Property Practice Flashcards
What are the key elements and structure of freehold property transactions for the buyers Solicitor in the pre-contract stage?
1) Take client instructions - first interviews, AML checks, conflict checks, client care letter
2) Seller prepares pre-contract package - Raise pre-contract searches and enquires, comission survey, investigate title
3) Buyer approves the contract - make any amends at this stage
4) Prepare for exachange - check the searches, arrange mortgage, agree deposit arrangements, prepare pre-echange report to client
5) Exchange contracts- Sign and exchange and pay the deposit
What are the key elements and structure of freehold property transactions for the buyers Solicitor in the Post-contract/Pre-completion phase?
6) Transfer deed - Buyer drafts transfer deed
7) Prepare for completion - Send client completion statement, complete and update final searches, submit report on title/certificate of title to the lender
8) Completion - Agree time, place and method of completion, and pay the balance of the purchase price
What are the key elements and structure of freehold property transactions for the buyers Solicitor in the Post-completion phase?
9) Post-completion - Complete mortgage deed, pay SDLT (England) or LTT (Wales) and register the transfer at HMLR
What are the key elements and structure of freehold property transactions for the sellers Solicitor in the pre-contract phase?
1) Take client instructions - first interviews, AML checks, conflict checks, and client care letter
2) Seller prepares the pre-contract package - Check the title, produce evidence of title, draft the contract, assemble the package of pre-contract documents
3) Buyer approves the contract - Draft the contract and answer recquisitions on contract
4) Prepare for exchange - Agree deposit arrangements
5) Exchange of contracts - Sign and exchange contracts
What are the key elements and structure of freehold property transactions for the sellers Solicitor in the post-contract/pre-completion phase?
6) Transfer deed - Approve the transfer deed
7) Prepare for copmpletion - Send client the completion statement and reply to the buyers’ pre-completion enquiries
8) Completion - Agree time, place and method of completion
What are the key elements and structure of freehold property transactions for the sellers Solicitor in the post-completion phase?
9) Post-completion - Release keys and redeem any mortgage
What is the process of analysing Land Registry official copy entries?
Official copies of title and plan for the property are avaliable from HMLR and the seller should provide the buyer with Official cop[ies (not less than 6 months old).
The offical copies will show entries on which three registers?
The Property Register, The Proprietorship Register, and The Charges Register
What will you find on the Property Register?
A description of the land by reference to the postal address, title plan and indicate if freehold or leasehold?
What will you find on the Proprietorship Register?
Identifies the current owners, address for service, and the class of title, which may be: Absolute, possessory, qualified or good leasehold.
What will you find on the Charges Register?
Identifies encumrances such as: Covenants, Easements, Charges or Mortgages, Leases, or Notices.
What is an epitome of title?
Schedule of all documents of title together with copies of the documents listed in the epitome (e.g. conveyances, assents, mortgages, and plans) that are numbered, listed and identified.
The epitome of title must establish a ‘good root of title’.
What is meant by a ‘good root of title’?
A document which is at least 15 years old, and must satisfy the following requirements:
It must deal with or show the ownership of the whole legal and equitable interest in the land in question,
Contain a recognisable description of the property,
It must not contain anything that casts any doubt on the title.
What are some example of a ‘good root of title’?
Conveyance on sale, or a legal mortgage (at least 15 years old), OR, a voluntary assent or conveyance made after 1925, and it must be at the start of the chain which is uninterrupted up to the present day.
It must demonstrate an unbroken chain of ownership/
Which documents must be included in the epitome of title (if they exist)?
Conveyances (whether on sale or by gift), Leases, Legal Mortgages and discharges of Legal Mortgages, evidence of devolutions on death (Grants of representation, assents) , changes of name of estate owners, documents pre-dating the root of title which contain details of restrictive covenants affecting the property, memoranda endorsed on documents of title (for example, recording a sale of part), and Powers of attorney under which any document of title has been executed
What is the process of deducing ownership? (Unregistered Land)
Seller’s Solicitor must select a document that will be a good root of title to the propety to prove to the buyer they have the right to sell.
Title is deduced by preparing an epitome of title.
The Solicitor will review the documents attached to the epitome.
