Property Practice Flashcards
What are the 3 stages in a conveyancing transaction?
1) Pre-contract
2) Pre-completion
3) Post-completion
When are parties bound to the transaction?
When contracts are exchanged (both parties then under an obligation to complete on a specified date or may face financial consequences).
Explain the ‘caveat emptor’ principle?
Buyer beware - sellers not obliged to disclose information about the property (other than limited matters of title) and are not liable for any defects that later come to light.
Onus is therefore on the buyer to discover as much about the property as possible during DD (searches, enquiries, surveys) before exchanging contracts.
Why may a split exchange and completion be useful?
Exchange;
- Fixes the completion date, giving the buyer time to prepare for completion.
- Records agreed terms and can be relied upon if anything goes wrong.
- Allows bulk of purchase money to be gathered before completion.
- Gives the parties time to organise the practical aspects.
What is one of the main criticisms aimed at the conveyancing system in England and Wales?
As neither party has any legal rights against the other until contracts are exchanged, the buyer is at risk of being ‘gazumped’ (seller raises price at the last minute, and the seller is at risk of being ‘gazundered’ (buyer reduces price at the last minute).
List some typical tasks for the buyer’s solicitor during the pre-contract stage?
- Take instructions from buyer client (and possibly lender client).
- Investigate title.
- Raise pre-contract searches and enquiries (and check buyer client has commissioned survey).
- Approve draft contract.
- Prepare pre-exchange report to client(s).
List some typical tasks for the seller’s solicitor during the pre-contract stage?
- Take instructions from seller client.
- Investigate title and produce evidence of title (deduce title) to buyer.
- Reply to buyer’s pre-contract enquiries.
- Draft contract.
List some typical tasks for the buyer’s solicitor during the pre-completion stage?
- Draft transfer deed (+ mortgage deed if acting for lender).
- Raise pre-completion searches and enquiries (updating and checking buyer’s solvency if acting for lender).
- Submit a report on title/certificate of title to lender and request mortgage advance (if appropriate).
List some typical tasks for the seller’s solicitor during the pre-completion stage?
- Approve draft transfer deed.
- Reply to buyer’s pre-completion enquiries, including giving undertaking to discharge seller’s mortgage.
What does the buyer’s solicitor do during the post-completion stage?
- Pay SDLT/LTT within 14/30 days of completion to HMRC/WRA.
- Register the transfer of title with Land Registry.
What does the seller’s solicitor do during the post-completion stage?
Discharge the existing mortgage if necessary.
What happens once the lender receives the required amount to redeem the mortgage from the seller’s solicitor?
They will either;
- Complete DS1 form and send to seller’s solicitor for onward transmission to buyer’s solicitor or
- Submit an e-DS1 electronic discharge through Land Registry portal or
- Use ED system to remove charge automatically at Land Registry.
What will be the result of a solicitor breaching the ‘Code of Conduct’ and SRA Regulations?
Disciplinary proceedings against the solicitor and/or the firm, and a professional negligence claim.
Is a solicitor able to act for both buyer and seller under the Code of Conduct?
Para 6.2 = No, if there is a conflict of interest or a significant risk of such a conflict.
Especially the case where land is transferred for value, parties have unequal bargaining power or price negotiation is needed.
What are the exceptions under Para 6.2?
- Where the parties have a ‘substantially common interest’ in the matter, or
- Where the clients are ‘competing for the same objective’, and
- All the clients have given informed consent to you acting, and
- Effective safeguards are put in place to safeguard client’s confidential information.
Is a solicitor able to act for joint buyers under the Code of Conduct?
Yes - provided that Para 6.2 can be complied with.
Is a solicitor able to act for both borrower and lender under the Code of Conduct?
Yes - unless the risk of a conflict is high as if;
- The mortgage is not a standard mortgage offered on standard terms.
- The mortgage is a standard mortgage but you do not use the approved certificate of title.
Is a solicitor able to act for joint borrowers under the Code of Conduct?
Yes - provided no conflict of interest exists or is likely to arise.
Risk area - spouse mortgaging matrimonial home for business loan. If business fails, bank enforces security, spouse may claim UI to have mortgage set aside.
- No automatic UI presumption in marriage, but lender is put on enquiry if transaction is not to spouse’s advantage.
Lender assumes solicitor properly advised spouse and should provide solicitor with all details on loan, borrower’s indebtedness, overdraft and a copy of any written application made by borrower for the loan.
What should solicitor do in cases where spouse is mortgaging matrimonial home for business purposes?
