Property Practice Flashcards
Key questions:
1. Title: registered or unregistered?
2. Estate: freehold or leasehold?
3. Client: selling or buying or both?
4. Transaction: residential or commercial?
5. Transaction: what stage?
Unregistered title
- Documentary evidence
- Epitome of title
Registered title
- Title number
- Register of title:
1. Property register
2. Proprietorship register
3. Charges register
If buying a flat or apartment = leasehold
Leasholds help get around problem of enforceability of positive covenants in the freehold context as the burden of a positive covenant does not pass in the freehold context
A leasehold contract should include a provision whereby the landlord can enforce covenants against other tenants in the block. This provision is not implied into lease and must be express
Synchronising transactions
Process of assuing the property that is being sold and the one being bought complete on the same day
Related transactions
If a client is buying and selling property on the same day
Stage of transaction
- Pre-market
- Pre-contract
- Exchange of contracts
- Pre-completion
- Completion
- Post- completion
Before stage 3: no binding commitment between seller and buyer
Stage 2
Seller’s solicitor:
- Prepare contract package
Buyer’s solicitor:
- Investigate title
- Conduct searches
- Raise enquiries
- Establish buyer’s finances
Completion must take place on a weekday
Stage 3
Transaction becomes legally binding
Usually take place on the phone
Once parties have exchanged contracts the parties cannot withdraw without penalty
Pre-contract v pre-completion
Pre-contract:
- Buyer deciding whether to buy
- Due diligence
Pre-completion:
- Buyer committed to buy
- Avoid suprise third-party interests
Completion
Date seller moves out and buyer moves in
Final 90% of sale proceeds are transferred and keys are handed over
Post-completion
Buyer’s solicitor must:
- Pay stamp duty tax within 14 days of completion
- Submit application to register the buyer’s title with land registry
Residential leasehold
Long term e.g. 99-999 years
Premium (up front purchase price) plus nominal rent
Commercial leasehold
Medium term e.g. 7-21 years
Usually higher monthly rent
Grant of new lease
Head lease created
Freehold owner grants to new tenant
Assignment of existing lease
Transfer of lease remainder
Existing tenant transfers to new tenant
Once lease is completed it is final and no longer negotiable between parties
A lease of more than 7 years is registrable
If a lease is being assigned and the incoming tenant finds any of the lease terms unacceptable they need to get the outgoing tenant to negotiate with the landlord to alter terms of lease and any alterations must be enshrined in a deed of variation of the lease
Deed of variation
In a commercial property it is likely the landlord must consent to assignment of leasehold but less likely in residential context
Key provisions of a lease
- Term
- Rights and easements
- Service charge and management company
- Tenant covenants e.g. rent, repairs, use of premises
- Alienation (ability of tenant to transfer their interest e.g. assign, sell or obtain mortgage)
- Landlord covenants e.g. quiet enjoyment, enforcement of tenant covenants, forfeiture
Rent review provision
Mechanism in commercial lease in which the landlord can review and increase rental payments
Capital gains tax
Tax on profits made when taxpayer disposes of an asset that has increased in value
When is tax payable?
Submit tax return
Pay tax within 30 days of completion
Principal private residence relief exemption
Provides relief against capital gains tax on the sale of a person’s principle residence
No tax payable on gain if:
- Seller’s only or main residence
- Not greater than half a hectar
- No part of their home has been used exclusively for business purposes e.g. holiday home, buy to let etc.
Professional conduct issues
- Undertakings
- Client confidentiality
- Conflicts of interest
Undertakings
Professionally binding promise given by solicitor (or anyone in the firm)
Law Society conveyancing protocol
Standardised forms and best practices for residential conveyancing
Stage 1 - energy performance
Seller produce an energy performance certificate to the buyer
- Details of property’s energy efficiency
- Valid for 10 years
- Not needed for listed buildings
Stage 1 - commercial
- Landlord’s consent to assign often required
- Licence to assign required (document containing landlord’s agreement)
- Outgoing tenant pays fees for landlord’s solicitor to prepare licence to assign
- Undertaking required to meet fees
- Extra security for landlord
a. rent deposit deed
b. guarantor
c. authorised guarantee agreeement
Stage 2 - seller’s solicitor
- Investigate title
a. If registered download via HMLR
b. If unregistered review epitome of title sent by seller and ensuring root of title is at least 15 years old - Obtain seller’s title
a. If registered download via HMLR
b. If unregistered locate title deeds
If the seller’s solcitor finds defects in their investigation of title what should they do?
