Property Flashcards
What is the first thing you should do when your transaction appears to involve unregistered land?
check whether the land is already registered or is the subject of a pending application for first registration
What is a caution against first registration and how will this be dealt with?
*lodged by a third party as a warning to people attempting to deal with the land that they have an interest
(1) contact the cautioner and ask them to withdraw the caution against first registration
(2) when the application of first registration is lodged, the Land Registry will ‘warn off’ the cautioner, giving them a limited period to establish their rights over the land and if they cannot do so, the registration will proceed and the cautioner will lose their rights
How is title proved with unregistered land?
title deeds
What are the steps the seller’s solicitor should take upon receiving the title deeds?
1) consider whether any transaction in the property’s history should have triggered first registration and if so, seller will be required to register before any other transactions can proceed
2) find the ‘root of title’
3) prepare an ‘epitome of title’ (previously known as ‘abstract of title’)
What is the ‘root of title’? What are the requirements for a good ‘root of title’?
*the document which to begin the title investigation + to prove that the current owner has good title
1) should deal with or show who owns the entire interest (legal and equitable) that is being sold by the current owner
[key phrase: “whereas… (the vendor is) seised of the property… for an estate in fee simple and is selling the same to the purchaser” + vendor conveys the land “as beneficial owner… unto the purchaser”]
2) contain a recognisable description of the relevant land (e.g. reference to a plan or name of plot)
3) do nothing to cast doubt on the seller’s title - e.g. properly stamped
4) be at least 15-years old
What is the most acceptable form of ‘root of title’?
a conveyance > a mortgage - as effectively offers a double guarantee + conveyance more likely to contain a detailed description of the property and more details of the incumbrances affecting the property
Why are gifts/assents not the best form of ‘root of title’?
no double guarantee as title investigation is unlikely to have taken place
When may a buyer request for a document pre-dating the ‘root of title’?
usually once the ‘root of title’ is identified, any older documents can be ignored - unless root document refers back to a third party right created in an earlier conveynace [buyer is entitled to call for the earlier conveynace as the third party right will probably be binding and they will need details of it]
What should you check in each ‘link’ document and why?
*make sure that there is an unbroken chain of ownership from the owner indicated in the root of title up to the present seller
1) has the document been properly executed? - e.g. by deed (in writing, make it clear on the fact of it that it is a deed, be signed by the person granting the interest in the presence of a witness + delivered as a deed)
2) has the document been properly stamped? - check that each document has an ad valorem stamp (or a “certificate of value” stating the transaction is exempt/liable to a reduced rate) and a particulars delievered stamp
*duty was not payable on mortgages executed after 1971, or on deeds of gift and assents after 30 Apr 1987 provided the deed contained a certificate stating that the transaction fell within one of the categories of exempt documents
3) incumbrances
4) land searches against all names (for the period in which the person owned the land) to check whether any land charges (incumbrances) have been registered (thus would be binding) - if there is uncertainty about the years someone owned the land, search should be for any years that the individual might have done so (e.g. dating back to a previous sale date) or if in doubt, search back to 1926
What are the types of land charges?
C(i): pusine mortgage
C(iv): an estate contract [a contract to convey or create a legal estate in land or any option to purchase a legal estate or any right of pre-emption in respect of a legal estate]
D(ii): a restrictive covenant
D(iii): an equitable easement
F: a home right
these must be registered at the Land Charges Department at Plymouth for it to bind unregistered land
When can a buyer assume that joint tenancy (if stated in conveyance to joint buyers) has not been severed? (unregistered land) + therefore, surviving owner can transfer property alone
(1) there is no memorandum of severance endorsed on the conveyance of the property to the joint tenants
(2) there are no bankruptcy proceedings registered against either of the joint tenants at the Land Charges Registry
(3) the transfer by the surviving joint owner to the buyer contains a statement that the survivor is solely and beneficially entitled to the land
How are official copies set out in registeted land?
