Property Practice

Question 1

What is the contract in a property transaction?

Answer 1

An agreement to transfer the land at a later stage.

Question 2

When might parties want to have a contract?

Answer 2

If the buyer’s financing arrangements are yet to be finalised.

The parties need more time to organise the practical aspects such as booking a removal company.

An obligation on the seller to do certain building work before the sale is completed.

Question 3

What are the two sets of standard conditions lawyers must use in property transaction contracts?

Answer 3

The Standard Conditions of Sale - residential and some simple commercial transactions.

The Standard Commercial Property Conditions

Question 4

What are the three parts of both the SC or the SCPC?

Answer 4

1. The particulars of sale
2. Standard conditions
3. Special conditions

Question 5

Do all burdens on the property need to be specified in the contract?

Answer 5

Yes - if not specified, the seller could be in breach of SC 3.1.1, which says that the seller sells free of all incumbrances other than those specified in the contract or of a type listed in SC 3.1.2.

Question 6

What incumbrances in the standard conditions are listed as subject to which the property is sold?

Answer 6

• Those specified in the contract.
• Those discoverable by inspection before the date of the contract.
• Those the seller does not and could not reasonably know about.
• Public requirements.

Also, SC includes:
- Those, other than mortgages, which the buyer knows about

• Entries made before the date of the contract in any public register, except for those maintained by the Land Registry, the Land Charges Department and Companies House

SCPC expresses same concept slightly differently:
- Matters, other than mortgages disclosed or which have been disclosed by the searches and enquiries which a prudent buyer would have made before entering into the contract.

Question 7

Where would you find incumbrances for a registered property?

Answer 7

Usually in the Charges register of the official copies but the property register should also be checked as burdens are often hidden away there, perhaps where a right benefitting the property has been given subject to an obligation to pay for it.

Question 8

What is the difference between selling with full title guarantee and limited title guarantee?

Answer 8

A seller should sell with full title guarantee if they own the entire legal and equitable title to the property.

Limited title guarantee is given where the seller has limited knowledge of the property, e.g. where the seller is an executor or trustee.

Occasionally a seller will insist that no title guarantee is given at all, e.g. where the seller is a person appointed following the insolvency of the owner.

Question 9

With full title guarantee and limited title guarantee, what is the seller impliedly covenanting?

Answer 9

That:
1. They have the right to dispose of the land.

2. They will do all they reasonably can to transfer the title.
3. In the case of leasehold land, the lease is subsisting at the time of disposal and there is no breach of covenant making the lease liable to forfeiture.

With full, the seller will also impliedly covenant that the land is free from incumbrances other than those the seller does not know about and could not reasonably know about.

Question 10

What is Contract rate?

Answer 10

Contract rate is the rate of interest that will be charged if a party is late in completing.

The interest is charged on the purchase price (less the deposit if it is buyer in default as the buyer has already given this).

Most opt for Law Society’s interest rate “from time to time in force”.

Currently 4% above the base lending rate of Barclays.

Already provided for in SCs and SCPCs.

Question 11

What does it mean if the deposit is paid to the seller’s solicitor as ‘stakeholder’?

Answer 11

The seller’s solicitor cannot hand it over to the seller until completion.

However, the SCs allow the seller to use the deposit as a deposit on a related purchase of a house for the seller.

Question 12

When is an indemnity covenant necessary in a contract for a sale of property?

Answer 12

When the title is burdened with covenants and the seller is either the original covenantor or has given an indemnity covenant to their seller when they acquired the property. This is for positive covenants as the do not run with the land.

Question 13

When does risk of damage to the property pass to the buyer?

Answer 13

On exchange of contracts. It is important to have insurance in place at the moment of exchange.

It may be appropriate for the parties to agree that the risk remains with the seller, e.g. on a new build property in the course of construction.

Question 14

When is VAT payable on property transcations?

Answer 14

VAT is not normally chargeable in residential transactions.

Contracts for the sale and purchase of commercial property should deal with whether the buyer will have to pay VAT in addition to the purchase price.

VAT is payable when the property is less than three years old, or because the seller has exercised the option to tax.

