Property

Question 1

Coveyancing def.

Answer 1

Conveyancing: the process of transferring ownership of a property.

Question 2

Caveat emptor def.

Answer 2

Caveat emptor: “let the buyer be aware” - the seller is only obliged to disclose a limited amount of information related to the title of the property and is not liable for any later defects.

Question 2

The 3 stages of selling a property

Answer 2

Pre contract stage (buyer is bound upon exchange of contracts)
Post completion stage
Post completion stage

Question 3

Explain the duties of the sellers and buyers solicitor at the pre contract stage

Answer 3

Sellers solicitor:
Take instructions from client
Investigate the title and produce evidence of title (deduce title) to the buyer
Reply to buyers pre-contract enquiries
Draft the contract

Both solicitors:
Check for conflict of interest
Obtain client’s signature on the contract
Exchange contracts

Buyers solicitor
Take instructions from client
Investigate title
Raise pre-contractual searches and enquiries (and check that the buyer client has commissioned a survey)
Approved draft contract
Prepare pre-exchange report to client
Pay the deposit

Question 4

Explain the duties of the sellers and buyers solicitor at the pre completion stage

Answer 4

Sellers solicitor
Approve the draft transfer deed
Reply to the buyers pre-completion enquiries and give an undertaking to discharge the sellers mortgage

Both solicitors
Complete transaction

Buyers solicitor
Draft the transfer deed (could also be done by the sellers solicitor)
Raise pre-completion searches and enquiries and if acting for the lender check the buyers solvency
Submit report on title/certificate to lender and request mortgage advance

Question 5

Explain the duties of the sellers and buyers solicitor at the post completion stage

Answer 5

Sellers solicitor: post-completion matters, including discharging mortgage

Buyers solicitor: post-completion matter including paying stamp duty, land transaction tax and registering the transfer of title in the Land Registry

Question 6

List potential conflicts of interests in property law including whether it’s OK to act for both seller and buyer, joint buyers, buyer and lender, joint borrowers

Answer 6

Acting for both the seller and buyer could be a conflict of interest in e.g. price negotiations

Acting for joint buyers: usually OK but be aware of them having separate interests if e.g. married

Acting for borrower and lender: possible if not conflict of interest. The risk of conflict is high if the mortgage is not standard or an approved certificate of title isn’t used. It is possible to act for clients with conflict if they have a “substantially common interest” - see ethics manual.

Joint borrowed: usually OK. If only one person in a married couple takes a loan, the lender should with that person’s consent provide the solicitor with (the Etridge guidelines): purpose of the loan, current debt, current overdraft, amount and terms of the new loans and a copy of that person’s consent. The solicitor should then explain to their spouse the situation and obtain the spouse’s consent.

Question 7

What are the sellers obligations in a contract race?

Answer 7

Contract races: pre-contract package is sent to several buyers. The seller must immediately inform all buyers about the fact that there are several interested parties. If the seller refuses to disclose this, the solicitor cannot disclose it due to confidentiality obligations, but must stop acting for the seller.

Question 8

Describe the process of analyzing an epitome of title and deducing ownership in unregistered land

Answer 8

Check whether the land is already registered or there is a pending application for first registration, or any cautions against a first registrations. Cautions are not an issue, but they must be warned about the registration.

If the title is not registered, the title is proven by the title deeds provided to the buyer from the seller. Copies are handed over before the exchange of contract and the originals after completion.

The title deeds should include the “root of title”, usually the most recent documents that satisfies all requirements for a good root of title. Older documents can then be ignored, except for if the root of the title refers back to an older document. Requirements of a good root of title:
1. Must show who owns the entire interest (legal and equitable) being sold
2. Contain a recognisable description of the land
3. Does not cast doubt on the seller’s title
4. Is at least 15 years old

The seller prepares an “epitome of title”, a schedule of all documents from and including the root of title and til today.
When reading through roots of titles, one should focus on:
1. The chain of ownership: should be unbroken from the root of title til the seller
2. Stamp duty: payable on conveyancing documents from December 2003. Ad valerom stamp duty was payable for mortgages before 1971 and deeds of gift and assent after 30 April 1987
3. Description of the land: should be consistent
4. Incumbrances: e.g. easements and covenants
5. Execution: each document is properly executed and as a deed if that is correct.
6. Land charges searches: some incumbrances e.g. restrictive covenants can only bind unregistered land if they are registered as a Land Charge against the name of the person who owned the estate bound by the covenant. To investigate title, a solicitor must search against names of all estate owners in the epitome of title, even before the root of title. Most common land charges: estate contracts, restrictive covenants, equitable easements, home rights.

Question 8

Are undertakings from a solicitor always binding?

Answer 8

A solicitor must perform all undertakings within relevant deadlines. Undertakings are binding regardless of whether the promised action did not happen because of something outside of the solicitor’s control. Must therefore be carefully drafted.

Question 9

Easement - definition, how it usually is discovered during sales process of unregistered or registered land

Answer 9

Easements

Common: right of way, drainage and support

Registered land: easements that burdens the property should appear in the Charges Register, or the Property Register if they are mixed with an easement that benefits the land (both are in the Land Register). The Property Register shows easements that benefit the Property.

Unregistered land: easements usually show (granted or reserved) in the first paragraph of the conveyance. If a buyer wants to use a right of way, they must also contribute to maintenance.

Question 10

How are mines and minerals treated in the sales process of land?

Answer 10

Mines and minerals exception: seller does not own mines or minerals underneath surface and they are not transferred to buyer and enquiries should be made about past mining.

Question 11

How are rights to air and light treated in the sales process of land?

Answer 11

Declarations regarding rights to light and air: especially if the seller only sells part of the property and retains the rest, they can declare that the sold part does not enjoy the right to light an air to ensure that the retained part can be developed in the future.

Question 12

How is co-ownership in land treated as part of the treated in the sales process of land, both registered and unregistered?

