Property practice Flashcards
Lease provisions (general)
Lease for more than 7 years (and => subject to compulsory registration in own right) => must contain prescribed clauses at the front of the lease (ie summary of the lease terms in a standard form)
General lease provisions as to:
- Term
- Easements and exceptions
- Suspension of rent (ie in the event the premises are damages or destroyed)
- Service charge
- Management company
Typical tenant covenants as to: Rent (if long residential will have paid lump sum premium but still likely yearly payments of a nominal value), Repair, Alterations, Use, Insurance, alienation
Typical LL covenants as to: quiet enjoyment, ability to enforce other tenants’ covenants, forfeiture
Unacceptable lease clauses =
- Eg clause imposing absolute prohibition against assignment in long residential lease
- Unacceptable clause in existing lease => buyer’s solicitor should insist the lease is amended by a deed of variation. Not removed/altered => should advise client to withdraw from transaction
Commercial lease provisions (general)
Similar to long residential lease
BUT:
1. Rent
- LL will require much higher rental payments
- Typically paid on monthly or quarterly basis
-Considered reasonable for LL to refuse assignment of a lease if LL has reason to believe the incoming tenant will not be able to pay throughout the lease term
- => terms are more restrictive than in a long residential lease
- Rent review
- LL can only review/increase rent during the lease term if there is a rent review clause
- Provision => review will take place at specified intervals and involve a valuation of the property at the time of the review
- LL serve notice on tenant calling for a rent review at review date
- LL and T cannot agree figure => take to arbitration if the lease so provides - Specify use of the property
Preliminary matters (to do)
- Taking instructions on sale an dpurchase (incl CC letter etc)
- Survey on purchase - Buyer’s sol should advise buyer to have a surveyor carry out a physical inspection to determine whether there are any structural defects or problems which might affect the value of the property
- Consider whether S will have to pay CGT
- Consider professioal duties
- GIve any co-ownership advice
Preliminary matters (CGT advice)
= a tax on profits
Could be due on sale but CGT not payable in most residential transactions because of principal private residence relief (tax relief/exemption)
CGT due => seller must submit tax return and the tax to HMRC within 60 days of the completion date
Preliminary matters (professional conduct matters)
- Undertakings
- Confidentiality
- Sol must ensure that any 3rd parties have the authority of their client to discuss the client’s transaction with them
- Sol may act for both lender and buyer if mortgage involved BUT Duty of confidentiality to buyer paramount => if buyer instructs sol not to disclose a certain issue to the lender, the sol must cease acting for the lender - Conflicts of interest
- Avoid conflict or ‘sig risk’ of a conflict
- Avoid acting for buyer and seller
- May act for two sellers, two buyers so long as agree on specifics of sale and no apparant conflict between parties
- Eg may disagree as to how sale proceeds are split between them
- If jointly instructed must make sure they take instructions from each of the clients and give co-ownership advice
- Can act for both buyer and lender if:
a)lender is an institutional lender
b) standard certificate of title is provided
c) sol maintains client confidentiality between the two
Preliminary matters (co-ownership advice)
Eg re JT/TiC and how legal vs beneficial estates can be held
Buyers hold beneficial interest as TiC => advisable for them to enter into declaration of trust
Set out the circs of the purchase, their contributions, their shares in the property
Imp for parties to set out a will (survivorship does not apply)
Law Society Conveyance Protocol
= statement of best practice for residential conveyancing
Provides set of steps for each stage of a transaction that should be followed
BUT, whilst detailed, cannot account for every poss variation and so always up to the sol to decide what is required to act in best interest for the client
Freehold, leasehold, mortgage lenders, but NOT purchase of new build homes or commercial property
Energy performance certificate (Pre-market)
Pre-market
Mandatory - seller must provide
Ie contains info about property’s energy use and typical energy costs + recs on how to reduce energy and save money
Gives energy rating
Valid for 10 years (new one needed => should be ordered before property is marketed)
Not required for listed buildings
New commercial lease (Pre-market)
Commercial estate agent negotiates heads of terms (ie agreed terms – equiv of memorandum of sale)
Code for leasing business premises = sets out best practice for LLs when negotiating terms of a commercial lease with a T, incl:
- LL must make offers in writing which incl clear terms regarding matters incl rent and length of term, any rights to break the lease, rent review arrangements, right to assign, repairing obligations
Assigning existing commercia lease (Pre-market)
Licence to assign may be required
- LL must be satisfied as to incoming commercial T (good standing and able to afford the rent – provision of references/business accounts)
- LL satisfied => sol will draft licence to assign (contains all terms/conditions + creates privity of contract between them)
LL may require extra security
1. Rent deposit (in addition to first rental payment)
- LL holds in deposit account and used in the event of default by T (no default => returned when lease ends/assigned)
- 3 months rent = typical
- Guarantor
- New lease => could be an additional party to the lease
- Assignment => LL and guarantor will enter into separate deed of guarantee - Authorised Guarantee Agreements (AGAs)
- Ie outgoing T acts as guarantor for immediate successor in title
- Commercial lease may incl provision requiring T to provide an AGA on assignment
Investigating title (pre contract)
S’s sol investigates S’s title
- Obtain title deeds
a) Registered => download copy of the register etc from HMLR and check charges register of S’s title to establish any mortgages
b) Unregistered => title deeds must be located
- Mortgage => lender may hold title deeds. S’s sol writes to lender to obtain deeds and give an undertaking not to part with deeds until such time as mortgage is paid off out of sale proceeds on completion - Remedying defects in title
- Eg missing docs or name discrepancies
- Protocol requires S’s sol to remedy these as part of their investigation - Obtain confirmation of title plan from S
- Deducing title
- S’s sol will send a copy of title to B’s sol
- B’s sol checks title to ensure S is entitled to sell the property (‘investigating title’) - S has mortgage