Question 15

What happens when the purchase price is exclusive of VAT and VAT is added on top?

Answer 15

This is appropriate for the standard rated supply of a commercial building within three years of construction where the seller has no choice.

Also, this is appropriate for an old commercial property where the seller has opted to tax to recover VAT paid on refurbishment etc.

Question 16

What happens if the purchase price is inclusive of VAT so that VAT, if any, cannot be added on top?

Answer 16

If the supply is standard rated, the supplier will have to account to HMRC for the VAT out of the purchase price.

This may be appropriate for the supply of an old commercial building where the seller does not have any input VAT to recover and so has no reason to opt to tax.

This is a popular option for VAT-sensitive buyers who cannot recover VAT paid on the purchase price.

Risk for the seller as law may change and a supply of land that used to be exempt becomes standard-rated: the seller will have to take the VAT out of the agreed purchase price.

Question 17

What happens where the purchase price is exclusive of VAT, so VAT can be added on top if the law changes between exchange of contracts and completion to make an exempt supply chargeable at the standard rate, but the seller is contractually obliged not to opt to tax?

Answer 17

This is appropriate for the supply of an old commercial building where the seller does not have input VAT to recover so does not need to opt to tax, but not willing to take the risk that there will be a change in the tax regime.

Question 18

When does overreaching take place in property transactions?

Answer 18

On completion. Therefore, the second trustee (if necessary) does not need to be named in the contract. However, there should be a special condition that the seller will appoint the second trustee.

Question 19

What does the special condition regarding the second trustee need to specify?

Answer 19

What sort of title guarantee the trustee will give in the transfer.

Question 20

How are mortgages made legal?

Answer 20

Mortgages are made legal if made by deed and completed by registration.

Most lenders will want a first legal mortgage over the property owned by the borrower.

Question 21

Can a solicitor act for a borrower and a lender?

Answer 21

Under the Code of Conduct it is possible for a solicitor to act for a lender and a borrower on a property transaction under para 6.2, even if there is a conflict of interest, provided that the clients have a substantial common interest and all the safeguards in para 6.2(i)-(iii) are in place.

Question 22

Where can you see instructions for individual member lenders online?

Answer 22

In the UK Finance Mortgage Lenders’ Handbook for Conveyancers.

Majority of UK mortgage lenders are members of UK Finance or the Building Societies Association.

Question 23

What are the main tasks in the pre-completion stage for a property transaction?

Answer 23

• Preparation of the transfer deed
• Pre-completion searches
• Making practical arrangements for completion
• Ensuring the finances are in order for completion

Question 24

How can a company execute a deed for the transfer of a legal estate?

Answer 24

Three ways:

i) using the company seal in accordance with the articles of association

ii) having it signed by a director and the secretary, or by two directors of the company, provided that the deed is expressed to be executed by the company

Question 25

When will the buyer sign the TR1 deed?

Answer 25

When the buyer is entering into an obligation or making a declaration, such as giving an indemnity covenant or declaring a beneficial interest under a trust.

Question 26

When would a deed of transfer (TR1 form) be deemed to have been delivered?

Answer 26

It is presumed to have been delivered on execution, but this can be rebutted by a contrary intention.

So, if the client has signed the transfer but doesn’t intend for it to come into force yet, it must expressly say so in the covering letter when sending the deed.

Question 27

What is the TP1 form used for?

Answer 27

Transferring parts of land.

Question 28

What form is used for the sale of unregistered land?

Answer 28

It is subject to compulsory first registration so solicitors often choose to use a Land Registry form but it is possible to use a conveyance.

Question 29

Why are pre-completion searches carried out?

Answer 29

1. To make sure that the seller has not further encumbered the title since investigation of title took place.
2. To check the financial circumstances of the borrower when acting for the lender.
3. To gain priority for the buyer and the lender over anyone else making an application before the buyer applies to register the change of ownership at the Land Registry.
4. If the seller is a company, to check that the company has not gone into liquidation before the balance of the purchase price is paid over on completion.

Question 30

What pre-completion searches should be done for registered property?