shows title number to the property and edition date (date on which the Land Registry last updated the title - e.g. previous sale or mortgage)
+ will also show search from date (the specific date of the official copies showing the entries subsisting on the register at a certain time)
What is included in the Property Register of the official copies?
a description of the land by reference to the postal address and title plan + indicate whether title is freehold or leasehold
*may indicate that there are easements or rights benefitting the land and that certain things one might usually expect come with land (rights of light and air over adjacent land) have been excluded from title
What does it mean if there is no easement or right of light/air?
development on neighbouring land could adversely block light/air to the property + solicitor should inform buyer and raise a requisition to assess the likelihood of future development
What is included in the Proprietorship Register of the official copies?
*identifies current owners and their address and class of title
*contains restrictions on the owners’ ability to sell
*may indicate the price paid for the land by the current owners (if land has been sold since 1 Apr 2000) and will show the owners gave an indemnity covenant when they bought the land
What does it mean the Proprietorship Register imposes a restriction on owners’ ability to sell? - e.g. no disposition by a sole proprietor is to be registered unless authorised by an order of the court
registered proprietors hold the beneficial interest of property as tenants in common + Land Registry will not register the buyer as the new owner of the property unless co-owners are party to contract/transfer or overreaching by appointment of a second trustee
*rebuts the assumption that equitable interest is held as a joint tenancy
What is absolute title?
best class
*signifies that the registered proprietor has vested in them the legal estate subject only to the entries on the register, overriding interests and where the proprietor is a trustee, minor interests of which they have notice
What is possessory title?
where the proprietor is in possession of the property but has lost the title deeds or is claimaing adverse possession = proprietor is subject to all adverse interests existing at the date of first registration
What is qualified title?
where there is a specific defect which the Registrar feels cannot be overlooked or cured by grant of absolute title
What is included in the Charges Register of the official copies?
identifies incumbrances
What does it mean when there is a mines and minerals exception?
seller does not own any mines or minerals underneath the surface of the property and cannot transfer them to the buyer - any encroachment by the buyer would constitute a trespass
*this entry could indicate that mining has taken place in the vicnity in the past, thus enquiries should be made as to the ground stability and whether property has been affected by subsidence
*could enquire who is the owner of the right and whether it has been exercised
What can a buyer’s solicitor do in relation to a restrictive or unknown covenant on conveyance (unregistered land) or Charges Register (registered land)?
(1) ask the seller if they know who currently owns the property with the benefit of the covenant + see if that owner is willing to come to some arrangement with the buyer: e.g. permanent release of covenant or one-off consent
(2) obtain a restrictive covenant insurance policy for the proposed breach of covenant (must be obtained before contacting the person with the benefit of the covenant)
*if seller has insurance, ask for it to be reassigned
(3) apply to the Upper Tribunal (Land Chamber) for modification or discharge of covenant on the grounds that the covenant is obsolete or confers no practical benefit of substantial value or advantage (or is contrary to public interest) - outcome at the discretion of the tribunal [may not be a quick and cost-effective option]
How should a buyer’s solicitor deal with unilateral notices on the Charges Register?
(1) ask individual with the benefit of the purported notice to withdraw
(2) if they refuse to withdraw, buyer should require the seller to get the notice cancelled by the Land Registry before exchange of contracts
*Land Registry will notify the individual with the benefit of the purported notice and they will have 15 business days to respond - failing to do so, Land Registry will cancel the notice
How should a buyer’s solicitor deal with home rights (in Charges Register for registered land and protected as a class F land charge for unregistered land)?
require seller to obtain from the non-owning occupier a release of all rights in the property and agreement to vacate on or prior to completion
When can you act for the buyer and seller?
usually not possible as it carries a high risk of conflict of interests where land is being transferred for value - this is particularly the case where the clients do not have equal bargaining power + Law Society specified that “substantially common interest” exception does not apply to property purchase
When can you act for joint buyers?