=> S’s sol asks lender for indicate redemption figure to ensure that the sale proceeds will be sufficient to redeem the existing mortgage on completion
- As S’s sol will be undertaking (for which they are personally liable) to redeem (ie pay off) any mortgages out of the sale proceeds on completion
S’s duty of disclosure (pre-contract)
Limited duty of disclosure ie S must disclose latent defects and burdens (ie encumbrances) but need not disclose patent ones
Latent = not apparent from an inspection of the property
- BUT duty to disclose latent does not extend to physical defects in the property (due to ‘caveat emptor’)
- B’s responsibility to inspect property for physical defects (why should have survey done)
Patent = revealed by any inspection
- BUT if S tries to cover up patent defect = wilful deceit (S could be sued in tort)
Non-disclosure => B has right to withdraw from contract after exchange and claim damages for losses
S has much greater obligation to disclose re the Property Information Form and responding to the B’s pre-contract enquiries (misrep here => can be sued for misrep)
Contract package (pre-contract)
S’s sol sends contract package to B’s sol
S’s sols drafts contract and send contract package incl:
- Draft contract in duplicate
- Property information form and fittings and contents form completed by S
- Copy of title, relevant docs, title plan
- Any guarantees or copy planning permission
Fitting and contents form
Lists items at property and incl in sale price and those excluded from sale price
Annexed to and forms part of the contract
S can be sued if takes items on ‘incl’ on form
B agrees to purchase items above sale price, sum will be indicated on partics of sale and items buyer is purchasing will be listed and incl in the contract
Property information form
Completed by S and B entitled to rely on those answers
Incl: (do not need to memorise these)
- Position of property’s boundaries
- Any disputes with neighbours re the property
- Any building work and/or alterations by S
- Any notices received by S
- Any guarantees or warranties
- S’s property insurance details
- Any flooding of the property
- Anyone exercising any informal rights over property
- Any services that cross property
- Parking arrangements
- Occupiers of property
- Utilities the property is connected to
B’s sol must check occupiers to make sure it accords with info in contract
Non-owning occupiers must agree to sign the contract as confirmation they will relinquish any rights in the property and move out of the property on completion
Contract package on assignment of existing lease (pre contract)
Incl:
- Outgoing T’s leasehold register of title
- Copy of existing lease
- PIF and leasehold info form
- Copies of last 3 years service charge accounts (if any)
- Copy of LL’s freehold register of title
- Property less than 10 yrs old => copy of any new build warranty, planning permissions, building regulations consent
Consent to assign:
- S’s sol check whether consent from LL required (consent is not to be unreasonably withheld)
- Consent required => S must apply for consent at their expense (and B provide rel info)
- B has right to rescind the contract if LL’s consent not obtained by 3 working days before completion
IMP: buyer’s sol should insist on requiring LL to produce copy of freehold title so that prior to exchange the outgoing S’s sol can apply to HMLR to upgrade any good leasehold title to absolute leasehold title
Form of contract and terms (residential)
Form of contract typically used = contract incorporating the standard conditions of sale
Divided into 3 parts =
- Particulars of sale (inlc name of parties, whether proprty is freehold or leasehold, type of title guarantee given, completion date, purchase price)
- Standard conditions of sale (inlc provisions for payment fo VAT, deposit risk of loss)
- Special conditions of sale (incl conditions specific to the particular transaction, eg whether property will be vacant upon completion and whether a different time for completion has been agreed)
Form of contract and terms (general)
- Must be in writing
- Any issue must be incl in contract to be binding
- Terms obvs take effect after exchange of contracts (and not before)
Form of contract and terms (commercial)
Standard commercial property conditions (SCPC) used instead
Requires same basic info as residential but more detailed
Two parts:
- Part 1: will apply unless expressly excluded
Eg contains general conditions covering issues eg service of notices, emcumbrabces, VAT, title, risk, insurance, completion, and remedies
- Part 2: provisions incl only if expressly incorporated
Eg detail on VAT, transfer of business as a going concern, taxation allowances
Key features of standard conditions of sale
- purchase price and contents price incl VAT unless contract is amended
- Buyer is required to pay 10% of purchase price
- S has related purchase of a property FOR THEIR RESIDENCE IN ENGLND AND WALES, they can use the deposit received on their sale towards deposit on related purchase transaction (creates chain of transactins)
- deposit held by S’s sol as stakeholder (ie in their firm’s client account on behalf of both parties and cannot be paid over until completion) - S must provide full title guarantee unless SCS are amended (generally given by S who owns full legal and equiatble interest and has lived on the property), which incl guarantee that:
a) S is entitled to sell property
b) S will, at their own cost, do all in their power to transfer the purpoted title to B
c) S is selling free form all charges or encumbrances other than those disclosed on contract
VS limited title guarantee: warrants that S has not created any charges or granted any rights during their perdio of ownership they have not disclosed (given by seller with less knowledge/involvement eg a PPR)
VS no title guarantee: S has no knowldge of the property (eg mortgage in possession or disposing of property through gift) - Completion
- Date not inserted => SCS provide it will take place 20 working days after exchange - Risk and insurance
- SCS provide risk in property passes to buyer on exchange of contracts
- SCS provides S does not have to insure property between exchange and completion - Indemnity covenant
- Ie if contract discloses obligations relating to the property which will bind B (eg maintenance of fence), SCS provide that B agrees to perform the obligation and to indemnify S if B breaches the obligation in the future
Special conditions in SCS
Lage page of contract
Those specific to the partic transaction
Also incl those assumed to be applicable for most transactions incl:
- Whether property being sold will be vacant or there will be a T in situ
- Whether a diff time for completion has been agreed
- Whether there are any occupiers in the property
B’s sols action upon receipt of contract package
- Investigating title - B’s sol should do so when they receive the contract package