- Rectify issue
- Include defects in draft contract
Stage 2 - seller’s duty of disclosure in contract
- Must disclose latent defects/encumbrances i.e. not apparent from inspection e.g. restrictive covenant
- Need not disclose patent defects/encumbrances i.e. discoverable from inspection
Exception: need not disclose physical defects due to caveat emptor/buyer beware
Stage 2 - seller’s solicitor
Seller fills out a property and information form and fittings and contents form
Buyer can ask seller questions
Seller may be liable to buyer for misrepresentation if forms incorrectly filled out or does not answer buyer’s questions
Stage 2 - the contract package
Residential property:
1. Draft contract in dupliate
2. Property information form
3. Fittings and contents form
4. Copy of seller’s title and title plan
5. Other relevant documents e.g. guarantees for work to be done such as new doors
Leasehold property - new lease:
1. Contract should have draft lease annexed to it
2. Landlord’s freehold title
3. Copy of any relevant planning permission and/or building regulation consent
3. Service charge budget
4. Details of any management company
5. If property less than 10 years old a new build warranty
Leasehold property - existing lease:
1. Outgoing tenants leasehold title
2. Existing lease
3. Leasehold information form
4. Copy of last 3 years service charge accounts
5. Copy of landlord’s freehold title
All agreed issues must be in contract to be binding
Parts of the contract
- Particulars of sale
- Name of seller, buyer and solicitors
- Details of property
- Purchase price - Standard conditions of sale
- Small print
- Basic provisions that govern transaction
- Capacity deposit is held
- Occupation of property between exchange and completion
- Steps in event of default
- And more - Special conditions of sale
- Fittings and contents
- Whether vacant on completion
- Additional provisions agreed
Key standard conditions on sale - deposit
Buyer pays 10% on exchange
Held by seller’s solicitor as stakeholder which means the solicitor does not have the right to transfer the funds to seller until completion
Seller’s solicitor may change standard terms so that buyer’s deposit is hold as agent for seller
Key standard conditions of sale - risk
Risk in the property passes to buyer on exchange of contract e.g if property burns down between exchange and completion the buyer is liable for the property
A prudent buyer will wish to insure property upon exchange
Contract only creates obligation to buy and sell, it doesn’t transfer the title to the property
Property information form
Gives practical information about property to buyer
Seller must declare presence of a non-owning occupier
Information must be fully disclosed by seller
If seller makes an misrepresentation then buyer can sue
If there is a non-owning occupier, a special provision in the contract is required to ensure they vacate on completion. The non-owning occupier must sign the contract so that they are bound by this clause.
The seller’s solicitor should not also act for the non-owning occupier (conflict of interest)
Seller’s solicitor should check with lender how much is owing on mortgage before exchange
Defect in title - indemnity insurance
Seller indemnifies buyer for loss due to defect in title
Buyer’s solicitor should ensure a special condition is inserted into contract obliging seller to provide indemnity insurance at seller’s cost on completion
Pre-exchange tasks
Seller’s solicitor:
- Obtain redemption figure for existing mortgage
- Agree form of contract
Buyer’s solicitor
- Report to buyer
- Confirm buyer wishers to proceed
- Confirm buyer’s financing
On exchange transaction becomes legally binding i.e point of no return
Buyer has to put down a 10% deposit on exchange and if they do not complete they will loose their 10% deposit
Methods of exchange
- By person
- By post: exchange takes part when the seller’s part is posted to the buyer’s solicitor
- By phone: three formuae for exchange of contracts over the phone:
a. One solicitor holds both signed parts of contract
b. Each solicitor holds own client’s signed part of contract
c. Used if chain of transactions
After exchange the solicitors must make a written memorandum of exchange to place on their files
Protection of contract by registration
If there is considerable time between exchange and completion the buyer’s solicitor should consider registering buyer’s interest
Registered land: notice on charges register
Unregistered land: C(iv) land charge
Varying terms of contract for sale of land
Exchange contracts again to include the new term of the contract
Example: if completion date is missed
Simultaneous exchange and completion
Pre-completion tasks: seller’s solicitor
- Apply to lender for up-to-date redemption figure for existing mortgage up to date of completion
- Prepare completion statement = net sale proceeds
- Complete the completion information and undertakings forms
Pre-completion tasks: buyer’s solicitor
- Check completion information and undertakings form
- Submit Certificate of Title
- Conduct pre-completion searches
- Bankruptcy search if buyer is obtaining a mortgage
- Company search is seller is a company i.e commercial contract
- Physical inspection by buyer
-
Draft transfer
- TR1 form (all land being sold) - Prepare completion statement for buyer
Pre-completion searches
Registered land:
1. Official search with priority
- Search updates register of title
- 30 working day priority period
- Prevents new interests from being registered after the search if the conveyance is completed and registered in te priority period
Unregistered land:
- Land charges search against seller’s name
- 15 working day priority period in which the transaction must complete
- Land registration must take place within 2 months of completion
Priority periods
Registered title:
- 30 working days to complete and register
Unregistered title:
- 15 working days to complete
- 2 months to register land
Completion
The buyer’s solicitor sends the balance of the sale price to the seller’s solicitor
Buyer collects the keys and takes up occupation and ownership of the property
Under the standard conditions of sale completion must take place by 2pm
Methods of completion
- By personal attendance
- By agent
- By post: the seller’s solicitor acts as agent for the buyer’s solicitor
Code for completion by post
Effect of completion: when does title pass?
