the standard conditions for commercial property relating to incumbrances?
The buyer is deemed to buy the property subject to any incumbrancers which would be revealed by a prudent buyer’s searches and enquiries.
Exception to caveat emptor
title guarantee (confirms that the seller has the right to sell)
When would a full title guarantee be used?
This is the default - it means the property is free of all incumbrances other than those disclosed in the contract, and those which it didn’t and couldn’t reasonably have known about.
When would a limited title guarantee be used?
Given by sellers with little knowledge of the property. It means that no incumbrances have been created over the property during the seller’s period of ownership.
What does ‘No title guarantee’ mean?
The seller does not guarantee the seller’s right to sell the property, or that the property is free from incumbrancers.
What is the default completion date?
20 working days after the date of the contract
What is the default completion time of the day and what does this mean?
- 2pm
Money must be received by the seller’s solicitor before 2pm
What is the default remedy if completion time is missed?
The other party can claim damages, but cannot walk away from the transaction.
If the party serves a ‘notice to complete’ then time is of the essence and if the contract is not performed by a specific time the non-defaulting party can walk away and claim damages.
Is time of the essence under the SCS and SCPC
Not until a notice to complete is served
Effect of time is of the essence
The contract must be performed by the specified time, and if not, the non-defaulting party can walk away from the contract and claim damages for the breach
What is the default deposit and who pays
10% and paid by the sols
- residential - cheque or electronically
- commercial - electronically only
What happens if the parties agree a lower deposit, but the buyer doesn’t agree on time and the seller serves notice to complete?
The buyer must immediately pay the balance of the 10% deposit (unless this provision is also amended by special condition)
What is the difference between holding a deposit as a stakeholder and agent?
- Stakeholder - sols must not give deposit to seller until completion (standard)
- Agent - seller can demand the deposit immediately after exchange
Default position under SCS and SCPC for how deposit is to be held
As stakeholder
Who holds the risk after contracts are exchanged?
The buyer, therefore buyer should insure from the date of exchange
When is VAT due?
VAT is charged on any taxable supply, namely the supply of certain goods or services by a taxable person in the course of business.
What’s the difference between output and input tax?
Output tax is charged on a business’ outputs (sales).
Input tax is paid on a business’ inputs (purchases).
What are the different rates of VAT on property?
Exempt supplies:
- Residential property (except for newly constructed property) & commercial property over 3 years old with no opt to tax.
Standard-rated supplies (20%):
- Newly constructed commercial property (can recover input tax from HMRC)
Zero-rated supplies:
- Newly constructed residential property (buyer doesn’t pay VAT but seller can reclaim).
Where would an option to tax be written
CPSE 1
Exception to VAT being payable as standard rated supply for commercial property
- If property is over 3 years old, and
- The seller has not made an option to tax, there will be no VAT to pay
Who drafts the contract for sale?
The seller’s solicitor
What undertaking are imposed on solicitors under Formula B?
- To hold the signed contract to the other solicitor’s order (i.e. held on behalf of the other side).
- To post the signed contract to the other sols by 1st class post, DX, or hand delivery.
- The buyer’s sols to send the deposit in the form specified by the contract
What situation does Formula A cover?
Where the same sols holds contracts for both buyer and seller (& undertakes to just send their client’s signed contract to other sol)
What situation does Formula C cover?
Chain transactions (but not often used)
Can the same solicitor act for two parties in a transaction?
Not unless clients have a substantially common interest in relation to the matter (clear common purpose + strong consensus on how it is to be achieved)
Can usually act for buyer & lender in residential transaction
Commercial equivalent of mortgage offer
Facility letter
What if the property is damaged or destroyed between exchange and completion
Buyer must still complete (buyer should obtain insurance before exchange)
How can the burden of positive covenants be passed
By a chain of indemnity covenants
NB: both SCS and SCPC make this an obligation of contract (does not apply if seller did not give indemnity covenant)
Learn different special conditions and the impact on factors
Check notes
When must a business register for VAT?
If they have a taxable turnover of more than £85k
If less, they can voluntarily register for VAT
When might a business not be able to recover input tax?
If they only make exempt supplies
What is a transfer of a going concern
A transaction where the seller uses the property for the business of letting to produce rental income, the buyer will do the same, and meets certain other requirements.
NB: NOT a taxable supply for VAT.
Which documents form the contract bundle
- contract (standard form if protocol adopted)
- official copies
- protocol forms
Exchanging related properties
Related sales and purchases must be tied together
A solicitor will ‘release’ the contract to the solicitor who is dealing with a related transaction
What is a memorandum of exchange
Document each of the parties’ solicitors should prepare a memorandum of exchange with the key contract terms for the file
How can a buyer protect their interest if there is a long time until completion?
The buyer holds an equitable interest in the property which may be protected by a notice on the register or, for unregistered land, a class c(iv) land charge