- Raising requisitions on title
- Ie if issues with title B’s sol will ask questions of S’s sol (raise pre contract enquiries)
- B’s sol will require all of their enquiries to be resolved before advising client to proceed to exchange of contracts - Defects in title identified (not raised y S’s sol/disclosed in ocntract)
- => raise with S’s sol and enter into deed of variation or deed of rectification to put problem right
- not possible => B’s sol request that S’s sol provide a draft insurance policy, confirm S will pay cost of policy, and incl this agreement as a special condition in the contract (ie indemneity insurance to cover future losses that may arise from the defect)
Investigating title (registered land)
=> B’s sol will be looking for encumbrances or class of seller’s title
=> looks at register of title at HMLR
Register of title divided into following sections:
- Header section
- Title no, edition date (ie when register of title last updated by HMLR), date and time of official copy (when copy was produced), land registry office that deals with that title - Property register
- Identifies property by postal address and ref to the title plan
- Specifies legal estate hold and if LH will give brief description of lease (date, parties, term, rent)
- Rights benefitting property will appear as notice - Proprietorship register
- Specifies class of title held and name of current holder/s of legal estate
- Restriction affecting title => will appear here (eg re trust interest as Form A restruction) - Charges register
- Contains details of encumbrances on the land ie entries which adversely affect the land (eg RCs or mortgages)
Investigating title (unregistered land)
S provides:
1. root of title
ie doc that:
a) Deal with the whole legal and equitable interest in the property
b) Contain an adequate description of the property
c) Be at least 15 years old at the date of the contract
d) Do nothing to cast doubt on the title
- epitome of title
= chrono list of the docs with a copy of each doc attached to the epitome
B’s sol checks whether:
1. Land should have been registered (ie no event since root of title that would have triggered first registration. If there is, S’s sol would have to make an app to HMLR to register before drafting contract)
2. Good root of title and unbroken chain of ownership from root to current seller
3. Whether docs have been stamped correctly (indicating any relevant stamp duty has been paid)
4. Whether S has ability to sell property
5. Whether any 3rd parties might have rights in rel to the land
B’s pre-contract searches (those done in every case)
- Local search (Gathers info held by LA in which property is situated)
a) local land charges
- Ie any registrations made against the property by the LA which would in some way burden the property
- PLanning charges in rel to development of property
- tree preservation orders
- listed bubilding charges
- BUilding regulation completion certificates
b) enquiries as to roads, public rights of way, planning
c) optional (ie LA will asnwer if requested and fee is paid)
- Any road proposals by private bodies
- Major gas pipelines
- Property is HMO
- Environmental pollution notices have been served
- Property abuts common land and town or village green - Drainage and water search
- Ie whether property is connected to public water supply and public foul drainage system
- Sent to local water company
- Property not connected => can be raised as enquiry - Environmental search
- Landowners responsible for paying clean-up costs for any contaminated land they own (even if current landowner didn’t cause contamination)
- => search should be carried out to reveal current and former use of land
B’s pre-contract searches (if unregistered)
Search of the index map
- Ie sending property’s address or plan via HMLR’s portal for a fee
- Search reveals whether property is fully or partially registered
B’s pre-contract searches (if mortgage)
Bankruptcy search
- B’s sol does search against the full name of the B/s
- Reveals any pending or actual bankruptcy orders against the buyer
- Result must be reported to the lender and the transaction will probably fail as lender will not lend to someone who is facing bankruptcy
B’s pre-contract searches (if S is a company)
Company search
- Reveals whether company is subject to any winding up or liquidation proceedings and whether company is authorised to deal in sale and purchase of land
B’s pre-contract searches (location-specific searches)
- Coal mining search
- If in area where coal mining is/has been carried out
- Imp as coal mining shafts could affect stability of property
- Also apply to other forms of mining - Chancel liability search
- Ie subject to ancient obligation to contribute to upkeep to chancel of a church
- If liable – indemnity insurance usually solution
B’s pre-contract searches (physical inpsection)
Survey carried out
B should also carry out physical inspection (eg for evidence of right of way or person in occupation)
PIF also treated as pre-contract search/enquiry
Raising enquiries (residential)
ie What to do if issues come up in B’s pre-contract enquiries
Copy of enquiries and responses provided by S should be sent to B for their perusal and comment prior to exchange of contracts
B’s sol should not proceed to exchange until all enquiries have been answered to their satisfaction (as once exchanged B cannot withdraw without penalties if any issues only come to light after exchange, unless misrep by S)
Raising enquiries (commercial)
Commercial property standard enquiries (CPSE) = equiv of PIF
Range of pre-printed enquiries that B’s sol will send to S’s seller for completion and return
Additional supplemental forms depending on nature of transaction (eg if property sold subject to existing tenancies)
CPSE more comprehensive than PIF
Incl: (no need to memorise)
- Boundaries
- Rights benefitting/burdening property
- Fire safety
- Planning and building regs
Town and country planning (general)
ie planning law imposed by LAs
Imposes restrictions on building on/alteration of property
Eg S must disclose any alterations made and show they had permission, and if B wants to make alterations post-sale they will need to make sure that is permitted
Restrictions may also be contained in title (eg RCs) - so imp to also investigate title
When is planning permision required
For any development of land (permission can be deemed or express)
Development defined as:
- Carrying out building, engineering, mining or other operations in/on/over/under land; or
- Making any material change of use of any buildings or other land (interpreted broadly)
Planning permission - deemed permission
ie in Town and country planning (general permitted development) order 1995
- Allows permitted development (ie certain types of dev) without the need for express consent
- Eg small home extensions, fences, conservatories
BUT Article 4 direction disapplied deemed permission