usually acceptable - but it may be necessary to advise residential buyers separately about how to hold equitable interest in property (esp if not married or in civil partnership)
When can you act for borrower and lender?
generally possible - there is only likely to be a high risk of conflict if:
*mortgage is not a standard mortgage
*mortgage is a standard mortgage but you do not use the approved certificate of title
What should a solicitor do during “contract races” - i.e. pre-contact package is sent to multiple buyers who compete to be ready to exchange contracts first?
seller’s solicitor must not mislead or attempt to mislead the buyers - i.e. must inform all buyers immediately of the sellers’ intention to deal with more than one buyer + will need seller’s consent to disclose or else breach of duty of confidentiality
What are repayment mortgages?
borrower will make monthly payments to the lender made up partly of instalments of original amount borrowed and partly of interest chargeable - this means that at the end of the mortgage term, the borrower will have paid off everything owed
What are interest-only mortgages?
borrower will make monthly payments to the lender + will only comprise interest chargeable on the loan
*monthly payments will be lower than in repayment mortgages, but at the end of the mortgage term, borrower will still owe lender the whole of the original amount borrowed
What SDLT relief is available to first-time buyers of residential property?
relief available if they intend to occupy property as their main residence and purchase price is no more than £625,000
*they do not pay anything on purchase up to £425,000 + pay 5% on portion from £425,001-£625,000
How is SDLT calculated for non-first time residential buyers?
SDLT is payable on land - which includes fixtures, but not chattels (possible to apportion + this must be a fair value)
up to £250,000 = 0%
exceeding £250,000 - £925,000 = 5%
exceeding £925,000 - £1,500,000 = 10%
remainder = 12%
How is SDLT calculated for non-residential or mixed-use freehold properties?
SDLT is payable on VAT-inclusive sum if charged
up to £150,000 = 0%
exceeding £150,000 - £250,000 = 2%
exceeding £250,000 = 5%
How is LTT calculated for residential buyers?
up to £225,000 = 0%
exceeding £225,000 - £400,000 = 6%
exceeding £400,000 - £750,000 = 7.5%
exceeding £750,000 - £1,500,000 = 10%
remainder = 12%
How is LTT calculated for non-residential buyers?
up to £225,000 = 0%
exceeding £225,000 - £250,000 = 1%
exceeding £250,000 - £1,000,000 = 5%
remainder = 6%
What is private residence relief for CGT purposes?
relief available where there is a sale of an individual’s dwelling house used as their only or main residence - to qualify, seller must have occupied the dwelling house as their main or only residence throughout period of ownership
*if seller has a garden of more than 0.5 hectares, gain on the excess is chargeable to CGT unless seller can demonstrate to HMRC that the extra garden was necessary for reasonable enjoyment of land
*relief may be lost on any part of the house used exclusively for business use
When is VAT payable on sale of property?
(1) sale of new build house by a developer is zero-rated
(2) sale of new commercial property (less than 3 years old): standard rated
(3) sale of old commercial property: exempt, subject to option to tax
*sale of a residential property by a private individual will not be in the course of business, therefore no VAT
Why is it important for the buyer’s solicitor to make the relevant searches/enquiries?
failure to carry out a relevant search can give rise to a claim of negligence from the buyer if the buyer suffers a loss + it may not be in a buyer’s interest for all searches to be carried out as costs could outweigh benefits
What are the types of searches that need to be carried out for all property?
1) survey and personal inspection - solicitor can advise on the most appropriate type of survey + if the buyer has concerns about the state of property or intends to carry out alterations to it after purchase, they may wish to consider a full structural survey
2) local search (LLC1, CON29, CON29O)
3) water and drainage search
4) pre-contract/preliminary enquiries of the seller (TA06 for residential or Commercial Property Standard Enquiries Form 1)
5) environmental searches - commonly desktop search + only when the desktop(/local) search identifies a risk that the land may be contaminated should the buyer consider commissioning a physical survey of the land to be carried out by a specialist environmental surveyor OR consider insurance against environmental liability
6) flood search
What kind of information would the local search reveal?