Solicitor will conduct the following searches: Index Map Search -Search against the property to show if it is registered, subject to pending first registration application or subject to a caution against registration, and
Central Land Charges Registry Search - search against the current or previous estate owners (for the period they owned the land) to see if the equitable interest protected by registration as a land charge
What might a Central Land Charges Registry Search reveal?
C(iv) - an estate contract
D(ii) - a restrictive covenant
D(iii) - an equitable easement
F - a Home right
What are the issues that could arise from an investigation of title?
Easements- shown on charges/property register or in the conveyance
Mines and mineral reservations - shown by Index Map Search
Declarations as to rights and air
Co-ownership- restriction on proprietorship register (registered land)
Covenants- Charges register or conveyance
Mortgages- Charges register together with restriction in proprietorship register or epitome of title
Leases- more than 7 years registered in charges register, if unregistered in the deed and form part of epitome of title
Notices
Home Rights- in the charges register or if unregistered as a class F land charge in the name of the estate owner
What is the purpose and process of reporting to the client following analysing the title whether the property is registered or unregistered?
The following should be reported to the client:
Any issues revealed in the title investigation or a defect in the title
Any issue that needs to be clarified with the seller’s solicitors and raise enquiries with the sellers solicitor if need be
Any matters that have arisen that need to be dealt with in the contract such as the provision for encumbrances to be released or identifying the chattles included in the sale.
Where the title reveals any other major concerns, for example, anything that might prevent the buyer’s proposed use of the property. Such matters should be reported to the buyer and any lender immediately.
Who would make the searches and raise enquiries regarding the freehold/leasehold property?
The principle of caveat emptor applies to conveyancing transactions.
Pre-exchange searches are usually carried out by the person acquiring the property or taking a charge over it.
Proof of title is usually a pre-contract issue, therefore the responsibility of the buyer’s solicitor to make the relevant pre-exchange searches and enquiries about the property on behalf of the buyer and/or lender to find out as much as possible about the property.
The review of the pre-exchange searches and replies to enquiries will allow the buyer to make the decision whether to proceed with or to withdraw from the ourchase before the contract becomes binding.
What happens following the result of searches and enquiries?
The buyer’s solicitor will then formally report to and advise the client as follows:
Review that the search results are satisfactory (before exchange) and meet the client’s requirements, and
Clarify any unsatisfactory results before exchange with the search provider or by additional pre-contract enquiries with the seller’s solciitor, and
Order a more detailed search, or additional searches, if necessary. #
The buyer’s solicitor should discuss the additional cost and impact on the acquisition timetable of obtaining additional surveys, reports or searches with their client.
What is the purpose of a survey or inspection of the property?
A site vist by a surveyor, or physical inspection by the buyer will reveal the condition of the property and any overriding interests or home rights.
What is the purpose of enquiries of the seller?
This is information which the seller is expected to know about the property and which would give rise to an action in misrepresentation if the answer proves to be incorrect or misleading. There is a standard set of enquiries but additional specific enquries can be added.
What is the purpose of Local Searches?
Information known by the local authority such as local land charges, road schemes, planning consents, refusal notices, enforcement notices, smoke control orders, listed buildings, conservation areas, amd compulsory purchase orders.
What is the purpose of a water and drainage search?
Search at a water company to ensure main water supply and sewer connection to the property
What is the purpose of a coal authority search?
This will show if a property is affected by a coal mining area, the search will establish any historical or future mine or mineral extraction.
What is the purpose of a Companies House search?
If a seller is a company, you must check that the company exists and has power, capacity, and authority to enter into the transaction.
What are some other general searches which may be required?
Chancel Repairs Search (unreg land)
Commons search (nr open land)
Flood search (if at risk of flooding)
Environmental Search (contaminated land)
Bankruptcy or insolvency search (check no proceedings against individual or company)
What is the purpose of an index map search and land charges searches with unregistered property?
Index Map Search - see if any cautions against registration or pending applications for registration
Land Charges Searches - see if any encumbrances over unreg land such as easements, covenants, mortgages, estate contracts, and home rights
What is the purpose of a HMLR offical copies search and an Index Map Search for Registered Properties?
HMLR Official Copies Search - Reveals proprietor, property and encumbrances affecting the title
Index Map Search - Necessary if property is compromised in more than one registered title, or where there could be mines/minerals registered under a title number different from the title numbers relating to the land itself.