Answer 12

Legal ownership must be held by joint ownership and there is a presumption that the equitable ownership follows the legal ownership. If a joint tenant dies, the other becomes sole owner. Only a joint tenant can transfer a property alone.

If a tenant in common with equal or unequal shares die, their part is passed to their heirs. A second trustee must be appointed for the buyer to buy the whole equitable interest and overreach the beneficiaries.

Registered land: it is assumed that the equitable interest is held as joint tenants, unless there is a restriction in the proprietorship registry (e.g no disposal by sole proprietor). It is assumed that the joint tenancy is not severed prior to the death of a joint tenant.

Unregistered land: the conveyance states whether the equitable interest is held as joint tenants or tenants in common. t is assumed that the joint tenancy is not severed prior to the death of a joint tenant, if:

There is no written record of severance on the conveyance
There are no registered bankruptcy proceedings against either of the joint tenants in the Land Charges registry
The transfer by the surviving owner contains a statement that the survivor is solely and beneficially entitled to the land.

Question 13

How are restrictive covenants treated as part of the treated in the sales process of land, both registered and unregistered?

Answer 13

Restrictive covenants: usually binding on successors.

Registered land: Charge register

Unregistered land: in the conveyancing

Buyers solicitor should ask who owns the property with the covenant and negotiate, obtain a restrictive covenant insurance or apply to the Upper Tribunal (Lands Chamber) for a modification or discharge

Question 14

What is an unknown covenant and how are they treated as part of the treated in the sales process of land, both registered and unregistered

Answer 14

Unknown covenants: e.g. wording was contained in a lost deed. In registered land, this should be specified in the charges register. In unregistered land, it may appear in conveyance. Should assume that the covenants are restrictive and bind the buyer, and obtain an indemnity.

Question 14

How are positive covenants treated as part of the treated in the sales process of land, both registered and unregistered?

Answer 14

Positive covenants: obliges the covenantor to carry out work or incur expenditure.

Registered land: Charge register

Unregistered land: in the conveyancing

A positive covenant binds the original covenantor, but does not bind a successor in title. A seller can ask the buyer for an indemnity, which should be listed in the Proprietorship Registry

Question 15

How are mortgages treated as part of the treated in the sales process of land, both registered and unregistered

Answer 15

Mortgages: registered property in the Charges registry. In unregistered land in the title deeds in the Epitome of title.

Question 15

How are leases treated as part of the treated in the sales process of land, both registered and unregistered

Answer 15

Registered land: lease of 7+ years must be registered as its own title and will be shown as a notice in the Charges Register.

Unregistered land: a legal lease (other than parole lease of less than 3 years, which is binding regardless) should be part of the epitome of title.

Question 16

What is the effect of a notice in the Charges Register in the sales process of land?

Answer 16

Notices (only registered land): registered in Charges register for the burden of an interest affecting a registered estate. An entry does not guarantee that the interest exists.

Question 17

How are home rights treated as part of the treated in the sales process of land, both registered and unregistered

Answer 17

Home rights: for a non-owning spouse to occupy the matrimonial home (statutory right). Does not create an interest in land. Registered land: Charges Register. Unregistered land: Class F land charge to bind the buyer.

Question 18

What are the requirements for energy performance certificates as part of the sales process?

Answer 18

The buyer must be provided with an Energy performance Certificate EPC produced by an assessor and the seller at the earliest opportunity and preferably within the first 7 days of marketing or at least within 28 days.

Question 19

Relevant searches the buyers solicitor should undertake at the pre-contract stage (both generic and for a particular purpose) + consequences flowing from not undertaking such searches

Answer 19

The buyer’s solicitor must find out as much about the property as possible before the contract is entered into. Failure to make correct searches and enquiries can lead to a negligence claim. Results are equally important for a lender.

Searches and enquiries relevant for all properties:
1. Professional survey + personal inspection. Includes a valuation for a lender
2. The local search: a local land charges search in form LLC1 to discover financial charges and restrictions by public authorities
3. Water and drainage search: cost for drain and sewage + whether the structures are the responsibility of the property owner.
4. Pre-contractual enquiries of the seller: sellers are required to answer these questions.
5. Environmental searches
6. Flood search

Searches and enquiries relevant for particular properties: Chancel repair searches (costs to repair medieval churches), mining searches, canal and river trust search, commons search (green-field sites and parks/commons), Railways, highways, unregistered land searches, company search (where the seller is a company to confirm capacity), bankruptcy/insolvency search (by solicitor acting for a lender against a borrower.

Question 20

When does the Law Society Conveyancing Protocol apply?

Answer 20

Law Society Conveyancing Protocol: the “protocol” applies only to residential conveyancing. Current is from 2019. The goal is to standardize the surveyance process.

Question 21

Repayment mortgages def.

Answer 21

Repayment mortgages: borrower makes monthly contributions on mortgage + interest

Question 22

Interest-only mortgages def.

Answer 22

Interest-only mortgage: Monthly payments of only interest before the whole mortgage is due at a certain time.

Question 23

What is the significance of a contract in the sale and purchase of land

Answer 23

Preparation for and exchange of contracts: contract is the agreement to transfer the land at a later stage. Provides parties with certainty and prevents either party from withdrawing from the transaction without liability.

Question 24

Difference between the Standard Conditions of Sale (SC) and the Standard Commercial Property Conditions (SCPC)

Answer 24

Standard Conditions of Sale (SC)
For residential transactions and certain simple commercial transactions

Standard Commercial Property Conditions (SCPC)
High value commercial transactions + contains more provisions on management of occupational leases

Question 25

What are the information about specified incumbrances included in both the SC and SCPC?

Answer 25

Specified incumbrances: included in the contract and shows all burdens of the property, hence third party rights that will survive the transfer. E.g. restrictive covenants, easements, and obligations to contribute to shared facilities. If they are not specified, the seller is in breach of SC 3.1.1 + SCPS 4.1, whereby the seller sells the property free of all encumbrances that have not been specified. Some solicitors do not include positive covenants as they are not transferred to the next owner, but others include them as they can be mixed with restrictive covenants in the Charges Register.