- Explain to spouse the purpose of solicitor involvement, and that lender will expect solicitor’s involvement to counter any UI suggestion.
- Confirm that the spouse wants them to act.
- Set up a face-to-face meeting without borrower to advise on document nature and consequences/potential risks of signing.
- Explain that spouse has a choice as to whether to proceed or not.
If ‘glaringly obvious’ that spouse is being ‘grievously wronged’, refuse to act.
How can ‘contract races’ cause difficulties for solicitors?
Para 1.4 is engaged when a seller instructs their solicitor that they do not want prospective buyers to know about the race.
A solicitor cannot mislead or attempt to mislead through their acts or omissions, so should inform all buyers immediately of the seller’s intention to deal with more than one buyer (provided seller agrees to disclosure).
If not, solicitor should immediately stop acting in the matter.
How does the Code of Conduct deal with undertakings?
Para 1.3 - solicitors should perform all undertakings within an agreed timescale.
Undertakings are binding even if given in relation to something outside the solicitor’s control.
What must a solicitor provide a client RE costs?
The best possible information about the likely overall cost of their matter, at the beginning (through engagement letter) and at appropriate points throughout, including the fees, when they are likely to charge, and warning about any other potential payments (e.g. SDLT, Land Registry, search fees).
What is the main source of finance used for a property transaction?
Borrowing the majority of the purchase price through loan finance, usually via a bank/building society for residential purchases, as long-term loans and commercially competitive rates are offered.
More complex for commercial property, but the lender’s main concern is to secure the loan against a valuable asset e.g. mortgage.
What are the 2 most common types of mortgage?
1) Repayment mortgage - Borrower makes monthly payments to the lender made up of both instalments of the original amount borrowed + interest chargeable on the loan. By the end of the mortgage term, borrower will have paid off everything owed.
2) Interest-only mortgage - Borrower makes monthly payments to the lender consisting only of interest chargeable on the loan. Monthly repayments will be lower than under repayment mortgage, but borrower will still owe the lender at end of mortgage term.
N.B. Combined mortgages possible but lender will usually want to see evidence as to how capital will be repaid at end of term.
What is the main difference in the taxes charged on residential and commercial property transactions?
Buyers of both will pay SDLT/LTT when they purchase the property, but commercial property buyers may also have to pay VAT on the purchase.
What is the basis of SDLT charge for residential freehold property?
1st time buyers = nothing paid on purchases up to £425,000, and 5% on the portion from £425,001 to £625,000.
Non 1st time buyers;
- Up to £250,000 = 0%.
- £250,000 - £925,000 = 5%.
- £925,000 - £1,500,000 = 10%.
- The remainder = 12%.
As SDLT is paid on purchases of land, what may happen if the sale involves valuable chattels?
It may be possible to save SDLT by apportioning part of the purchase price to the chattels.
What is the basis of SDLT charge for non-residential or mixed use freehold property?
- Up to £150,000 = 0%.
- £150,000 - £250,000 = 2%.
- Anything > £250,000 = 5%.
How does LTT (Wales) differ from SDLT (England)?
No 1st time residential buyer relief, and different rates for non-1st time buyers;
- Up to £225,000 = 0%.
- £225,000 - £400,000 = 6%.
- £400,000 - £750,000 = 7.5%.
- £750,000 - £1,500,000 = 10%.
- The remainder = 12%.
What are the LTT rates for non-residential or mixed use freehold property?
- Up to £225,000 = 0%.
- £225,000 - £250,000 = 1%.
- £250,000 - £1,000,000 = 5%.
- Anything > £1,000,000 = 6%.
What is the basis for capital gains tax?
Charged on gains made on ‘chargeable assets’ and includes freehold, leasehold and the interests of co-owners in the case of jointly-owned property.
Calculated: current sale price - purchase price (or base value in 1982 if purchased before this).
When may private residence relief (full or partial) be claimed?
When the seller has occupied the dwelling house as their only or main residence throughout the ownership period.
If an individual has more than 1 residence, they can choose which of their residences will qualify for PRR by making an election to HMRC.
Certain periods of absence are allowed but strict conditions apply to length.
If the seller has a garden of more than 0.5 hectares, the gain on the excess is chargeable to CGT unless the seller can demonstrate to HMRC that the extra garden was necessary for reasonable enjoyment of the house.
The relief may be lost on any part of the house used exclusively for business.
What is VAT?
A tax on ‘taxable supplies’ charged by the supplier on the price of goods and services, ultimately borne by the consumer.
To charge and collect the VAT, the supplier must be a ‘taxable person’ (person whose turnover over past 12m has exceeded £85,000).