Answer 30

Land Registry search against the title number.
- Form OS1 used if whole property being sold
- Form OS2 if the sale is of part only (usually accompanied by a plan).

The search result confers on the application a priority period of 30 working days which provides protection to the applicant against any subsequent entries which may be placed on the register after the date of the search but before the buyer is registered as proprietor. The buyer will take free of any such entries (if they do it by noon on the last day of the period).

Question 31

What pre-completion searches are undertaken for unregistered land?

Answer 31

Land charges search on form K15.

Priority period of 15 working days.

No need to search again against the names of previous owners.

Question 32

How does the lender check the buyer’s solvency pre-completion?

Answer 32

• If the title is registered, land charges search against the name of the buyer. ‘Bankruptcy only’ search using form K16.
• If title is unregistered, add the buyer’s name to the land charges search on form K15.

If the buyer is a company, a company search must be done. No priority period so must be done as close to day of completion as possible.

Question 33

Is it necessary to do a bankruptcy search on a seller pre-completion?

Answer 33

The status of the seller will be revealed in Form k15 already being done.

If it is registered, not necessary because the buyer will be a bona fide third party purchaser.

Question 34

How are practical arrangements for completion organised?

Answer 34

Via Form TA13 Completion information and undertakings.

This asks the seller to confirm information relevant to completion including:
- arrangements for handing over the keys
- the place and method of completion
- the documents to be handed over at completion
- the exact amount payable on completion

The form also contains the undertaking the seller’s solicitor gives to redeem the mortgage out of the completion money on completion.

Question 35

What does the lender expect to receive before releasing the mortgage advance?

Answer 35

• A certificate of title to confirm that the property is adequate security for the loan being advanced.
• A solvency search against the borrowers.
• A clear OS1R in the name of the lender.
• An executed but not completed mortgage deed.

Question 36

How is the balance of the purchase price and the release of the deposit handled at completion>

Answer 36

The buyer’s solicitor will arrange for the completion money to be sent electronically: SC 6.7 and SCPC 9.7 require the completion money to be paid by direct transfer/electronic means in cleared funds from an account held in the name of a conveyancer at a clearing bank.

Question 37

When does the seller’s solicitor date the TR1 form?

Answer 37

On receipt of the completion money.

Question 38

When is the mortgage deed dated?

Answer 38

Once the TR1 has been dated as technically the buyer does not own the property until then and so would not be in a position to grant a mortgage over it.

Question 39

How does completion in person take place?

Answer 39

One solicitor will attend the office of the other. All parts of the transfer should have been executed.

The Buyer’s solicitor will check any title documents against the evidence of title previously sent to them.

In return for receiving the completion money, the seller’s solicitor will hand over title documents and other documents relating to the property, e.g. planning permissions. Then they will arrange for the release of keys.

Disadvantage - this takes time.

Question 40

How is completion by post handled?

Answer 40

Worry with post is unreliability. Therefore, Law Society introduced a Code for Completion by Post which relies on undertakings given by the solicitors involved in order to be effective.

The Code involves the seller’s solicitor acting as the agent of the buyer’s solicitor.

On receiving the completion money, the seller’s solicitor will then carry out the instructions and complete the transaction. They then inform the buyer that completion has taken place.

The documents which would have been given to buyer’s solicitor are instead sent by first-class post or document exchange.

The seller gives an implied undertaking to carry out the buyer’s solicitor’s instructions which may be enforced through the courts.

Question 41

What are the steps that need to be carried out post-completion?

Answer 41

Discharge of the seller’s mortgage

SDLT/LTT

Registration of the new charge at Companies House

Land Registry application(s)

Question 42

What happens when a lender receives the money from sale to redeem a mortgage from the seller’s solicitor?

Answer 42

Either:

• complete Land Registry from DS1 and send it to the seller’s solicitor for onward transmission to the buyer’s solicitor; or
• submit an e-DS1 electronic discharge through the Land Registry portal; or
• use the Electronic Discharge (ED) system, sending an electronic message to the Land Registry which automatically removes the charge from the register.