LLC1: details of any financial charges or restrictions on land that have been imposed by public authorities under statute
*tree preservation orders: buyer will need to be told about any TPO as it is a criminal offence to lop or fell a tree subject to a TPO without the consent of the local planning authority
*smoke control orders: might be a problem if the property has a open fireplace which the buyer intends to use
*planning consents + Art 4
*conservation area designation order
CON29: information such as whether the land has been designated as contaminated land, whether there is liability for road repair (rights of way), proposed road/railway/traffic schemes
*enquiries/searches only disclose the planning history of the property being searched (and pending applications) + if the buyer is concerned about future development in the area, more detailed planning information about the neighbourhood may be required - e.g. if the view is important to the buyer, they would want to know if there are any proposed developments on adjoining land that may interfere
CON29O (optional enquiries): covers environmental and pollution notices, rights over common land
What information is important in the water and drainage search?
1) whether foul water drains to a public sewer and the location of the nearest public foul water sewer: if not connected to a public foul sewer, property may be served by a septic tank or cesspit and further enquiries will need to be made
2) whether surface water drains to a public sewer and the location of the nearest public surface water sewer: if not, property may have a private connection to a watercourse or soakway
[adequate surface water drainage is important because surface water flooding is a common cause of flooding]
3) whether the property is connected to the water mains and the basis for charging for sewerage and water at the property and whether a water meter is fitted
4) whether the sewers are adopted or subject to a s.104 agreements - if not adopted, advise buyer (and lender) as private sewers can be v expensive to maintain
What searches need to be made for a transaction with unregistered land?
in addition to searches that apply to all land:
1) chancel repairs search (will also be needed if registered land has not been transferred since 13 Oct 2013 for valuable consideration + to find out liability [to contribute to the upkeep of the local parish church], also check whether chancel repair has been registered as registration can take place at any time after 13 Oct 2013 and before transfer of value)
2) Index Map search (reveals if land or any part of it has been registered)
3) Land Charges Department searches against seller and previous estate owners
What search should you make if your property is in a coal mining area and/or the property has a mines and minerals reservation in title?
mining searches - confirm if the property is in an area where mining has taken place in the past or is likely to take place in the future
+ the existence of underground workings which may cause problems with subsidence and whether any claims for subsidence damage have been paid in the past or are pending (payments for damages will be paid by the Coal Authority) [subsidence: when the ground under a building collapses, damaging the foundations and casuing cracks in the structure above]
+ should also carry out Index Map search
What search should be made if the property is adjacent to a river or canal?
canal and river trust search - reveal if the buyer has any liability for repairs to the maintenance of waterways, banks and tow paths, and whether the property has been affected by flooding
What search should be made if the property is adjacent to open land?
commons search - reveal if acquiring property is protected as common land or a town and village green (making development virtually impossible), and whether land being acquired is affected by common rights
What search should be made if the property adjoins a railway line?
railways search - reveal if there are any obligations to maintain the boundary features separating the property from the railway line, and whether there are any restrictions on carrying out building work next to the line
solicitor can also advise a buyer that an approach should be made to Network Rail on specific proposals
What are highway searches?
searches to show the extent of a highway maintainable at public expense
*these should be carried out to establish that the property directly adjoins the public highway and there is no other land belonging to a third party in between the property and public highway (ransom strip!) or that any rights benefitting the property connect to the public highway + whether any part of the property has been included as part of the public highway [you will not be permitted to interfere with the public right of way]
if it is revealed that verges/pavements are not publicly maintenable, there is no automatic right to use it and local authority is not paying for its maintenance - therefore buyer’s solicitor would need to establish how the buyer will have a right to use the road (e.g. express easement or easement by prescription)
*form CON29 is insufficient - will show whether highway is adopted but NOT extent to which it is [highway search will show whether highway immediately and directly abuts property] + a failure to make the local authority aware that an enquiry is being raised for a specific purpose (e.g. in connection with a proposed development or establishing the existence of a ransom strip) can mean that the buyer’s recourse against the local authority for a wrong answer will be limited to nominal damages
When is a company search appropriate?