Question 25

Main 3 parts of the SC and SCPC

Answer 25

Contains three parts of the SC and CPC:
1. The particulars of sale (identification of property with registration number or root of title
2. The standard conditions, and
3. The special conditions.

Question 26

What is the title guarantee in the SC and SCPC?

Answer 26

Title guarantee: full title guarantee if they own the whole legal + equitable title (implies that the land is free from encumbrances other than those the seller does not and could not reasonably know about.

Limited guarantee if they have limited knowledge and the guarantee is that the seller is not aware of incumbrances.

Question 27

Give examples of pre-printed special conditions in the SC and SCPC + special conditions that the parties may require

Answer 27

Pre-printed special conditions:
Nr. 3: whether sale includes contents or excludes fixtures
Nr. 4:the property is sold with leases or tenancies
Nr. 5: only relevant if the time of completion is altered
6: parties should not rely on representations not made in writing
7: a non-owning adult occupier of the property which has agreed to the sale and to vacant possession on completion

Special conditions that the parties may require:
Appointment of a second trustee
Obtain or pay for a restrictive covenant policy
Disclose a defect in title
Sale with limited or no title guarantee
Deposit of less than 10% or if the deposit is held by an agent instead of a stakeholder
Payment of VAT
Removal of fixtures by seller
Indemnity covenant to protect seller from liability (e.g. for positive covenants)

Question 28

What is the contract rate in the SC and SCPC?

Answer 28

Contract rate: the interest charged if a party is late with completing. Currently 4% above the base lending rate at Barclays.

Question 29

Under both the SC and SCPC, what is the standard deposit size, how can it be held and what happens with the deposit if the buyer fails to complete?

Answer 29

methods of holding a deposit: 10% of purchase price payable on exchange of contracts.

SC 7.4 and SCPS 10.5 if the buyer fails to complete, the seller can keep the deposit.

Stakeholder: Under SC 2.5 and SCPC 3.2 a pre-payment of part of the purchase price which is not transferred from the seller’s solicitor (stakeholder) til the seller until completion.

Exception: the SC 2.2.5 allows the seller to use the deposit as a deposit on a purchase of a house for the seller (chain).

Agent: if the seller solicitor holds the deposit as an agent, it can be released to the seller after exchange of the contracts. The seller can use it and there is a risk that the seller does not return the deposit if the sale is not completed.

Question 30

When does the risk related to the property pass to the buyer and is the buyer required to obtain insurance?

Answer 30

Risk passes to the buyer in exchange for a contract. Damage to the property between exchange of contract and completion is carried by the buyer and must have insurance in place. S

C 5 and SCPC 8: the buyer is under no obligation to insure a freehold property unless agreed otherwise.

Question 31

When is VAT charged on property transactions and how can the price of properties be advertised (ex, incl. VAT)?

Answer 31

Not normally charged in residential property sales

For commercial property: payable if the property is less than 3 years old, or the seller has exercised the option to pay VAT.

Purchase price is without VAT, which must be added: appropriate for standard rate VAT for commercial buildings where the seller must pay VAT

Purchase price inc VAT where VAT cannot be added on top: not appropriate where VAT must be included e.g. for new buildings, as the VAT would have to be carved out and paid to HMRC. Not appropriate where there is an opt out.

Purchase price is ex VAT so that VAT can be added in case the law changes before completion. Appropriate for old commercial buildings where there is no input VAT to recover, but does not take the risk with the change in law.

Question 32

Which documents should be provided to a lender in a property transaction

Answer 32

If the lender is pleased with the documents regarding the property, they issue a mortgage offer setting out the terms of the mortgage. Mortgages are legal if made by deed and registered.

Even where the same solicitor does not represent both lender and buyer, it is normal to share the results from the title investigation and pre-contract searches and enquiries with the lender.

A certificate of title is usually issued to a lender. A more detailed version is issued in commercial transactions, following the City of London Law society’s template. For residential there is on approved by the Law society and UK Finance. The certificate is given immediately prior to the completion of the loan and contracts are not exchanged between buyer and seller before the lender is satisfied.

Question 33

Briefly set out the steps taken by the buyers and sellers solicitors to prepare for the exchange of contracts

Answer 33

Steps in preparation for exchange of contract:

Buyer’s solicitor sends the buyer a pre-contractual report summing up the results of the pre-contract searches and the investigation of title.

Report the results from the investigation of title to the buyer by the buyers solicitor

Buyers solicitor reports the same to the lender

Ensure deposit is available

Check that mortgage is in place and that the client has funds to complete

Ensure insurance is in place immediately following exchange

Contract is signed

Completion date

Question 34

Formalities in place for a binding contract of sale of property

Answer 34

BOth solicitors obtains clients authority to exchange in writing. Binding contract for sale of property must be made in: writing, incorporate all terms, contained in one documents, signed by all parties

Question 35

Different ways of exchanging contracts + the consequence of exchange

Answer 35

Exchange: in person, by post or over the phone. Phone is most used and three methods is possible:

Law society formula A: one solicitor holds both parts of the contracts which are signed. I.a. the other solicitor has sent their clients a signed contract to the other solicitor before exchange. The same day, the solicitor holding both contracts, sends their own party’s contract to the other solicitor by first class mail. The buyer solicitor will the same day send a cheque for the deposit.

Law society formula B; each solicitor holds their clients’ signed contracts and sends the same part they are holding to the other solicitors by first class post = document exchange. The same day, the buyer’s solicitor also sends a cheque for the deposit with the contract. The most used method.

Law society formula C: most complex and manly used for residential chain transactions. Exchange is done over the phone and recorded in a file note.

consequences of exchange: neither party can break the binding contract without liability. The seller retains the legal interest in the property and holds it on trust for the buyer. The seller is entitled to the physical possession until completion and pays any charges, but the buyer takes over the risks related to the property and must insure it.

Question 36

What is the transfer deed, who drafts it and when?