Question 44

When must a new charge be registered post-completion?

Answer 44

If the buyer is a company and has purchased the property with mortgage, the lender’s solicitor will have to register the charge at Companies House within 21 days of its creation to ensure constructive notice of it is given to other creditors of the company.

This time limit is absolute, failure to register renders the charge void against a liquidator or administrator of the borrower and the borrower’s other creditors.

Question 45

What happens with Land Registry applications of registered land once SDLT/LTT has been paid (and the charge registered at companies house if necessary)?

Answer 45

Applications to have the buyer registered as proprietor and lender registered as proprietor of the charge are made on Land Registry form AP1.

A certified copy of the transfer should be submitted with the application, along with the fee, the SLDT/LTT certificate and the DS1 (if used).

Also must complete form DI setting out any overriding interests that burden the title. These will be entered on the register and thus cease to be overriding.

If the buyer has created a new mortgage, the following documents will also be needed:

• certified copy of the mortgage deed
• if the buyer is a company, certified copy of the certificate of registration issued by Companies House
• if the buyer is a company, the solicitor’s/lender’s written confirmation that the enclosed copy is the same as that listed at Companies House and to which the registration relates.

Application to be made before end of priority period.

Question 46

How do you make an application for first registration of title?

Answer 46

Must be made within two months of completion of the transaction on Form FR1.

The form, fee and documents listed below should be sent to Land Registry.

Original or certified copies of:
- all the documents which formed the evidence of title supplied by the seller’s solicitor
- all the buyer’s pre-contract searches and enquiries relating to the title with their replies
- the contract
- requisitions on title with their replies
- all pre-completion search certificates
- the transfer deed
- the seller’s mortgage, duly receipted
- SDLT/LTT certificate
- Form DI

Question 47

What is the date contained in the SC and the SCPC for completion?

Answer 47

20 working days after the date of the contract.

Question 48

What are the remedies if completion slips?

Answer 48

• Contractual compensation
  SCs allow for both buyer and seller to pay compensation while SCPCs allow for only the buyer to pay compensation. Compensation calculated at the contract rate for the period between the contractual completion date and the date of actual completion.
• Common law damages.
  Putting the claimant in a position it would have been had the contract been correctly performed.
• Notice to complete
• Rescission
  SCs and SCPCs allow for rescission in certain circumstances. E.g. where a party has failed to comply with a notice to complete or misrepresentation by the seller in a plan or statement in a contract.

Question 49

What is the Law Society interest rate?

Answer 49

9.25%

Question 50

When does the priority period start?

Answer 50

From the date specified in your OS1R.

Question 51

How can a lease be made legal?

Answer 51

Leases for more than 3 years: a deed

Leases for three years or less: ‘parol leases’ and can be created orally.

Question 52

When will equity intervene to create a lease?

Answer 52

• where there is a contract to create or transfer a legal estate; or
• where there is an attempt to use a deed but the deed is not valid.

Question 53

Does the landlord need to give consent for the assignment of the lease?

Answer 53

Leases of commercial property usually provide for landlord’s consent to be obtained before any assignment can take place.

It the assignor’s responsibility to apply for the consent and to use all reasonable endeavours to obtain it, but both parties to the assignment need to be involved.

Question 53

What happens if landlord consent hasn’t been given by or on completion of the assignment?

Answer 53

SCs: either party may rescind the contract by notice if the consent has not been given three working days before the completion date or if, by that time, consent has been given subject to a condition to which the buyer objects. Gives arise to uncertainty as to whether the transaction will complete.

SCPCs: if the landlord’s consent has not been obtained by completion date, completion postponed until five working days after the assignor notifies the buyer that consent has been given. The contract may not be rescinded until six months have passed since the original completion date. Either party can then rescind by serving notice on the other.

Question 54

What components will a licence to assign contain?

Answer 54

a) consent will normally be time-limited

b) if granted after 1 Jan 1996, assignor will give AGA

c) if granted before 1 Jan 1996, direct covenant by the assignee to the landlord

d) assignor agrees to pay the landlord’s legal and professional costs

Question 55

What is the relationship between the landlord and the assignee?