- LA can exclude locations (eg a conservation area) by passing art 4 direction
- Enables LA to maintain stricter control
- Means even if minor changes intended, permission still required
Planning permission - express permission
Do not have deemed => must make app to local authority for express
Two types:
- Outline
- Gives broad permission as to principle of dev on land in question
- Subject to ‘reserved matters’ (eg details of materials to be used which must be approved by LA)
- Reserved matters => has to be full application within 3 years of the outline permission to obtain approval on those matters
- Work must start within 2 years from approval of reserved matters - Detailed permission
- More complex and costly, involving submission of full plans to the LA
- Approved => allow dev to commence
- Likely to be subject to many planning conditions
- Development must start within 3 years of permission (otherwise permission lapses)
Planning permission - enforcement action
LA can take enforcement action against owner/occupier of land
- Could incl requiring full compliance with planning laws and make involve sig expense if works must be pulled down/rebuilt
- Current owner liable for breach (=> imp to work out pre-exchange)
LA decides to take action => must serve an enforcement notice
- Must state nature of breach, steps required to remedy breach, and time limit to complete the required work
- LA could also apply for injunction to prevent work from taking place or issue a ‘stop notice’
Time limits
- Enforcement notice re unauthorised building works => must be served within 4 years of the breach
- Notices for all other breaches (eg material change of use) => must be served within 10 years
Planning permission - listed buildings
Cannot be demolished, extended, or altered without a listed building consent from LA
Required IN ADDITION to planning permission and changes to property are much more restricted
Determination of listed status
- Listed => appear on a list maintained by Historic England
- Incl building and anything in its ‘curtilage’ (ie garden/immediate area around building)
- Listed according to their importance:
a) Grade I = buildings of exceptional importance
b) Grade II = imp buildings of more than special interest (most listed buildings)
S should supply copy of notice of listing with contract package
- Or else B’s sol can check list maintained on HE website
Listed => B’s sol will advise client to have a full structural survey of property carried out
NO TIME LIMIT FOR ENFORCEMENT
Building regulations - what are they
= series of statutory standards in place to ensure that new buildings and constructions are built according to certain standards
Linked to building work but SEPARATE from planning permission
Governed by building control (dept within LA that ensures health and safety standards are met when construction takes place)
Work that doesn’t require planning permission will still require compliance with building regs
Building control officer will inspect work being carried out at various stages and, once satisfied with completed work, will issue a building regs completion certificate (‘final certificate’)
Building regulations - enforcement
LA can take action within 12 months from date of breach
BUT injunction can be issued after 12 months to force owner to bring the property up to standard
If B’s sol’s fault (eg for not obtain copies of building reg approvals) sol may be sued by client for negligence
Breach and relevant enforcement period has passed => B may ask S to provide indemnity insurance at their own cost to deal with the possibility of enforcement (BOTH in rel to building regs and planning permission)
Should NOT contact LA to discuss lack of docs as this could result in insurance not being available
Planning permission - use of property
Commercial => use classes
- Planning laws put uses of land and building into various categories (use classes)
- A use class is assigned to a property
- Eg commercial, business and service (Class E), learning and non-residential institutions (Class F.1) and local community (Class F.2)
Change within same use class => no planning permission needed
Change between different use classes => planning permission needed
- Also most external building work associated with a change of use
- Changes to and from uses such as drinking establishments, hot food takeaways, and cinemas, concert, dance, and bingo halls also require permission
BUT some changes from one class to another are covered by permitted development rights (eg change in use from restaurant to a shop)
- Remember exception for conservation area and article 4 direction
B’s funding of the purchase - cash purchase
B’s sol should carry out checks on any cash in accordance with money laundering requirements
Source of funds
- Usually want to see that money had been in a UK-based bank account in the client’s name for the last 3-6 months
Source of wealth
- Client should prove by documentary evidence where they got the money
B’s funding of the purchase - mortgage (definition and role of sols)
= an agreement to use property to secure a loan
Borrower = person who grants mortgage (‘mortgagor’) vs lender = receives benefit of mortgage (‘mortgagee’)
Sols get in involved in various ways
- BUT can only give generic advice about mortgages (eg advising on the general types of products)
- Client requires more specific info => sol should decline to give this and advise client to see an independent financial adviser
B’s funding of the purchase - types of mortgage
Repayment mortgage: borrower repays capital and interest and both are included in the monthly repayment amount
Interest only mortgage: borrower repays only interest for the term of the loan and then repays capital sum at the end of the term
Endowment mortgage: ie combined with life-insurance policy. Borrower pays monthly premiums with the intention that the life insurance policy will realise sufficient funds at the end of the mortgage term to repay the loan and provide the borrower with additional funds. Risky and not common.
Pension mortgage: ie combined with personal pension policy. Proceeds of pension policy on maturity are used to discharge the loan. Suits self-employed people.
Sharia compliant mortgage: addresses muslim concerns about payment of interest.
Steps in obtaining/dealing with mortgage
- Mortgage offer
- Consider lender’s instructions
- Formalities of mortgage (ie legla mortgage must be made by deed(
- B’s sol submits a clear certificate of title
- Completion of mortgage
- Perfecting the mortgage
Dealing with mortgage - mortgage offer
Lender obtains mortgage valuation report to confirm the property represents good security for the loan and requires B to produce evidence that they can afford the mortgage
Lender issues a mortgage offer detailing terms (usually to both B and B’s sol)
Mortgages - represent both buyer and lender?