where the seller is a company in order to confirm whether the seller has the capacity to enter into the contract, confirm the identity of current officers of the company, see if there are any fixed or floating charges secured on the property that will need to be discharged on completion
for unregistered land, company searches should be carried out against any corporate estate revealed in epitome of title
When is planning permission required?
for the carrying out of any development of land
*development is defined in s.55 Town and Country Planning Act 1990 as the carrying out of building, engineering, mining, or other operations (operational development) in, on, over or under land, or the making of any material change in the use of the buildings or other land
- maintenance, improvement or other alteration of any building or works which affect only the interior of a building, or do not materially affect the external apeparance of a builing are excluded from the definition
What is class B2 in the Town and Country Planning (Use Classes) Order 1987?
general industrial
What is class B8 in the Town and Country Planning (Use Classes) Order 1987?
storage and distribution
What is class C in the Town and Country Planning (Use Classes) Order 1987?
residential use - C1: hotels; C3: dwelling houses; C4: houses in multiple occupation
What is class E in the Town and Country Planning (Use Classes) Order 1987?
commercial, business, and service - E(a): retail sale of goods, other than hot food; E(b): sale of food and drink for consumption on the premises; E(c): financial and professional services; E(g): uses which can be carried out in a residential area without detriment to its amenity, including offices to carry out any operational or administrative functions and research&development
What is class F in the Town and Country Planning (Use Classes) Order 1987?
local community and learning
What are sui generis uses?
uses which could potentially have adverse effects on their locality: entertainment establishments, drinking establishments, hot food takeaways + changes to and from a sui generis use will generally always require planning permission
What are the time limits with regards to implementing planning permission?
a planning permission will usually state that it has to be implemented within a certain time and will lapse if not (otherwise 3 years in England + 5 years in Wales) - once implemented, a planning permission runs with the land forever and any conditions attached to it will burden the relevant land
planning permissions do not generally impose a time limit by which the authorised development must be completed, but if the Local Planning Authority decides that completion will not take place within a reasonable time, it can serve a completion notice stating that the permission will cease to have effect if completion has not taken place by the expiration period stated in the notice (this is rare)
What should you do if you are satisfied that the changes fall within the definition of s.55 TCPA 1990?
check whether planning permission is automatically granted under the Town and Country Planning (General Pemitted Development) Order 2015: e.g. extensions below a certain size, minor operations (painting the exterior of a building or installing a CCTV camera), changes between certain use classes - these are permitted developments
+ ensure that no changes have been made to the Order by the Secretary of State through an Article 4 Direction (by carrying out a local search: LLC1), which suspends the automatic grant of planning permission for permitted developments
When might you apply for a lawful development certificate?
in cases of doubt + these are made under s.192 TCPA 1990 to the Local Planning Authority
How can a Local Planning Authority find out whether there has been development of property in contravention of planning control?
LPA can exercise a right of entry to the property or serve a planning contravention notice, which requires the recipient to provide information about operations, use, or activities being carried out on the land and any matter relating to the conditions attached to a planning permission
What can a Local Planning Authority do when someone develops property in contravention of planning control?
1) enforcement notice - served on owner, occupier, or any other person having an interest in land, and will become effective 28 days after notice + notice will specify alleged breach and steps to take/activities to be discontinued to remedy breach and timescale (can be appealed)
2) stop notice - must follow an enforcement notice (generally served to bring activities in breach of planning control to an end before enforcement notice takes effect) + LPA can serve a temporary stop notice effective for 28 days only which gives time for further investigation [failure to comply with a stop notice is a criminal offence] (no right to appeal)
3) breach of condition notice (no right of appeal) - will specify the steps which the council require to be taken to secure compliance with the condition in question
4) LPA can apply to the court for an injunction to restrain an actual or apprehended breach of contract
When must enforcement action be taken by the LPA?