What is the Law Society Conveyancing Protocol?
Standardised practice framework for the sale and purchase of a home for an owner-occupier (not a new-build home)
Regulates the relationship between the seller’s and buyer’s solicitors
Intended to ensure that clients are treated fairly and protected during the transaction
What are the sources of finance for a property transaction?
Main source is mortgage finance through a bank, building society, specialist lender, or private loan from a trust fund or individual
Solicitor must make the client aware of ancillary expenses in addition to the purchase price such as SDLT/LTT, HMLR fees, Search fees, Mortgage Agreement Fee and Premium for Insurance Policy (if applicable)
Solicitor must be aware of their role if client requires financial advice in relation to arranging or advising in connection with a mortgage
Solicitor must be aware of anti-money laundering procedures which is especially key with cash purchases.
What are the different types of mortgage?
Repayment, Interest Only, Endowment, Sharia Compliant
What is a repayment mortgage?
Repayable in monthly installments, partly capital and partly interest. The interest rate may be fixed or a lender’s standard variable rate.
At the end of the mortgage term the borrower will have repaid all monies owing to the lender.
What is an interest only mortgage?
The monthly installments are interest only, the interest may be fixed or at a lender’s standard variable rate.
Borrower must make arrangements to pay off the outstanding amount.
At the end of the mortgage term, the borrower will still owe the original loan amount unless alternative arrangements have been made.
What is an endowment mortgage?
Borrowe makes a payment of interest only.
The interest may be fixed, or at a lender’s standard variable rate.
The borrower will purchase a life insurance product to pay off the outstanding amount of the mortgage.
An insurance policy is taken out on the borrowe when the mortgage is granted. At the end of the mortgage term, it will repay the capital when the policy matures or if the borrower dies.
What is a sharia compliant mortgage?
Avoid the payment of interest. The bank may purchase the property and lease it to the buyer and then transfer it to the buyer at the end of the lease.
When acting for a lender, what are the lender’s requirements?
Acting for a buyer and a lender is common in resi property transactions.
Both buyer and lender have a common interest that the property has good and marketable title.
Buyer wants to know property has full and clear title to the property
Lender wants to know that the property is satisfactory security for the loan against which it has lent the monies
Acquiring a property with a defective title would undermine the value of the acquisition and the lender’s ability to sell the property at market rate should it need to enforce its mortgage in the event of a default on the loan by the buyer
The lender will request a certificate of title by the solicitor.
What is the purpose of a certificate of title?
Confirms to the lender that the property being acquired has good and marketable title, if it is being acquired by the buyer to whom the funds are being lent and confirmation of the completion date to ensure that the funds are sent on time to complete the purchase.
A certificate of title will be given to the lender (signed and dated by the buyer’s solicitor) immediately before the completion of the purchase and the drawdown of the loan monies.
What is the Standard Conditions of Sale (SCS) ?
Used in contracts relating to residential property and small commercial property transactions.
Requires seller to prepare a draft contract incorporating the latest edition of the SCS standard form of contract
Amendments may be necessary to reflect current law, or specific instructions from the client.
What are some amendments that may be considered to the Standard Conditions for Sale?
Specified embumbrances
Title Guarantee
Deposit amount and method of holding deposit
What is the amendment to the SCS of specified encumbrances?
It is necessary to specify all restrictive covenants, easements, and other burdens as the SCS states that the seller sells free from all emcumbrances other than those specifically listed in the SCS.
What is the amendment to the SCS of title guarantee?
SCS provides that the seller will sell with full title guarantee unless amended. Full title guarantee implies a covenant that the seller disposing of the land free from emcumbrance. Limited title guarantee is that the seller has not encumbered the land and is not aware that anyone else has since the last disposition for value. The seller should specify if they are selling with full or limited title guarantee.
What is the amendment to the SCS regarding the deposit amount and the method of holding deposit?
The SCS provides a 10% deposit is payable on exchange of contracts and that the seller’s solicitor hold this as ‘stake holder’. If this amount and/or capacity is to be varied, the relevant SCS must be amended.
What are the Standard Commercial Property Conditions (SCPC)?
Standard conditions more suitable for complex comercial property transactions where occupational leases are involved.