Answer 36

As the seller solicitor usually drafts the sales contract, the buyers solicitor usually drafts the transfer deed.

Transfer deeds requirements: in writing, clear that it is a deed, signed, witnessed by one person and delivered. Deed is always signed by sellers and can be by buyer if the buyer is entering into an obligation or making a declaration. A deed that clearly states it’s a deed on delivery is presumed to have been executed correctly

Transfer deed is usually completed by the buyer’s solicitor and sent to the seller for agreement immediately after the exchange of contracts. The transfer deed reflects the term of contract and the title deeds.

Question 37

What are pre-completion searches, who undertakes them and why + how are they undertaken for registered and unregistered land?

Answer 37

Undertaken by the buyer’s solicitor as close to the completion date as possible. 4 reasons:

1. Ensure that seller has no further encumbrances to the title
2. Check financial circumstances of borrower if acting for lender
3. Gain priority for the buyer and lender over anyone making an application before the buyer applies to register ownership in the Land Registry
4. If the seller is a company, to ensure that the company has not gone into liquidation.

Pre-completion searches for registered land: a search through the Land Registry with form OSR1 (or OSR2 for part of the property) to check any new entries since the last check. After the search, the applicant will have a 30 working days priority period, which protects from any subsequent entries. The application for registration needs to be submitted by 12 in the afternoon on the last day of the 30 working days. If the buyer is financing through a mortgage, the application to the Land registry should be in the mortgagee’s name.

Pre-completion searches for unregistered land: a land charge search with a K15 form confirms a 15 working days priority period from the date of the search.

Question 38

Pre-completion steps (overview)

Answer 38

Preparation of the transfer deed

Pre-completion searches (see above)

Practical arrangements for completion: buyer’s solicitor sends seller a “completion information form” to be completed by the seller which sets out information about handing over the keys, method of completion, documents handed over at completion and exact payable amount + an undertaking by the seller that the mortgage will be redeemed.

Question 39

How does the buyers solicitor ensure that all financial aspects are in order at the pre-completion stage? which measures must be taken for registered and unregistered land?

Answer 39

Registered land: apply for a land charges search on behalf of the lender against the buyer using a K16 form to check for bankruptcy.

Unregistered land: add the name of the buyer to the land charges search that has already been made against the seller in the pre-completion phase using a K15 form.
If the seller is a company, a search should be undertaken to reveal any floating or fixed charges + solvency. No priority period for companies, but a phone search to the Registry of Winding Up Petition at the Companies Register can be undertaken the day before completion.

The lender of a buyer will expect to receive before completion: a certificate of title confirming that the property is adequate security, solvency search of the buyer, OS1R form in the name of the lender, executed but not completed mortgage deed.

Question 40

Explain the different methods for completion a property transaction + effect

Answer 40

Methods:

In person: buyers solicitor attends the sellers solicitors office. Title documents are checked against the documents previously received and money transferred electronically. Original documents and key is handed over.

By post: Law society has a Code for COmpletion per Post where each solicitor undertakes. The seller’s solicitor acts as an agent for the buyer’s solicitor and does wherever it would have done in person. Upon reception of money, then send original documents and complete the transaction.

Effect: the buyer holds the legal title to the property.

Question 41

post-completion steps

Answer 41

The seller’s mortgage is discharged and the lender of the seller will either complete a Land registry DS1 form, submit an electronic discharge or an electronic message to the Land Registry that discharges the charge.

The seller’s solicitor sends TR1 to the buyer’s solicitor, who must arrange for SDLT or LTT to be paid within 14 days for SDLT or 30 days for LTT after completion.

If the buyer is a company, a new charge is registered in the Company’s house by the lender within 21 days of completion. Failure to meet the deadline renders the charge void against a liquidator or administrator unless the lender obtains a court order.

Question 42

How is title registered for registered land + how is unregistered land first registered?

Answer 42

After SDLT or LTT is paid, the buyers solicitor/lenders solicitor must apply to have their title registered in the Land Registry

Registered land: Form AP1 is filled out and must submit certified copy of transfer, certificate of SDLT/LTT and DS1. if there are overriding interests they must be listed in form DS1. If there is a mortgage, the mortgage deed must be sent. If the buyer is a company, the solicitor must confirm that the mortgage deed is the same as the one sent to the Companies House.

Unregistered land: application of first registration is made 2 months after sale with FR1. documents needed:
Evidence of title,
Pre-contractual searches and enquiries
Contract
Requisitions of title
Pre-completion search results
Transfer deed
Seller’s mortgage
SDLT/STT certificate
Form DI of any overriding interests.

Question 43

Potential remedies for delayed completion in property transaction + when is completion if not registered in the contract?

Answer 43

Remedies for delayed completion: the contract will usually set out the date for completion. If not, completion is 20 working days after the date of the contract. If money is not paid before 1400 at the day of completion, completion is set as the next day.

common law damages: measured as in Hadley v Baxdale: putting the claimant in the position they would have been in had the contract been performed correctly. Covers damages naturally flowing from the breach, which are reasonably foreseeable. A seller can claim damages in addition to contractual compensation.

contractual compensation: set out in the standard conditions. SC: both buyer and seller can ask for compensation. In SCPC, only the buyer can ask for compensation. The rate is specified in the contract.

notice to complete: can only be served after the completion date. Once served, the other party has 10 working days to complete and if they fail the party that served the notice can rescind the contract. If the buyer is in breach the seller can keep the deposit. If the seller is in breach, the deposit must be repaid.

Rescission: to make the contract void. Under SC and SCPC, rescission is available if a party has failed to comply with a notice or a fraudulent or negligent misrepresentation by a seller.

Question 44

What is a full repair and insurance leases?

Answer 44

Repair: FRI (full repair and insurance leases) protects landlords from incurring expenses that they cannot recover from the tenant. The tenant has the repair obligation of the whole building and is responsible for non-structural parts. Landlord is responsible for structural parts and common areas. If the damage is not covered by the insurance, the tenant is liable to repair the damage under the repair covenant.