It is collected by HMRC from each supplier at the end of each VAT period (every 3m).
How is VAT calculated?
Supplier deducts input tax it has paid against the output tax it has charged and only the net amount is sent to HMRC.
The supplier accounts to HMRC for the value added by its business, input tax paid by the supplier is recovered.
N.B. If you only sell or supply exempt goods and services e.g. insurance companies, banks, building societies etc, your business is exempt and you cannot recover for VAT and cannot recover any input tax.
What are the differences between standard, exempt, and zero-rated supplies?
- Standard rated supplies attract VAT at standard 20% rate.
- Exempt supplies are non-VATable but sometimes the option to charge VAT exists.
- Zero-rated supplies are still taxable supplies, but are charged at a zero-rate.
What constitutes a ‘taxable supply’ in property transactions?
The vast majority of residential transactions do not involve payment of VAT.
Sellers of ‘new’ commercial property (one within 3 years of completion) have to charge the buyer VAT, but sellers of ‘old’ commercial property have an option to tax.
Why may a client make an option to tax and what effect does it have?
Sellers of ‘old’ commercial property may want to turn an exempt taxable supply into a taxable supply to enable input tax recovery incurred in relation to the building (e.g. on building work costs and professional fees in renovating the building to get ready to sell).
Disadvantage of this = seller has to charge VAT on the purchase price. This is no problem if the buyer makes taxable supplies and can thus recover its input tax VAT, but if the buyer cannot or can only make a partial recovery, the purchase price has increased as a real cost to the buyer’s business.
What will the seller try and do if the target market for the building includes ‘VAT-sensitive’ financial buyers (City of London)?
Try to avoid opting to tax the supply of the building to prevent the sale price being spiked, as the potential buyer will seek to claw back some of the irrecoverable input tax VAT by reducing its offer for the purchase price.
Why is planning law so important?
As planning matters tend to run with the land, any breach of planning will be the owner’s responsibility, and any enforcement could be against the property buyer.
Buyer may also need to apply for PP if they wish to carry out an works to, or change the use of property after purchase.
How is development defined?
s55 TCPA 1990: 2 strands - building, engineering, mining or other operations AND material changes of use.
N.B. All operations/work falling within the definition require planning permission.
What matters are expressly excluded from the definition of development?
- Interior maintenance/alterations.
- Changes of use within the same ‘Use Classes Order’.
How are uses grouped together into ‘Use Classes Order’?
- B2 - general industrial.
- B3 - storage and distribution.
- C - residential uses: hotels (C1), dwelling houses (C3), houses in multiple occupation (C4).
- E - commercial, business and service;
- E(a) - retail sale of goods, other than hot food.
- E(b) - sale of food and drink for consumption on the premises.
- E(c) - financial and professional services.
- F - local community and learning institutions.
How are the uses divided in Wales?
- A1 - shops
- A2 - financial and professional services
- B1 - business
- B2 - general industrial
- B8 - storage and distribution
- C - residential uses:
- D - non-residential institutions.
What are ‘sui generis’ uses?
Those which could potentially have adverse effects on their locality e.g. entertainment establishments, drinking establishments, and hot food takeaways.
Will changes of use to another use within the same class require planning permission?
No - e.g. in England, change of use in England from clothes shop to restaurant (both within Class E).
Will change of use from one class to another require planning permission?
Yes, but N.B. possibility of planning permission being automatically granted.
Will changes to and from a ‘sui generis’ use require planning permission?
Yes, but N.B. possibility of planning permission being automatically granted.
What is the effect of planning permission?
Will usually put a timeframe on implementation (within 3 years of date of permission for England, 5 for Wales), lapsing if not completed accordingly.
What matters are granted automatic planning permission?
Most common categories under GDPO:
- Developments within the curtilage of a dwelling house (smaller extensions).
- Minor operations.
- Specified changes between use classes.
- Changes of certain sui-generis uses.
What is the effect of an Article 4 Direction?
It may exclude the effect of the relevant GDPO; important to check the latest version of the GDPO (during local search) before relying on automatic planning permission.
If doubtful as to whether proposed works or a change in use amounts to development or come within the GDPO, apply to the LPA (who will issue certificate or refuse application) before work commences.
What action can the LPA take if property is developed in contravention of planning control?
Can first exercise a right of entry to the property or serve a planning contravention notice, requiring the recipient to provide information about operations, use, and matters relating to the conditions attached to a planning permission.
If the LPA then decides to take action, it can issue;
- Enforcement notice
- Stop notice
- Breach of condition notice
- Injunction
Explain the enforcement notice?