B’s sol may represent both B and lender (as have same common interests)
Provided no conflict and that:
a) Lender is institutional lender (ie in ordinary course of business)
b) Standard certificate of title is provided
c) No conflict or risk of conflict
Conflict => sol should stop acting for both
Vs commercial – lender will appoint separate sol
Dealing with mortgage - consider lender’s instructions
Lender issues set of instructions to sol explaining what they require sol to do
Governed by UK Finance Mortgage Lender’s Handbook or Building Societies Association Mortgage Instructions
ie Set of standardised instructions to conveyancing practitioners/best practice guidelines
Handbook requires sol to take steps to identify fraud and take fraud prevention measures incl:
- That all security documentation is properly signed
- That S is legally represented w funds to go to S’s sol’s account
- Details of property valuation
- How long S has owned the property
- Whether price referred to in the mortgage offer is the same as in the contract
- How B is funding the rest of the purchase
Handbook also contains instructions re checks re title issues, incl:
- Reasonable steps to ensure no discrepancies between description of property as valued by lender and title description being examined
- Ensure all usual and necessary searches and enquiries have been carried out
- Ensure lender is named as applicant in HMLR pre-completion searches
- Ensure all searched are not more than 6 months old at completion
- Not release the mortgage advance unless the sol has sufficient funds to pay all stamp duty land tax and HMLR fees and to perfect the registration of the mortgage
Dealing with mortgage - certificate of title
Purpose =
1. Confirms to lender that title is good and marketable; and
2. Acts as a request for the release of the mortgage advance
CoT must be submitted within timeframe required by lender - specified in mortgage offer (usually 5 or 7 working days)
Borrowing money from private source (ie friend/relative) => B’s sol should carry out checks as to source of funds and wealth (and report to lender)
B’s sol establish whether there will be occupiers on completion
- Yes => lender will be advised and will require non-owning occupier to sign a waiver/consent form to ensure the occupier does not acquire any rights in the property
Dealing with mortgage - completion of mortgage
Cannot take place until purchase has been completed (as B does not yet own the property so mortgage cannot be secured against anything)
Mortgages completes => B’s sol must register mortgage at HMLR
Dealing with mortgage - perfecting the mortgage
Ie process of making the application to register title to the property after completion and ensuring the lender’s charge is registered as first legal charge on the charges register
Note: even if property already owned by client, first legal mortgage = trigger for registration so grant of mortgage will compel client to register any unregistered property
Search with priority performed
- Determines whether any charges on the property being purchased and to temporarily prevent any new charges to be registered that would impact B’s rights
- Registered land => 30 working day period to complete registration free from any intervening interests
- Unregistered land => 2 months to do above
- Company borrower => B’s sol must also register mortgage at CH within 21 days of completion. Strict deadline. Certificate of registration of the mortgage from CH must accompany the HMLR application.
Exchange of contracts (general)
Point in transaction where matter becomes legally binding on S and B
- Bound on terms included in contract (terms agreed orally but not in contract are generally not binding)
Consider synchronising transactions
- Essential when client has a related sale and purchase of a house
- Ie sol must ensure both transactions:
a) Exchange on same day
b) Have same completion date
Vs leasehold: conveyance for new lease
- Contract will provide B agrees to take a lease in the form of the agreed draft and LL agrees to grant lease on form of the agreed draft
- Contracts exchanged and => form of lese cannot be change except by mutual agreement, usually be executing new lease agreement
Methods of exchange
- In person:
- Matter becomes binding at point they agree face-to-face that exchange has happened
- Certainty but issues with time/distance - By post:
- Each sol posts their client’s signed part of the contract to the other
- Exchange takes place when S’s part is posted to B’s sol
- Lack of certainty - By phone:
- Sols have a phone conversation, go through contracts, insert completion date and date of conversation and exchange takes place at that point
- Most common method
Law society’s formulae for exchange - general
Set out required list of steps that sols must take during the exchange telephone conversation
Designed to give some certainty to the process
Formula A, B or C
Sols must keep a file note of convo recording:
- Their names
- Date and time of exchange
- Exchange formula used (incl any agreed variations)
- Completion date
- Amount of any deposit paid
Law society’s formulae for exchange - formulas
Formula A:
- Used when one sol holds both signed parts of the contract
- Usually S’s sol and will laos hold B’s despoit cheque
- S’s sol confirms both parts of the contract are the same during call and agrees to insert dates into both
- Sol who holds both then send contract signed by their client to the other sol
- Rare but used where there is no chain and B’s sol not in office on exchange day
Formula B:
- Each sol holds their own client’s signed part of the contract and B’s sol has cleared funds for the deposit
- Sols confirm signed parts are same then send client’s signed part to other
- B’s sol send agreed deposit to S’s sol
- Most common – used where no chain or transactions at end of chain where no related onward transaction
Formula C:
- Used where chain of transactions and => related sale and purchase
- Relies heavily on undertakings
- Exchange happens in two stages and two calls
- First call confirms that sols are ready for exchange and second call confirms actual exchange
Protecting B’s position after exchange
B’s sol should consider protecting B’s position by registering an estate contract (if long time between exchange and completion)
=> Puts world on notice that S has agreed to sell to B
Registered => unilateral notice placed on S’s charges register
Unregistered => C(iv) land charge registered against seller’s full name
Notices removed on completion
Variation of contract after exchange
Must re exchange contracts with variation incl in new contract; OR
Ensure that any variation complies with s2 LP(MP)A 1989 ie in writing and signed by parties
Exchange and completion take place on same day?