Case law on what is covered by “repair”:
There must be despair/deteriorated from prior condition
The property does not have to be in perfect condition, but fit for occupation
Renewal or improvements go beyond repairs
A tenant can be responsible for repairing an inherited defect of the design or construction if it is the only way or repairing the building.

Question 45

Should landlord or tenant obtain insurance?

Answer 45

The tenant could be responsible for insurance or the landlord could obtain insurance and pass the costs on to the tenants as a separate insurance rent.

Usual covenants:
1. Landlord’s covenant to ensure insurance
2. Covenant by tenant to pay insurance costs
3. Covenant by the landlord to reinstate the property using the insurance. Could also include an obligation for the landlord to cover any shortfalls that the insurance does not cover
4. If there is no express regulation, rent must be paid even if the property is unusable. The tenant can take out a separate insurance in this regard, but it’s usually limited to 3 years.

Question 46

Can a tenant make alterations to a property?

Answer 46

Alterations: in the absence of alteration covenants, the tenant can make all alterations that they want. Most landlords include alterations clauses to restrict this and differ between e.g. structural alterations, exterior, affecting “service media” (light, heating, communication), demountable partitioning (using open floor for different rooms).

Absolute covenants: would restrict all alterations included in the clause. In the Tenant Act 1927, the tenant can carry out “improvements” even with an absolute covenant after serving a notice and if the landlord does not object within 3 months. The landlord can offer to carry out the work for increased rent, and the tenant has no obligation to accept this.

Qualified and fully covenants: consent is typically included in a separate “license to alter” document.

Question 47

Can landlords restrict or increase rent due to use change of the property?

Answer 47

user and planning: landlords choose to restrict use e.g. not for business, restaurant etc. a covenant can be imposed a covenant restricting the use to certain Use Classes under the Town and Country planning Order 1987. The landlord can withhold consent, but cannot increase the rent due to use change as long as there are no structural alterations.

Question 48

Types of rent review

Answer 48

rent and rent review: periodic reassessment of annual rent, typical through:

Fixed increase: rent will increase a set amount. Simple, but does not take into account circumstances at the time.

Index-link: linked to e.g. Retail Price Index. Altered with inflation, but not the property market specifically

Tenant’s receipt: often linked to the tenant’s turnover. Downsides if the tenant’s business falters

Open market rent review: adjusted regularly every 3-5 years by reference to the open market rent value. Most common. Considerations in valuation: the property and terms of the lease. Should not take into account the tenants own faulty repairs (could sabotage rent review) or the tenants voluntary improvements (could negatively impact their willingness to improve)

Rent review is often just upwards, no discounts. Regular intervals and independent termination.

Question 49

What is alienation?

Answer 49

Different ways of creating a benefit for a third party in a property, such as assignment, subletting, charging (mortgage), sharing occupation or parting for possession.

Question 50

What is assignment (landlord - tenant)?

Answer 50

Assignment: one way to create a benefit for a third party in a property. 3 relevant statutory provisions:

1. Landlord and Tenant act 1927 s. 19(1)a: if there is a covenant not to assign, the statute implies that objection cannot be reasonably withheld
2. Landlord and Tenant act 1927 s. 19(1a): allows for the landlord and tenant to agree on conditions and circumstances where the consent cannot be unreasonably refused. A usual requirement is an AGA (Authorized guarantee agreement).
3. Landlord and Tenant act 1988 s. 1: where there is a covenant on assignment and consent cannot be reasonably withheld, the landlord must within reasonable time give consent or serve written notice why it was not given.

Case Law on what is a reasonable excuse to withhold consent to alienation: not satisfactory references, a breach of repair where it is not certain that the assignee could repair, assignee competes with the landlords business, would reduce value, detrimental use, the assignee would require protection under Part II of the Landlord and Tenant Act 1954.

An anticipated breach of the covenant could be a reason, but must be assessed based on the certain case.
Caselaw on when it has been unreasonable: landlord attempts to obtain personal advantage, minor breach of repair covenant, slight harm to landlord was outweighed by the prejudice to tenant after the property had been on the market for 18 months.

Question 51

Can a landlord restrict underletting?

Answer 51

Underletting: Underlease created by the tenant for a shorter term than the head lease. The risk of the new occupier is on the head tenant and not the landlord. The landlord can impose strict controls on the right to sublet and if permitted, landlord’s consent is necessary. Statutory limitations

Landlord and Tenant act 1927 s. 19(1a): consent may not be unreasonably withheld

Landlord and Tenant act 1988 s. 1: where there is a covenant on subletting, consent cannot be reasonably withheld, the landlord must within reasonable time give consent or serve written notice why it was not given.
The landlord concerns are normally

Tenants forfeiture so that the subtenant becomes the tenant after applying to court for a relief. Both leases expire and the subtenant exercises statutory right to stay on the property under the Landlord and Tenant Act 1954
The head tenant is legally liable, but the physical control of the property is lost.

Question 52

What is the “code for leasing business premises” and who does it bind=

Answer 52

Code for Leasing Business Premises: voluntary code of practice, last updated in 2007 to introduce fairness and flexibility. New version published by RICS (the Royal Institution for Chartered Surveyors) in 2019, which came into operation on 1 September 2020. Must be observed by all RICS members and they need a good reason to depart from this. Binds surveyors and can lead to negligence claims if not followed, but does not bind the landlord. Mandatory requirements:
- Lease negotiations in a constructive and collaborative manner
- A party not represented by a RICS member must be advised on the code

Transactional terms must be recorded in writing, with specific details: identity and extent of premises, term, amount of rent, frequency of payments and rent review, liability for paying insurance premiums, the ability to assign, underlet, charge, share premises and obligations to repair, alter and permitted uses.

Question 53

Name 3 categories of leasehold covenants

Answer 53

Type of leasehold covenant:
Absolute covenant: actions the tenant absolutely can not carry out.
Qualified covenant: must obtain landlord’s consent before carrying out.
Fully qualified: consent cannot be reasonably withheld.