for operational development without planning permission: 4 years (from when the develpment is substantially complete)
for unauthorised change of use to use as a single dwelling house: 4 years
for other breaches - e.g. other material change of use/breach of planning condition: 10 years
What are the consequences of failing to comply with a planning control notice?
punishable with a fine + current owner of the property is to be held responsible (not necessarily the person who obtained planning permission or failed to obtain or breach conditions) - buyer’s solicitor should make the necessary searches and enquiries pre-contract to discover planning history of property
When does building regulations consent need to be obtained?
whenever building works are to be undertaken irrespective of whether the works constitute development for the purpose of planning control
if not obtained, local authorities can issue an injunction (not time limited) if work is unsafe
What can local authorities do with regards to breach of building regulations control?
*prosecute for breach + proceedings must be brought within 2 years of relevant work being completed
*issue an enforcement notice within 1 year of work, requiring it to be altered or removed
What should a buyer do if a building was not granted building regulations consent?
ask seller to obtain a regularisation certificate from the local authority which lists the work required to bring the building up to standard or obtain insurance
What steps need to be taken to demolish/alter/extend a listed building?
listed building consent in addition to planning permission
What are conservation areas and what protections are afforded to them?
areas that are of special architectural or historic interest + which should be preserved or enhanced - broader protection than the listing of individual buildings: changes to external appearance of a building in a conservation area may require planning permission that is not required elsewhere as some permitted development rights are curtailed + any work planned to a tree in a conservation area must be notified to the LPA 6 weeks in advance for them to determine whether and how the work should take place
Why might parties want to have a contract?
parties are satisfied with property’s title and information revealed in the searches/enquiries, but there will be delays before completion because of the buyer’s financial arrangements not being finalised/parties need more time to organise the practical aspects - rather than hoping the other party will not try change the price, parties fix terms
When are the Standard Conditions of Sale used?
residential transactions and some simple commercial transactions (e.g. low price + empty properties with a straightforward title)
When are the Standard Commercial Property Conditions used?
high value commercial properties
How is property identified in the contract - registered v unregistered land?
*for registered land, state title number and class of title (found in Proprietorship Register)
*for unregistered land, refer to root of title - e.g. 56 Blackhorse Drive… more particularly delineated and edged red on a plan annexed to the Conveyance dated…
What specified incumbrances should be listed on the contract?
all burdens (therefore NOT positive covenants) except seller’s mortgages
*standard conditions is that seller sells free from incumbrances other than those:
(a) specified in the contract
(b) discoverable by inspection of the property before the date of the contract
(c) that the seller does not and could not reasonably know about
(d) other mortgages, that the buyer knows about (SC) / disclosed or would be disclosed by searches made by a prudent buyer (SCPC)
(e) entries made on public registers other than those kept by the Land Registry, Land Charges Department, or Companies House (SC)
(f) public requirements
*good practice to include all regardless of whether SC/SCPC covers to avoid breach + non-disclosure could lead to buyer having a right to rescind contract and/or claim damages
- for drafting: “the mines and mienrals exception in entry X of the Property Register and the covenants in entry Y of the Charges Register”
If seller sells with full title guarantee, what will happen if they fail to disclose incumbrances which ought reasonably to have been known? What will happen if there is an incumbrance which the seller could not reasonably have known about?
(1) ought reasonably have known + no disclosure = seller will be liable under the title guarantee and under the standard conditions of incumbrances
(2) could not reasonably have been known = not liable under title guarantee or standard conditions on incumbrances, but buyer will take subject to the incumbrance
What does it mean if the seller sells with full title guarantee?