= ‘simultaneous exchange and completion’ (but risky as no contract until day of completion)
Pre-completion tasks for S’s sol (freehold)
- Completion statement
- Completion information and undertakings
- S’s signing of purchase deed
Pre-completion tasks for S’s sol (freehold) - completion statement
If S has existing mortgage, S’s sol will ask lender for up-to-date redemption figure (ie how much left to pay on mortgage)
Then prepare completion statement which shows S how much money will be left from the completion money (ie minus any mortgage and estate agent’s fees etc)
S does not have related purchase => this amount must be sent to S on completion (so sol must know bank details etc)
S has related purchase => this amount probably transferred to purchase file ledger to use towards purchase price
Pre-completion tasks for S’s sol (freehold) - completion information and undertakings
Standard protocol form completed by S’s sol prior to completion
Gives details of client account to which purchase money must be sent on day of completion, confirms amount due, and where keys of property will be available for collection
Property is mortgaged => S’s sol gives undertaking to pay off mortgage(s) out of sale proceeds and to provide evidence of discharge when received
Pre-completion tasks for S’s sol (freehold) - S’s signing of purchase deed
B’s sol will have drafted purchase deed (transfer – typically a TR1) and sent it to S’s sol
S’s sol must arrange for this to be executed with the formalities of a deed on/before completion date so it can be given to B’s sol on completion
Pre-completion tasks - leasehold where new lease
Pre-completion tasks:
- Proceeds in usual way (ie pre-completion searches, requisitions on title, application for funds, sending out completion statements)
- Instead of parties executing a transfer deed, they execute the lease
Engrossment:
- LL’s sol will prepare final copies of the lease for sig, incl all plans referred to
- Engrossment = final version of lease
- Prepared in 2 parts: original signed by LL and counterpart signed by T
Pre-completion tasks - leasehold where assignment of existing lease
- Purchase deed and licence to assign
- Transfer deed (TR1) to transfer lease to B
- B’s sol conduct same pre-completion searches
- If required, may need to provide evidence of LL’s consent to assign (in formal doc = ‘licence to assign’) - Service charge apportionment
- S/T likely paid service charge in advance and => recover elements applicable to B’s tenancy
- Accounts confirming actual amount not available until after completion => S might have overpaid/underpaid service charge figures
- Retention for potential shortfall
a) SCS provide for apportionment of charges based on ‘best estimates’
b) Sols should negotiation a retention whereby B’s sols keeps some of the purchase money back pending production of the final service charge account
Pre-completion tasks for B’s sol
- Completion Information and Undertakings
- Pre-completion searches
- Completion statement and B’s finance
- Purchase deed
Pre-completion tasks for B’s sol - completion information and undertakings
Form received from S’s sol => B’s sol must check S’s sol is undertaking to pay off all known charges from the purchase money on completion
Pre-completion tasks for B’s sol - pre-completion searches (general)
Ie ensure that all info received about the property remains correct and protects B from any undisclosed 3rd party rights
Type of searches depend whether title is registered or unregistered
B’s sol repeats certain searches (ie bankruptcy, company search, advise B to do physical search)
- New entry => B’s sol will require S’s sol to resolve it pre-completion
Pre-completion tasks for B’s sol - pre-completion searches (registered)
- Registration gap
- Typically a few weeks between completion of the transactions and the application to register at HMLR
- During this time they do not have a legal interest – only equitable (which requires registration of a notice in the charges register to provide protection) - Official search and priority
- Intends to deal with registration gap issue for B and lender
- After exchange, B’s sol should carry out official search of the register using the property’s title number
- Most common searches =
a) Official search with priority against whole of registered title (form OS1)
b) Official search with priority against part of registered title (form OS2)
- Purpose of search =
a) Discover recent entries – B’s sol then has chance before completion to require S’s sol to deal with removal of any adverse entries
b) Priority period – search provides B with a priority period of 30 working days from when the official search was lodged
- App for an entry made in the priority period => held until the period has expired
- App will fall away if buyer completes and registers the transaction within priority period
- Cannot complete/register within period => search will need to be renewed to preserve priority - B bound by errors in official search certificate but may obtain indemnity from HMLR for any loss sustained
Pre-completion tasks for B’s sol - pre-completion searches (unregistered)
Full land charges search carried out against names of S for full period of their ownership
(also done pre-exchange but repeated)
Anything unexpected => B’s sol must require S’s sol to deal with the issue and undertake to remove the entry
Search result confers priority period of 15 days within which the transaction must complete
Pre-completion tasks for B’s sol - completion statement and B’s finance
Completion statement shows the sum required from B to complete
Statement incl all sums due incl stamp duty land tax, HMLR fees, legal fees etc
B has mortgage => B’s sol will submit certificate of title to lender in time to request drawdown of the mortgage advance prior to completion date
Pre-completion tasks for B’s sol - purchase deed
Transfers legal estate in the property to the buyer
Drafted by B’s sol who will send 2 copies of draft doc to S’s sol
S’s sol approve doc or makes amendments
B’s sol sends final engrossment to S’s sol
S must sign purchase deed on or before the completion date
B will need to sign if transfer incl covenants by B or if multiple Bs
Pre-completion tasks for B’s sol - types of purchase deed
- Transfer
- Most common
- Registered and unregistered land (as all unregistered is now compulsorily registrable)
- 2 types:
a) TR1 form – used where whole of land in a title is being transferred
b) TP1 form – used where part pf land in a title is being transferred
- Both forms require info eg property’s title number and address, date of transfer, full names, consideration paid, declaration of trust (if more than one person will hold title) - Conveyance = used when unregistered land is sold (old doc rarely used)
- Assignment = unregistered leasehold land (rare)
- Assent
- When PRs transfer land to a beneficiary
- Freehold/leasehold and registered/unregistered
- In writing but need not be by deed (unless it contains a covenant by the assentee)
Methods of completion
- Personal attendance
- B’s sol attends S’s sol offices in person and at that meeting B’s sol takes physical possession of the deeds
- Method of payment = banker’s draft