Question 54

Is title deducted when grating a lease or an underlease?

Answer 54

Landlord’s solicitor investigates title to ensure that the client is entitled to grant the lease. A tenant is not entitled to request that the landlord deducts title unless the lease is more than 7 years. If registered, title can be checked in the Land registry.

For an underlease, there is no need to see the freehold title if the head lease is registered with absolute leasehold title. If the head lease is unregistered, the undertenant can ask for the head lease and all assignments for the last 15 years.

The undertenant can only ask for deduction of the freehold title if the lease is for more than 7 years.

Question 55

Pre-contractual formalities in granting a lease

Answer 55

The landlords solicitor should provide the tenants solicitor with:
Draft lease agreement (optional)
Draft lease/underlease
Evidence of freehold/head lease title
Copies of planning consents
Evidence of a lenders consent to grant the lease/underlease

The tenant’s solicitor would undertake the same searches as for a freehold purchase.

Question 56

Pre-completion formalities when granting a lease

Answer 56

lease/underlease is prepared in two identical parts and exchanged upon completion.

Must be signed by the landlord and tenant at least 5 days before completion. A lease is a legal estate in land and must be created by deed.

Question 57

Completion and post-completion steps when granting a lease

Answer 57

In addition to matters relevant to a freehold transaction, the landlord will upon completion receive:
Executed lease/underlease
Payable premium
Payable lease in advance

The landlord should give the tenant: executed lease, copies of freehold title deeds if unregistered land and if relevant copies of the landlord’s consent

Question 58

When is SDLT or LLT charged for a lease and sale + how is it calculated and when must it be paid?

Answer 58

SDLT and LLT are potentially charged on any sum paid + rent.

Non-residential property SDLT is calculated the same as for the sale of freehold. Must be paid 14 days after completion.
A complex formula is used to calculate the rent aspect based on NVT (net present value):
0-150 000: 0%
150 001 - 5 000 000: 1%
Over 5 000 000: 2%
For first-time buyer relief, commercial property does not count, but holiday property abroad is included..

LTT: non-residential property is calculated similarly to SDLT. payable 30 days after completion:
0-225 000: 0%
225 000-2 000 000: 1%
Over 2 000 000: 2%
OBS In Wales, there is NO first-time buyer relief. Must pay LTT from the first pound.

Question 59

How are leases protected in registered and unregistered land?

Answer 59

A legal lease for 7+ years can be registered as its own right upon completion, irrespectively of whether the freehold is registered.

A legal lease for less than 7 years is not capable of being registered.
Registered land: overriding interest
Unregistered land: binds the world irrespective of notice.

Question 60

What additional pre-contract enquiries and searches must be made when assigning a lease?

Answer 60

pre-contract enquiries and searches: same as for freehold + ask for the last day of the insurance, check that the assignor is not in breach of rent by asking for the last pay and if there are any breaches that will be enforced by the landlord.

Question 61

What is the consequence if consent is not obtain from a landlord (both private and commercial) before a lease is assigned?

Answer 61

Usually provided in commercial leases, but must check that the landlord will consent at the pre-contract stage. Landlord might want to check references and solvency.

Landlords can require undertaking from the assignors solicitor about costs being covered.

If consent is not obtained before or on completion , the assignor could be in breach of agreement.
SC: either party can rescind the contract if consent is not obtained.
SCPC: if landlords consent is not obtained on completion, completion is postponed until 5 business days after the buyer is notified that consent is OK. The contract can be rescinded if consent takes more than 6 months from the original completion date.

Question 62

Pre-completion formalities for assignment of lease

Answer 62

pre-completion formalities: registered lease: search in leasehold title OS1 to ensure priority for 30 business days. Unregistered lease: land charges search to ensure priority for 15 business days. Company search of either party is a company. The landlord’s solicitor supplies copies of the lease which must be made by deed if it contains covenants. AGA is created if required. Apportionment of rent (in advance) is usually required.

Question 64

What is the relationship between a landlord and the assignor of a lease?

Answer 64

Usual condition for consent is that the undertenant enters into a direct covenant with the landlord to perform covenants in head lease and underlease. Normally there is no privity of contract between the landlord and undertenant, and the landlord would be unable to sue the undertenant.

With a direct covenant, there is a contractual relationship and the landlord can sue the undertenant.

Assignment of lease: relationship between the landlord and the assignee depends on whether the lease was entered into before or after 1 January 1999.

Before 1 January 1999: assignee is liable under the doctrine of privity of estate for all covenants that touches and concerns the land for as long as the lease vests in the assignee. The landlord will seek to expand the assignees covenant by extending the scope until the end of the lease.

After 1 January 1999: an assignee is liable for breach of covenant whilst the lease vests in them, but the assignee is automatically released on an assignment (Landlord and Tenants Act 1995). The landlord must require a guarantee from the assignor instead.

For leases after 1 January 1999 can include an AGA (authorized Guarantee agreement) where the assignor guarantees to perform covenants if the assignee does not.

Question 65

Remedies for breach of a leasehold covenant

Answer 65

Action in debt: recoverable through the High Court and County court with a limitation of 6 years.

Forfeiture:
1. Non-payment of rent: brings the lease to an end and the property reverts back to the landlord. Lease must contain a forfeiture clause. The landlord can forfeit through a peaceful entry or by obtaining a court order.
2. Breach of repair clause: the landlord must serve a notice under the Law of Property Act 1925 where they specify the breach, require a remedy within reasonable time and require payment for the breach. Forfeiture can be done by court-order or peaceful re-entry.

Commercial Rent Arrears Recovery: CRAR permits the landlord to enter the property, seize and sell goods. Only possible for commercial premises and on 7 days notice + an enforcement agency must be used. The landlord can only recover rent and e.g. service charge is nor recoverable.