Served on the owner, occupier and any other person having an interest in the land (e.g. mortgagee) and will become effective 28 days after service.
Specifies the alleged breach and steps to be taken or activities to be stopped to remedy the breach and timescale for this.
Any person with an interest in the land has a right to appeal an enforcement notice.
N.B. In Wales, LPA’s can serve an enforcement warning notice that further action may be taken if a planning permission application is not made within the specified timeframe.
N.B. In England, LPA’s can serve same from 25/01/24.
What is the effect of a stop notice?
Stops activities in breach of planning control before an enforcement notice takes effect (28 days) and must be served after an enforcement notice.
Temporary stop notice can also be served, effective for 28 days to allow time for further investigation.
What is a breach of condition notice?
Similar to enforcement notice but can only be served where the breach of planning control is a breach of a condition attached to a planning permission.
Unlike enforcement notice, no right of appeal.
What must LPA show court to get an injunction?
That an injunction is a necessary and appropriate remedy given the facts to restrain an actual or apprehended breach of planning control.
What are the time limits for injunction enforcement action?
England - within 10 years of alleged breach, except for breaches prior to 25/04/25 involving operational development or changing building to single dwelling house (within 4 years).
Wales - within 4 years of alleged breach for above, and 10 for all other breaches of planning control.
What is the process for applying for building regulation control?
Following an application to the building control authority for building regulations consent, the work is subject to inspections by a building control officer and a certificate of compliance issued after.
What are the time limits for building control authorities prosecuting for breaches of building regulations control?
England - no time limit.
Wales - within 2 years of the offence.
How can buyers check that building regulations have been complied with?
CON29 will reveal details of building regulations consents and certificates granted.
N.B. If a consent has not been granted, the buyer can ask the seller to obtain a regularisation certificate from the building control authority which lists the work required to bring the building up to standard.
How do listed buildings affect building regulations consent?
Owner will require listed building consent to demolish, alter or extend the building in addition to planning permission.
The higher the listing, the harder obtaining listed building consent from LPA will be.
Are clients able to make changes to property in conservation areas?
Yes but harder;
- Changes to external building appearance may require planning permission not required elsewhere.
- Demolition requires LPA planning permission.
- Any planned work to a tree must be notified to LPA 6 weeks prior to allow determination of whether work can occur.
What key questions should a solicitor acting for the buyer of a property ask?
- Is there a planning permission for the construction of the building or was planning permission not needed?
- Is the building currently being used for its authorised planning purpose?
- Are there any planning conditions which would prevent the future buyer’s use?
- Are there any existing breaches of planning law for which action could be taken against the buyer after completion?
- Have any works been done which would have required building regulations consent?
- Is the building listed or in a conservation area?
What is investigation of title?
The process of establishing who owns the property and whether there are any rights or rules which could affect the owner’s use and enjoyment of it.
- Buyer’s solicitor will check that the seller owns the property and whether there is anything that burdens the seller’s title which would deter a buyer.
- Lender’s solicitor will ensure that if the borrower defaults on the loan, the property can be sold on the open market for at least as much as is outstanding on the loan.
- Seller’s solicitor will investigate their client’s title, ensuring that problems are dealt with in advance to sell ‘free from incumbrances’ in the contract.
How is a registered title investigated?
By the seller’s solicitor obtaining ‘official copies’ of the register of title for the property, and a ‘title plan’ from Land Registry online.
How does the seller deduce title to the buyer in registered land?
By producing documentary evidence of the title to the buyer that is less than 6m old, usually before contract exchange to prevent objections after exchange.
How are official copies set out in registered land?
Show the;
- Property title number.
- Edition date (date on which Land Registry last updated the title).
- Search from date (specific date of the official copies showing the entries subsisting on the register at a certain time).
What are the 3 registers that the official copies show entries on?
1) The Property Register
2) The Proprietorship Register
3) The Charges Register
What is shown in the Property register?
- A description of the land by reference to postal address and title plan, and whether the title is freehold or leasehold.
- May indicate that there are easements or rights benefitting the land, and if so, that those easements/rights are subject to financial obligations.
- May indicate that certain things one might usually expect to come with the land e.g. rights of light and air over adjacent land have been excluded from the title.
What is shown in the Proprietorship register?
- The current owners and their addresses.
- The class of title (absolute, possessory or qualified).
- May indicate the price paid for the land by current owners (if the land has been sold since 1/4/2000) and whether the owners gave an indemnity covenant when they bought the land, as evidence of a chain of indemnity covenants.