- Rare - By agent
- B’s sol appoints a local firm to attend to completion at S’s sol’s office
- Also rare - By post
- Most common
- S’s sol posts all relevant deeds and docs to B after completion
- Code for Completion by Post = Law Society recommended protocol (not compulsory)
- Relies on undertakings by B’s and S’s sols
Law Society Code for Completion by Post - steps
- Parties must agree in advance to adopt it (though protocol implies use of CCP unless sols agree otherwise)
- S’s sol gives warranty that they act for true S and B’s sol is entitled ot rely on this promise
- S’s sol must confirm in writing which mortgages are to be redeemed on completion
- S’s sol must consider undertaking to discharge mortgages carefully and list only those that they can discharge - Completion monies send by a bank transfer of cash
- B’s sol must provide S’s sol with a list of those deeds/docs to be marked as ‘examined’ (copies of docs in epitome of title)
- If unable to comply with code, s’s sol must provide a statement to this effect to B’s sol before 4pm
- S’s sol must agree to complete the transfer docs upon receipt of the sum required to complete, and confirm date/time of completion to B’s sol and whoever holds keys (given by phone/fax/email asap after completion), send executed transfer doc
- Docs sent by 1st class post or DX asap, but in no event later than the end of the working day following completion - Deeds posted to B’s sol => held at risk of B
Effect of completion
- Passing of title
- If land is unregistered, title passes on completion
- (if registered land, passes when purchaser becomes registered at HMLR) - Merger
- Contract merges with the purchase deed => B can no longer sue on contract terns, unless the contract states that any clauses will not merge upon completion - Non-merger clause
- Incl in SCS
- States that completion will not cancel liability to perform any outstanding obligation under the contract (eg S to give vacant possession)
- Outstanding obligation not performed => B may still sue on this term under contract due to this clause
Post-completion tasks for S’s sol
- Report to client
- Confirm completion has taken place by phone and then in writing
- S’s sol will also remind client to cancel their building insurance - Discharge mortgage (if any)
- S’s sol must transfer sufficient funds to lender, in accordance with mortgage redemption statement, to redeem the mortgage
- S’s sol must then discharge the mortgage using appropriate HMLR form or method
a) Unregistered =>
- Original mortgage deed should be sent to lender for them to acknowledge receipt of the redemption payment
- Mortgage deed then sent back to S’s sol who should send mortgage deed to B’s sol to comply with their undertaking to redeem the mortgage - Pay estate agent (if any)
- Pay out of net sale proceeds on completion
- Sum usually appears on the completion statement - File closure
- Bill for legal fees usually rendered on completion day and sol us likely to have the funds in hand as they will have been included on the completion statement
Post-completion tasks for B’s sol
- Report to client
- Confirm completion by phone then in writing
- Send a bill for legal fees - Registration of company charge (if any)
- Company => B’s sol must register any company charge at CH within 21 days. Missed => court order needed to register the charge - Payment of stamp duty land tax
- Even if no SDLT payable (ie value falls below threshold for pyament) the SDLT1 form must still be completed and submitted to HMRC
- B’s sol usually does this for B
- Wales => land transaction tax
- Must be paid within 14 days of completion (calendar, not working)
- Penalties and interest payable if return not file and SDLT not paid in time - Registration at HMLR
- B’s sol must register within 30 working days (or 2 months for unregistered land)
- First registration => unregistered title deeds no longer have significance once registration is completed (become known as ‘pre-registration deeds’)
Post-completion tasks - leasehold (new lease)
Lease over 7 years => must be registered to create a new title
Leased w mortgages => new mortgage will be registered at same time and T’s sol must serve notice of mortgage on the LL after completion
Leasehold located in block managed by management company => B may need to apply for a share in the management company
Post-completion tasks - leasehold (assignment of existing lease)
S’s sol will:
- send B’s sol the original lease and original share certificate and original licence to assign
- prepare the final service charge adjustment (if retention has been agreed)
B’s sol will
- arrange for payment of SDLT
- serve notice to LL of the assignment to B (and notice of any new mortgage created)
- arrange for registration at HMLR of the transfer of te lease and any new mortgages
S holds share in property’s management company => S will provide signed stock transfer form to transfer their share in that company to B
Delayed completion and remedies (starting point)
Imp to distinguish whether completion:
- Is delayed beyond the contractual completion date; or
- Does not take place at all
As will dictate the remedy available and the advice given to the client
Delayed completion - general
Any delay = breach of contract = entitles innocent party to damages
Monies due on completion must be received by 2pm
After 2pm => completion is treated as next working day
S entitled to interest at contract rate
Calculated on amount equal to purchase price and contents price less any deposit paid for period between contractual completion date and actual completion date
Property has T in situ => innocent party can elect to take rental income until completion instead of compensation by notifying on the other party
Delayed completion - whether time is of the essence
Innocent party will not have right to cancel unless time was of the essence (ie date in contract was firm and cannot be moved)
Residential contract => time generally not of essence unless specified
Notice to complete – makes time of the essence
- Can be served at any time after completion date by a party who is ready, able and willing to complete
- Sol should first find out reasons for delay and take instructions from client. If likely completion will take place soon, may be no need for notice
- Served => Defaulting party must complete within 10 working days
- If B had paid only reduced deposit, on receiving notice to complete, B must pay any balance necessary to bring deposit up to full 10%
Non-compliance with notice
a) B is defaulting party =>
- S can rescind contract
- Retain B’s deposit
- Resell property; and
- Claim damages
b) S is defaulting party =>
- B may rescind contract
- Reclaim their deposit monies with i-interest at the contract rate; and
- Claim damages
Remedies for breach - general
Depends whether breach is before or after completion
Before completion =>
1. Specific performance
2. Claim for damages
3. Recission
After completion =>
1. Breach of title guarantee covenants
Remedies for breach before completion - specific performance
Equitable remedy (given at discretion of court)
Compels defaulting party to perform and complete contract