It is more suitable where: Provisions relating to commercial leases involved such as outstanding rent review; or to provide for options to deal with various tax positions.
The seller and buyer to the contract may agree to the contract to accept the SCPC as a whole or in part and may agree to vary any of the SCPC.
The SCPC may have been drafted to the be a fair balance between a seller and a buyer.
What is the purpose of special conditions?
To accommodate particular circumstances of a transaction or to vary the standard contract of the SCS or SCPC.
What happens if a special condition conflicts with a standard condition?
Special provision prevails
What types of things are special conditions used for?
Disclosing a defect in title
Listing encumbrances that affect the property
Seller transferring title with limited or no title guarantee
Payment of deposit is more or less than 10%
Deposit is bring held as agent rather than stakeholder
Payment of VAT
Removal of fixtures and fitting by the seller that would otherwise automatically pass with the land
Express inclusion of an indemity covenant to be given to the buyer.
Standard points to note regarding a deposit
10% (unless amended) of the purchase price is payable by the buyer on exchange of contracts to the seller
SC and SCPC requires deposit to be paid electronically (BACS or CHAPS) from buyers Solicitor’s account to the sellers Solicitor’s account
Then held by Seller’s solicitor as an agent for the seller or a stakeholder
If the buyer fails to complete, then the seller by forfeit or keep the deposit
Where the deposit is held by the Solicitor, interest is payable under the SRA Accounts rules
What are the methods of holding a deposit as a Stakeholder? (most common)
Means that the seller cannot pay over the deposit until completion
However, the SC allows the seller to use the deposit as a deposit on a related purchase of a house for the residence of the seller provided it is held on the same terms (i.e. as stakeholder)
Interest on the deposit will be payable to the seller on completion
What are the methods of holding a deposit as an agent for the seller?
Means that the deposit can be released to the seller on exchange of contracts (i.e. before completion) and be used by the seller for any purpose.
A special condition will be required to state that the seller’s solicitor is to hold the deposit as agent
Should the transaction fail to complete, there is a risk that the seller may fail to return the deposit
What are the key matters to consider regarding insurance and risk?
Risk of damage and destruction passes to the buyer on exchange (under SC and SCPC)
The buyer should insure the property from the date of exchange of contracts
Seller is under no obligation to insure the property from exchange (unless required by their mortgage lender, lease, or special condition in the contract of sale)
What happens where there is dual insurance in place over the property (by the buyer and seller)?
The contract should be drafted to protect the buyer against the possibility of the buyer’s insurer reducing the pay-out because the seller has also insured the property.
The purchase price would be reduced by the relevant sum.
What are the basics of VAT in a contract?
Residential property transaction = No VAT
New build residential property = Zero rated 0%
Sale of new commercial property = standard (20%)
Sale of old commercial property (more than 3yrs old) = exempt, subject to the option to tax
What is the purpose of the option to tax?
Allow the person to convert an exempt supply into taxable one thereby allowing him to recover any input tax incurred.
What happens if VAT is chargeable on a property acquisition?
Contractual provisions must be included to state whether the buyer will have to pay VAT in addition to the purchase price.
What are the timescales for issuing certificate of title to a lender?
Certificate of title will be given to the lender (signed and dated by the buyer’s solicitor) immediately before completion of the purchase and the drawdown of the loan monies.
Confirms to the lender that the property is proper security for the loan and has ‘good marketable title’.
What is formula A method of exchange?
When one solicitor holds both contracts.
This solicitor holding both signed parts of the contract undertakes that they will, that same day, send their client’s signed part of the contract to the other side by 1st class post, DX, or by hand, duly dated
What is the formula B method of exchange?
When each Solicitor holds their client’s contract.
Each Solicitor will that same day, send the signed part of the contract that they are holding to the other side by 1st class post, DX, or by hand, duly dated.
What is the formula C method of exchange?
For a chain of transactions in residential properties, where each Solicitor holds their client’s contract and exchange is by telephone and they synchronise the exchanges.
What should be included in the attendance note following exchange?
Date, time, and the parties involved in the exchange of contracts
Formula used (and any variations) and the undertakings given have been complied with and discharged
Record that the deposit has been paid as per the Solicitors Accounts Rules