Pursue guarantors and/or rent deposit: guarantor is sued in the same way as the tenant. Possible under old lease for old tenants and new lease under an AGA. A rent deposit is usually deposited with the landlord if he has doubts about payment. May be retained if rent is not paid.

Specific performance: for a covenant to repair, a specific performance could be available as an equitable remedy. Granted in the previous case as there was no forfeiture clause, damages were not adequate, the order was not to harass the tenant and it was appropriate.

Damages: remedy for breach of a repair covenant, but statutory restrictions on what sum the landlord can recover:
Landlord and Tenant Act 1927 s. 18: limits the amount to the despair of the landlord’s building. No value.

The Leasehold Property (Repair) Act 1938: for leases of 7+ years with more than 3 years left, a notice must be served and the tenant can serve a counter notice within 28 days where the landlord must obtain a leave of absence from court to continue.

Self-help/Jervis v Harris clause: the landlord can repair themselves and recover the costs. Most leases contain self-help clauses.

Question 66

Ways a lease can terminate

Answer 66

Effluxion of time: automatic end of fixed-term lease after the contract ends

Notice to quit: given under a periodic lease.

Surrender: the tenant yields the lease and can only be achieved if the landlord and tenant agrees.

Merger: when the tenant requires the immediate reversion of the lease. The opposite of a surrender.

Question 67

Landlord and Tenant Act 1954 (Part II) - what is a s. 26 notice + deadlines

Answer 67

renewal lease by the tenant: a tenant could either just remain on the property and wait for a s. 25 notice or serve a s. 26 notice requesting a new tenancy.

S. 26 request must state the date of the new tenancy, and the tenants proposal. The time limits of a s. 25 notice applies i.e. between 6-12 months notice.

A landlord can oppose a s. 26 request and serve a counter-notice within 2 months after the 26 notice. The tenant must then apply to court for a new lease before a new tenancy as specified by the tenant in the s. 26 notice.

Question 68

Landlord and Tenant Act 1954 (Part II) - scope of termination clauses

Answer 68

Landlord and Tenant Act 1954 (Part II) – common law method of termination may not apply if the tenancy falls under this Act.

Application of 1954 Act: s. 23 states that it covers premises “occupied for business”.

There must be a tenancy - does not cover leases. The property must be occupied (through medium or agent is enough) and it is for business purposes.

Excluded businesses:
tenancy at will,
fixed-term tenancies of less than 6 months,
fixed term leases that are “contracted out (a written warning must be given to the tenant),
”certain businesses including farms, agricultural and mining”

The effect of the Landlord and Tenant Act 1954 is that termination must follow the provisions of the act. Even upon termination, the tenant has a right to apply to the court for a new tenancy. Termination can be done by 1 of 7 methods:
1. Service of a landlord’s notice under s. 25
2. Service of the tenant’s request of a new tenancy under s. 26
3. Forfeiture
4. Surrender
5. Periodic tenancy: the tenant gives the landlord a notice to quit
6. Fixed-term lease: tenant serves three months notice
7. Fixed term lease: tenant ceases occupation for business purposes at the end of the lease.

Question 69

Landlord and Tenant Act 1954 (Part II) -what is a s. 25 notice + deadlines

Answer 69

Termination by the landlord:

S. 25: landlord must serve a notice to the tenant. Different forms based on whether the landlord wants the property back or to grant a new lease. If a new lease is to be granted, the landlord must indicate the terms.

The landlord must state the date for which it wants the tenancy to end and notice cannot be served less than 6 months or more than 12 months before the date specified in the notice. If the landlord is too late serving notice, the tenancy is extended at the same time.

If the landlord indicates in the s. 25 notice that it will oppose a new tenancy, the tenant must apply to the county court before expiry of the notice. The tenant can pre-empt the tenant’s application to the court by applying for an order to terminate the lease.

Question 70

Landlord and Tenant Act 1954 (Part II) - how can a landlord oppose a s. 25 notice or s. 26 counter-notice?

Answer 70

landlord’s grounds of opposition s. 30
A s. 25 notice or counter-notice to a s. 26 request must state the landlords reasons for opposing the renewal of the lease:
A Tenants failure to repair
B Persistent delay in rent
C Substantial breach of other obligations
D Landlord has offered alternative accommodation
E Tenancy is an underletting of part (rare)
F Landlord intends to demolish or restructure
G Landlord intents to occupy for its own business or residence

A, B, C and E are discretionary and the court will decide whether the tenant will be offered a new lease. D, F and G are mandatory and F is most common.

If the landlord is successful with an opposition under s. 30 E, F or G, the tenant will not be granted a new lease, but will be entitled to compensation equivalent to the value of the ease.

Exception: the tenant and predecessors of the same business have occupied property for at least 14 years - then the value is 2 x the rateable value. Agreements restricting compensation are void if tenants have occupied for more than 5 years.

Question 71

Def “development” in Town and Country planning Act 1990 (TCPA 1990) + exceptions

Answer 71

“Development”: defined in Town and Country planning Act 1990 (TCPA 1990) s. 55 as carrying out building, engineering, mining and other operations (BEMO) in, on, over and under land, or making of any material change in the use of any buildings or other land. Planning permission is required for any development.

Matters that do not constitute “Development”

Maintenance, improvements or other alterations of a building that only affects the inside, or do not materially affect the external appearance.

A change of use within the same “use class” in TCPA s. 55(2):
B2 General industrial
B3 Storage and distribution
C Residential (includes hotels)
E Commercial, business and service (introduces 1 September 2020 and includes e.g. professional services)
F Local community and learning

Sui generis use: not in the TCPA, but uses that potentially could have adverse effects on their surroundings e.g. pubs. Change to and from a sui generis use always requires planning permission.

Question 72

Who is responsible for a breach of planning law

Answer 72

Planning law: whether a building can be built, altered, extended + specifies use. Planning matters run with the land, so any breach would be the current owners problem.