Land unique => damages may not be considered sufficient to compensate
Can be sought alongside rescission and damages
Remedies for breach before completion - damages
Standard claim based on losses flowing naturally from the breach + reasonably foreseeable consequential losses
Innocent party is to be placed in the position they would have been in had the contract been performed
Credit must be given for any deposit funds forfeited by S
Innocent S limited to recovering the difference in value between contract price and value on resale
Remedies for breach before completion - recission
Two meanings:
1. An order of court to put parties back in a position as if the contract had never existed (where fraud, misrep, or mistake)
2. Innocent party’s acceptance of the repudiation of the contract when the defaulting party breaches a major term of the contract
Under SCS permitted in 2 specific circs:
1. When there has been a misrep because of an error or omission; and
2. When LL’s consent for assignment is required and the licence to assign is not forthcoming
Recission due to misrep when:
1. Element of fraud or recklessness; or
2. If innocent party took the property, it would be substantially different from the property the innocent party expected to take, to that party’s prejudice
Misrep = false statement of fact by one party/their agent which induces the other party to enter into the contract and => suffer loss
a) Fraudulent misrep = deliberate dishonesty (Party alleging fraud must prove it = difficult)
=> sue for damages and recission of contract
b) Negligent misrep = careless statement which turns out to be untrue
=> Sue for damages and/or recission of contract
c) Innocent misrep = genuine mistake, made innocently
=> Recission or damages in lieu of recission (not both)
Misdescription
= Error in property particulars of contract (eg saying freehold when leasehold)
- If sig => entitle innocent party to rescind contract and claim damages
Remedies for breach after completion
Fewer remedies available (as contract terms merge with purchase deed)
- Misrep
- Breach of title guarantee covenants
3 classes =
a) Full title guarantee
b) Limited title (provided to PRs or trustees)
c) No title
- e.g. if S gave full and afer completion a superior title holder contested B’s title, B may be able to claim a breach of the title guarantee
Title guarantee covenants breached => damages can be claimed
- Rare in practice
Remedies for breach after completion - leasehold
Additional title guarantees need to be given:
1. That the lease is valid and subsisting; and
2. That there is no breach of covenant rendering the lease liable to forfeiture (though commonly modified by contracting parties)
Title guarantee covenants breached => damages can be claimed
- Rare in practice
Security of tenure for commercial Ts - what is it and when does it apply
= right for business T to stay in the premises at the end of the tenancy
Under Landlord and T Act 1954 (Part II)
=> T does not have to vacate the property unless the LL uses one of the statutory methods of terminating the lease, ie:
1. Forfeiture by the LL
2. Surrender (both parties agreed to give up the lease)
3. LL serves a valid s25 notice on T to terminate the lease or suggest a new lease
4. T serves a s26 notice on the LL to request a new lease
Security of tenure for commercial Ts - exclusions
Certain tenancies incl fixed term tenancies not exceeding 6 months, service tenancies, and contracted out tenancies
Contracted out tenancies: Ie prospective LL and T can agree to exclude security of tenure provisions from the tenancy that is due to be created IF 3 requirements are satisfied
1) LL’s health warning served on T at least 14 days before the lease is completed
= written statutory notice that explains what security of tenure is, that potential T will be giving up rights under the lease, the consequences of not having those rights, and that they should seek professional advice
2) T signs a declaration confirming they have seen the warning and agree to be contracted out
3) Lease references the health warning, T’s declaration, and agreement to contract out
Failure to comply => contracting out is void and tenancy will be protected by security of tenure provisions
s25 notice
Given by LL who wants to end or enter into new lease with T protected by security of tenure
Parties cannot agree whether lease should end or its terms => court application will settle the matter
LL must serve notice BETWEEN 6 AND 12 MONTHS before they wish the tenancy to end
Notice must specify one of statutory grounds upon which possession is claimed:
a) T’s breach of obligation (repair, persistent delay in paying rent, or other substantial breach)
b) (if part of the premises has been sublet by T) the LL requires the whole property for subsequent letting
c) Availability of suitable alternative accom for T
d) LL intends to demolish or reconstruct the premises and cannot do so with T in occupation; or
e) LL intends to occupy the premises
First 2 grounds are discretionary (ie even if established, court may order a new tenancy in any event)
Others are mandatory (ie if established, court must refuse to grant new tenancy)
s26 notice
ie Request by T for a new lease
Must be served on T’s ‘competent LL’ or agent and request that the LL grant a new lease to T (and outline the required terms)
T must serve notice between 6 and 12 months before they wish the new tenancy to start
LL receives => has 2 months during which to inform T whether they intend to oppose the request
LL unwilling to agree a new lease => must specify one of the statutory grounds listed above as the basis for their opposition
Security of tenure - compensation for the T
LL establishes ‘no fault grounds’ (ie b, d, e above) =>
- T has a right to compensation from the LL on quitting the premises
- Basis for compensation = T is denied tenancy through no fault of their own
LL establishes ‘fault ground’ (ie a above)
- T has no right to compensation
LL can provide suitable alternative accom (ground c) => also no compensation as T has not suffered any loss
Compensation for T if no fault ground established
Entitled to damages as follows:
- If T has occupied the premises for at least 14 years (or took over from someone and their combined occupancy is 14 years), twice the ratable value of the holding; or
- If T has occupied the premises for less than 14 years, the ratable value of the holding
New lease ordered by the court
ie if:
a) LL has failed to establish an opposition ground; or
b) LL does not oppose T’s application
=> new lease negotiated between LL’s and T’s sols
- New lease agreed => LL and T should execute an original and counterpart in the usual way
Key provisions of new lease
- Premises – will generally comprise existing premises
- Term of lease – can agree new term, but if cannot agree, max fixed term a court can order is 15 years
- Rent – most difficult to conclude. Certain matters that can be disregarded when determining the new rent, such as a non-required improvement by T to the premises during their existing tenancy
Court may set terms if parties cannot agree (but rare)
- Happens => new lease will not commence until 3 months after the court proceedings have ended