(1) seller has right to sell the property
(2) seller, at their own cost, will do all that they reasonably can to ensure the buyer will acquire a good title to property
(3) if property which is being sold is registered, it is presumed that the whole of that property in the registered title is being disposed of
(4) if unregistered, it is presumed that the interest being sold is the freehold
(5) seller is selling free from all mortgages and all other rights and interests which may be exercisable by a third party other than those which the seller does not and could not reasonably be expected to know about
*given when seller owns the entire legal and equitable title to property
What does it mean if the seller sells with limited title guarantee?
(5) covenant that seller has not incumbered the property and is not aware that anyone else has done so since the last disposition for value
*given when seller has limited knowledge of property
*likely to be suitable for an executor
What title guarantee would an appointed 2nd trustee give?
*could give limited title guarantee as second trustee, although has the right to dispose of land, does not own an equitable interest in the property
*could give no title guarantee
When might a seller insist to give a no title guarantee?
where seller is a person appointed following insolvency e.g. - essentially when they have no knowledge of property being sold
(will not eliminate seller of all liability under the contract)
What is the contract rate?
the rate of interest that will be charged if a party is late in completing
*rate must be high enough to incentivise a potentially defaulting party to complete on time
*common: Law Society’s interest rate from time to time in force (i.e 4% above the base lending rate of Barclays) - this is provided for in the SC and SCPC so default position
What is the deposit?
pre-payment of part of the purchase price by the buyer to seller + evidence of buyer’s commitment to the transaction
*standard: 10% of purchase price + seller’s solicitor takes as stakeholder, meaning that they cannot hand deposit over to the seller until completion
What special condition should be added if the parties agree to vary the standard arrangement for deposit - i.e. accept reduced deposit?
special condition requiring the buyer to top up the deposit to the full amount if completion is delayed - to ensure seller does not have less of a fund to forfeit
What does it mean if the parties vary the deposit arrangement so that the seller’s solicitor holds as an agent?
deposit can be released to the seller immediately after exchange and can be used by the seller for any purpose whatsoever (carries the risk that if there is no completion, seller may not be in a position to return deposit)
What do the standard conditions say in relation to the method of paying deposit?
SC: deposit paid by electronic means or by cheque drawn on the conveyancer’s client account
SCPC: payment by electronic means only
*this is DIFFERENT to Law Society Formulas for exchange over phone!
*sums must be paid from and into a clearing bank account held by a conveyancer
What matters do the special conditions cover?
those which relate to the individual characteristics of the property and the particular circumstances of the transaction - e.g. if the sale includes contents/excludes fixtures, dealing with appointment of 2nd trustee if applicable, payment of VAT, indemnity covenant, seller selling with limited or no title guarantee
When does the risk of damage pass to the buyer?
on exchange of contracts - therefore buyer must complete purchase even if the property is damaged or destroyed between exchange and completion
What should the parties do if they agree that risk remains with the seller?
require the seller to maintain the policy until completion and if property suffers damage prior, to hand the insurance proceeds to buyer or assign to the buyer all the seller’s rights under the policy
What is the default VAT position under SCPC? What type of client might rely on this?
purchase price is exclusive of VAT + VAT is payable
*appropriate for new property as seller has no choice to charge / old property where the seller needs to opt to tax to recover VAT paid on refurbishment and buyer is not VAT-sensitive
What is the default VAT position under SC?
purchase price is inclusive of VAT
*for commercial - special condition in SCPC: popular option for VAT-sensitive buyers, but seller may be at risk if law changes [not advisable for seller!]
What is the VAT position if the parties decide to incorporate SCPC Part 2, Condition A1?
purchase price is exclusive of VAT + VAT can be added on top in the unlikely event that the law changes to make an exempt supply chargeable at the standard rate, but seller is contractually obliged not to opt to tax
What is a mortgage offer / commitment letter from the lender and when would it be issued? What must the buyer’s solicitor do in relation to this document?
mortgage offer (for residential and simple commercial loans) + commitment letter (for complex loans): sets out the terms on which the lender is prepared to make the loan
*issued only when the lender is satisfied that the property is good security for the loan and buyer is creditworthy
*document may impose conditions / may allow the lender to withdraw offer even after exchange of contracts
buyer’s solicitor must ensure that the buyer has received, understood and, if required by the lender, accepted the mortgage offer prior to exchange of contracts
What must the buyer’s solicitor do in relation to the mortgage deed?
explain to the borrower as to its obligations under the deed, and advise on the consequences of defaulting on mortgage payments and powers of the lender if default
When can a solicitor act for the lender and borrower?