Unregistered: title passes on completion
Registered land: titles passes on registration
Service charge
Cost of maintenance or repairs to the shared areas
Apportionment
Calculating the overpayment of service charge by the seller with the sum to be paid by the buyer on completion
May arise on completion of a leasehold transaction
Post-completion: seller’s solicitors tasks
- Report completion to seller
- Pay off seller’s mortgage
- Pay estate agent’s bills
- Send bill for legal fees
Post-completion: buyer’s solicitor
- Report completion to buyer
- Send bill for legal fees
- Register any company charge (mortgage) at Companies House within 21 days of completion
- Stamp Duty Land Tax submit return and pay within 14 days of completion
- Register title: register within 30 working day priority period
- Unregister title: register within 2 months of completion
Additional tasks for leasehold
- Purchasing a newbuild leasehold property which is managed by a management company they may need to buy a share in the management company - by way of application
- Assignment of existing lease: may be necessary for seller to transfer their share in the management company to the buyer - by way of a stock transfer form
- Assignment of existing lease: may be necessary for buyer’s solicitor to serve notice of assignment and mortgage (if any) to landlord under the terms of the lease
Stamp Duty Land Tax: thresholds
Residential freehold: £125,000
Residential leasehold: assessed on the premium paid if over threshold of £125,000 (lump sum purchase price) AND net present value (based on total rent paid on life on lease) if over £125,000
Commercial: £150,000
On exchange the completion date is inserted in contract and becomes fixed
Delayed completion = breach of contract - remedies
Any delay = right to interest on outstanding balance calculated at the contract rate
Completion is treated as taking place on the next working day e.g. if meant to take place on a Friday and it was delayed the next working day is Monday and so interest accrues over the weekend
Interest can be obtained if competition is delayed beyond 2pm but still takes place on the agreed day
If time of the essence = firm and cannot be moved = innocent party can rescind contract (unusual)
Under standard conditions of sale time is NOT of the essence unless otherwise stated in contract - innocent party is not immediately entitled to rescind contract BUT can claim interest
Notice to complete
Served on defaulting party requiring them to complete = makes time of the essence
Requires defaulting party to complete within 10 working days of service of notice (excluding day of service)
Innocent party must be willing, able and ready to complete at point of service of notice to complete
If defaulting part still does not complete then the innocent party can now rescind contract
What happens if defaulting party does not complete after service of notice to complete?
Buyer in default
- Rescind contract
- Keep deposit
- Claim damages for losses
Seller in default
- Rescind contract
- Claim deposit with interest at contract rate
- Claim damages for losses
Buyer’s deposit is held in seller solicitors account as stakeholder. If seller defaults on completion it can be recovered easily as held in seller’s solicitors client account
Default position under Standard Conditions of Sale is that the buyer’s deposit is held as stakeholder as this makes it easier to recover the deposit in event of a default by the seller
Remedies before completion
- Specific performance (equitable remedy) only available if damages are insufficient BUT likely in the sale of land as the land is unique
- Damages flowing from breach
Remedies after (or before) completion
- Misrepresentation: false representation of fact that induces the other to enter into a contract = recession
- Misdescription: error in property particulars of contract
- Breach of title guarantee covenants
Security of tenure for commercial tenants
Protection for tenants to remain in premises at end of tenancy under the Landlord and Tenant Act 1954
If Landlord and Tenant Act 1954 applies to business tenancy, tenant has security of tenure
If business tenancy is protected the tenancy will automatically continue unless brought to an end by:
- Forfeiture
- Surrender
- Landlord serves section 25 notice
- Tenant serves section 26 notice
Exclusions from Landlord and Tenant Act 1954
- Fixed-term tenancies which are less than 6 months
- Service tenancies
- Tenancies contracted out of the Act
Requirements for contracting out
- Landlord serves health warning notice (statutory notice explaining terms) at least 14 days before tenant commits to lease
- Tenant signs declaration in front of solicitor confirming they have seen and agree to health warning notice
- Reference to health warning in lease
Section 25 notice
Landlord serves to end tenancy or enter into new lease with tenant
Must serve 6 to 12 months before they wish to bring tenancy to an end
Must specific statutory ground to reclaim possession
Section 26 notice
Tenant serves to request new lease
Must serve** 6 to 12 months before** they wish new tenancy to start
Landlord has 2 months to notify whether they oppose and must specify statutory ground to oppose
Tenant may be entitled to compensation if lease ends and the tenant not at fault