Answer 55

‘Old lease’ - an assignee of an old lease is liable under the doctrine of privity of estate for all the covenants in the lease which ‘touch and concern’ the land, but only for as long as the lease remains vested in the assignee. Therefore, landlord will seek to extend the liability of the assignee through a direct covenant.

‘New lease’ - an assignee of a new lease also liable for breaches of covenant committed while the lease is vested in them (all of tenant’s covenants though). However, on future assignment, the assignee is automatically released. A direct covenant should be limited to the time they are a tenant. To compensate the landlord for this loss of privity of contract for the whole of the term, statute allows the landlord to enter into an AGA.

Question 56

Can a landlord insist on an AGA?

Answer 56

Yes - if in lease, whenever. if not in lease - only when it is reasonable to do so

Question 57

What covenants does an AGA typically include?

Answer 57

a) guaranteeing that the assignee will perform the tenant’s covenants in the lease, including the covenant to pay rent

b) promising to perform such covenants if the assignee does not

c) indemnifying the landlord for the assignee’s failure to pay rent or to observe the other covenants

d) promising to take a new lease if the liability of the assignee is disclaimed on insolvency.

Question 58

What pre-contract enquiries and searches should an assignee’s solicitor do?

Answer 58

They should make the same enquiries and searches, for the same reasons, as on a purchase of a freehold property.

In addition, the assignee’s solicitor should ask to see the insurance policy relating to the property and the receipt for the last insurance premium due.

The assignee should also ask to see a copy of the receipt for the last payment of annual rent due under the lease to check that the assignor is not in breach of the lease - if there are any outstanding breaches the landlord will be able to enforce the breach against the assignee.

Where the lease has only a short period left unexpired, the buyer may not carry out all the searches as the risk does not justify the cost involved.

Question 59

What form do you use for an assignment of a lease?

Answer 59

TR1

Question 60

What happens if a tenant of an old lease breaches a covenant?

Answer 60

The landlord can sue the original tenant (as they remain liable) in privity of contract. They can also sue the current tenant in privity of estate.

Question 61

What happens if a tenant of a new lease breaches a covenant?

Answer 61

With new leases, the original tenant is released from liability for the covenants in the lease. Therefore, can require AGA - only lasts for duration of that assignee’s ownership of the lease.

Question 62

What remedies are available for breach of the covenant to pay rent?

Answer 62

Action in debt (limitation 6 six years)

Commercial rent arrears recovery (7 days notice, use enforcement agency, cannot remove stuff up to 1350 which are necessary)

Pursue guarantors and/or rent deposit

Forfeiture

Question 63

Can a landlord pursue a former tenant or former guarantor for rent?

Answer 63

Yes - if they comply with s17 LTA.

• must serve ‘default notice’
• notice must be served within six months’ of current tenants breach

If the person then pays the sum asked, they can call for an ‘overriding lease’ (making them the landlord of the defaulting tenant).

Question 64

What are the remedies for a landlord for a breach of the covenant to repair?

Answer 64

Specific performance (only to be granted where other remedies not appropriate)

Damages (limited to amount the freehold reversion has gone down in value)
- if lease for more than 7 years and with more than 3 years left, notice must be served and then tenant has 28 days to counter notice and if so, landlord cannot proceed with claim without leave of court.

Self-help: recover as a debt (jervis v harris clause)

Forfeiture: must serve s146 notice (if lease more than 7 years with more than 3 years left, must include notice of right to counter notice within 28 days)

Question 65

What are the remedies for breaches of other covenants (not rent or repair)?

Answer 65

Forfeiture

Injunction

Specific performance (only where positive obligation is sufficiently precise)

Damages

Pursuing a former tenant or their guarantor

Deduction from the rent deed (in accordance with terms of deed)

Question 66

What does the surrender of a lease involve?

Answer 66

It is a mutual act by the tenant and landlord. Can be done informally by operation of law, but in commercial cases - probably done by deed of surrender.

Question 67

When does the 1954 Act apply?

Answer 67

any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.