*usually only in residential conveyancing as more likely that mortgage will be on the standard terms - no risk of conflict of interest
*negotiations usually required for commercial mortgages
What is the certificate of title? Who prepares this?
confirmation that property has good and marketable title (i.e. there are no legal problems with the property) + prepared by the buyer’s solicitor to be given immediately prior to completion of the loan
What templates are used for the certificate of title?
*for residential transactions: form approved by the Law Society and UK Finance
*for commercial transactions: City of London Law Society Certificate of Title
How should the certificate of title be drafted? - consequences of wrong information?
for commercial transactions:
*CLLS is structured as a series of statements which cannot be altered - if a statement cannot be agreed with, solicitor makes a disclosure against the statement which sets out how the statement does not apply to the property
*often addressed to the buyer and the lender, sometimes just the lender
if information on the certificate is wrong, lender can sue the firm which gave the certificate as there are warranties as to the correctness of the information contained within it
What are the steps to be taken in preparation for exchange of contract?
(1) buyer’s solicitor to send to client a pre-contract report summing up results of searches and investigation of title, and explaining the terms of the contract and mortgage offer
(2) buyer’s solicitor to report to lender
(3) ensure deposit funds are available and ready to send to seller’s solicitor at exchange
(4) check mortgage offer is in place and buyer has complied with any conditions attached to the offer
(5) ensure insurance is in place as in most cases risk passes to the buyer on exchange
(6) both sides to sign their copy of the contract - in wet ink or electronic signature provided that the person signing the document intends to authenticate it and any execution formalities are satisfied
(7) solicitors to discuss completion date with client and the other side
(8) obtain client’s authority to exchange - in writing and make a note on file [client needs to be aware of the consequences of exchange]
How can exchange be done?
*in person
*by post
*over phone
What are the Law Society Formulas for exchange over phone?
Formula A:
*used when 1 solicitor holds both parts of the contract duly signed
*undertakings are that the solicitor holding both signed parts will, on the same day, send their client’s signed part to the other side by first class post, through DX, or by hand
*buyer’s solicitor also undertakes that, on the same day, will send to the other side a banker’s draft or client account cheque for the agreed deposit, with their client’s signed part of the contract if it is the buyer’s solicitor who holds both
Formula B:
*used where each solicitor holds their own client’s signed part of the contract
*undertakings that each solicitor will, on the same day, send the signed part of the contract that they are holding to the other side by first class post, through DX, or by hand duly dated
*buyer’s solicitor, together with the signed part of the contract, will that day also send the other side a banker’s draft or client account cheque for the agreed deposit
Formula C:
*mainly used when there is a chain transaction
- if want to pay deposit by electronic means, Formula will need to be amended
What is the consequence of exchange of contracts?
seller retains legal title in the property until completion, but holds the beneficial interest on behalf of the buyer - therefore seller entited to remain in physical possession and must pay outogings until completion
What should the solicitors do immediately after exchange?
inform clients that exchange has taken place
What are the requirements for a valid transfer deed?
(1) clear on the face of it that it is a deed
(2) in writing
(3) signed
(4) witnessed by an independent witness
(5) delivered - if it is clear on the fact of it that the document is a deed, it will be presumed that it has been delivered on execution
How can a company execute a deed?
(a) using the company seal in accordance with the articles of association
(b) having it signed by a director and the secretary, or by 2 directors of the company, provided that the deed is expressed to be executed by the company - i.e. signatories are signing on company’s behalf
(c) having it signed by a single director in the presence of a witness who then attests that signature