Question 73

Examples of matters that do not require express planning permission

Answer 73

Even if planning permission is needed as above, it is not always necessary to apply for an express permission. Sometimes it is automatically granted under the Town and Country planning Order 2015 (Generally permitted Development Order GPDO). Most common exemptions:

Dwelling houses under a certain size e.g. small extensions and porches, fences and gates.

Minor operations e.g. painting or CCTV

Certain changes between use class orders and sui generis rights

The effect of GPDO can be excluded by the Secretary of state.

Apply for a “Certificate of lawfulness of proposed use or development” to the LPA to ensure that the relevant development does not require planning permission
.

Question 74

Deadlines for building regulations control

Answer 74

Concerns the health and safety of buildings e.g materials and construction methods. May be inspected by a building control officer who can distribute a certification of compliance.
Proceedings from local authorities must be brought within 2 years after work was completed.

Question 75

Name of SDLT in England and Wales

Answer 75

basis of charge in both England and Wales for:
England: SDLT, Wales: Land Transaction Tax LTT.

Question 76

Possible notices from LPA for planning matters and when they come into effect

Answer 76

Enforcement notice: may be issued by LPA on anyone with an interest in the land and has effect 28 days after service. Specifies the alleged breach and steps to be taken. May be appealed

Stop notice: has effect 28 days after it is served and activities must end before it takes effect. An enforcement notice is served before a stop notice. The LPA can also serve a temporary stop notice, to stop work for 28 days or even an injunction.

The LPA can serve a breach of condition notice, for breach of conditions in a planning permission.

Injunction: failing to meet the deadline below means the LPA can’t take any actions. enforcement actions must be taken at least:
4 years after the development was carried out
4 years for change of use to a dwelling house
10 years after the date of breach for all other breaches

Question 77

STT deadline

Answer 77

STT in Wales has been effective since 1 April 2018 and is basically identical to SDLT. LTT is payable 30 days after completion of the transaction.

Question 78

SDLT deadline + what is it payable for

Answer 78

SDLT was introduced 1 December 2003 and is a tax on the property transaction.

SDLT is due 14 days after completion of the transaction to the HMRC. Ff SDLT is not paid, the property transfer is not registered in the Land Registry.

SDLT is payable on land + fixtures but NOT chattels.
There are higher rate if the buyer already owns a property or is nor a UK resident

Question 79

SDLT Residential (freehold) property SDLT rates

Answer 79

Residential (freehold) property SDLT:
Relief for first time buyers of a property up to 500 000 GBP: no SDLT on the first 300 000 GBP and then 5% from 300 001 - 500 000.
Rates for buyers that are not first time buyers:
Up to 125 000: 0%
125 000 - 250 000: 2%
250 000 - 925 000: 5%
925 000 - 1 500 000: 10%
Remainder: 12%

Question 80

SDLT NON-residential (freehold) property SDLT rates

Answer 80

non-residential freehold property SDLT:
SDLT rates for non-residential property:
Up to 150 000: 0%
150 000 - 250 000: 2%
Above 250 000: 5%
If VAT is charged, SDLT is payable on the VAT-inclusive sum!

Question 81

Residential property LTT rates

Answer 81

Residential property LTT:
No relief for first time buyers
LTT rate for residential property:
Up to 180 000: 0%
180 000 - 250 000: 3.5%
250 000 - 400 000: 5%
400 000 - 750 000: 7.5%
750 000 - 1 500 000: 10%
Remainder: 12%

Question 82

When may VAT be charged for property transactions and why?

Answer 82

Most residential property transfers do not involve any payment of VAT. sale of new buildings are zero-rate.

Commercial property differs between old and new property:

Old property: Sale of greenfield site is subject to optional tax
Sale of old freehold building is exempt, subject to optional tax. Grant of a lease is exempt, subject to optional tax

New property (within 3 years of completion):
Construction services are standard rate at 20%
Professional service e.g. architect are standard rate at 20%
Sale of new freehold building is standard rate
Grant of a lease is exempt, subject to optional tax

If having the choice to tax e.g. if a seller buys an old commercial building there is a reason to choose optional tax: it can be offset against any input tax incurred in relation to the building e.g. building work or professional fees. A disadvantage is that the seller has to pay VAT on the purchase price, if the seller only can make a partial recovery through input tax.

If the option to tax has been made before the date of the transaction, the VAT counts as a chargeable asset for SDLT/LTT and the seller has to pay tax on tax.

Question 83

Non-residential property LTT rates

Answer 83

Non-residential property LTT:
LTT rate for non-residential property:
Up to 225 000: 0%
225 000 - 250 000: 1%
250 000 - 1 000 000: 5%
Reminder: 6%

Question 84

When is CGT charged on property transactions

Answer 84

CGT: Charged on gains made on “chargeable assets”.

Includes gifts, sale of freehold or leasehold, or sale of interest in co-owned property, or modifications of some easements and covenants

Rates: 28% on residential property and 20% on gains from all other assets (e.g. shares).

Question 85

principal private dwelling-house exemption.

Answer 85

principal private dwelling-house exemption.
Private residential relief PRR: sale of a dwelling house used as someone’s main residence throughout the ownership of the property. If a person has more than one property, they can choose which one they want to use PRR on. Certain periods of absence are OK. if the property is over 0,5 hectare, the excess is chargeable with PRR.

Question 86

Limitation periods planning law

Answer 86

4 years from the date of breach where any building operations have been carried out without planning permission
4 years from an unauthorised change of use (the day the use changed)
6 years from the date of breach of any planning control

Question 87

Requirements “root of title”

Answer 87

The title deeds should include the “root of title”, usually the most recent documents that satisfies all requirements for a good root of title. Older documents can then be ignored, except for if the root of the title refers back to an older document. Requirements of a good root of title:
1. Must show who owns the entire interest (legal and equitable) being sold
2. Contain a recognisable description of the land
3. Does not cast doubt on the seller’s title
4. Is at least 15 years old

E.g. a root of title/conveyance with covenants would be insufficient.

Question 89

When can a lender repossess a property?

Answer 89

Under common law, from the moment the mortgage is executed.