- Restrictions on the owners’ ability to sell (indicates that the proprietor’s ability to deal with the property is limited). May be;
– Indefinite or for a specified period.
– Absolute or conditional.
Distinguish between the 3 different classes of title?
1) Absolute title - most common and strongest class (owner has unequivocal right to the land).
2) Possessory title - granted where proprietor is in possession of the property but has lost original title deeds so cannot prove absolute title. If found, apply to Land Registry and upgrade.
3) Qualified title - rare but granted where there is a specific identified defect in the title that cannot be disregarded.
N.B. Buyer will be concerned if the class of title is not absolute as this may affect their ability to obtain a loan to purchase the property and/or sell in the future.
What is shown in the Charges register?
Incumbrances;
- Covenants affecting the property (positive or restrictive).
- Easements affecting the land.
- Charges over the land (mortgages - N.B. 2 entries; creation of it and details).
- Leases granted over the whole or part of the property.
- Notices registered by 3rd parties claiming an interest e.g. Home right.
How is title to freehold unregistered land investigated?
1st step - check whether the land is already registered or is the subject of a pending application for first registration (possible that a 3rd party has lodged a caution against first registration, warning any person dealing with the land that they have an interest).
When the application for first registration is lodged, Land Registry will ‘warn off’ the cautioner by giving them a limited time period to establish their rights or will be lost.
If the title has not been registered, it is proved by title deeds;
- Seller provides buyer with copies before contract exchange and originals on completion (sale of whole), and certified copies (sale of part).
- At completion, buyer’s solicitor completes ‘verification of title’ to ensure the original title deeds match the copies received prior to exchange.
How does the seller deduce title to the buyer in unregistered land?
By checking the parchment or paper deeds previously used to transfer property ownership.
Having obtained title deeds, seller’s solicitor considers whether any transaction in the property’s history should have triggered first registration of title. If so, the seller is required to register it before any other transactions can proceed.
Next, the solicitor looks through title deeds to find the ‘root of title’ document.
Then, the seller’s solicitor prepare the ‘epitome of title’.
What is the ‘root of title’ document?
The document from which to begin the title investigation. Usually most recent document satisfying below s44 LPA 1925 requirements;
- Deal with or show who owns the entire interest (legal and equitable) that is being sold by the current owner.
- Contain a recognisable description of the relevant land.
- Do nothing to cast doubt on the seller’s title.
- Be at least 15 years old.
What is generally acknowledged to be the most acceptable root of title?
Conveyances on sale or legal mortgages satisfying the above as it effectively offers a double guarantee, with the certainty of soundness of title over a minimum 30 year period.
N.B. Conveyances are generally preferable to mortgages as it expressly deals with the legal and equitable interests in the land, and contains more details of property.
N.B. If none available, a deed of gift/assent may be used.
What is the ‘epitome of title’?
A schedule of all the documents from and including the root up until the present day, numbered and listed by date.
What should solicitors focus on when checking each title deed listed in the epitome of title?
Chain of ownership;
- Should be unbroken from owner indicated in root of title to the present seller, with documentary evidence of each ownership change.
Description of the land;
- Ensure consistency throughout but not always the case e.g. where land once part of larger estate.
Stamp duty;
- Verify that each document has the correct embossed stamp (e.g., ad valorem, certificate of value) and check for valid exemptions with supporting certificates.
- Ensure the correct stamp duty was paid to prevent title defects and future legal challenges.
Incumbrances;
- Check for words e.g. ‘excepting and reserving’ or ‘subject to’.
Execution (via deed for most conveyancing transactions).
Land Charges searches.
What must solicitors ensure in relation to Land Charges searches?
Solicitors should have registered the land charge against the name of the person who owned the legal estate in the land bound by the incumbrance immediately after such an incumbrance was created.
- C(iv) - an estate contract.
- D(ii) - a restrictive covenant.
- D(iii) - an equitable easement.
- F - a Home Right.
Solicitors to also ensure that valid searches have been made against the names of all estate owners revealed in the epitome of title and attached documents, with a K15 form search against each estate owner for the years they owned the land.
What issues may be revealed during an investigation of title and what further action is required?
- Easements.
- Mines and minerals exceptions and reservations.
- Declaration as to rights of light and air.
- Co-ownership.
- Restrictive covenants.
- Positive covenants.
- Unknown covenants.
- Mortgages.
- Leases.
- Notices (registered land only).
- Home Rights.
What further action is required for easements revealed in an investigation of title?
Assess whether the right of way (as expressed) accommodates the buyer’s access needs, including outside normal working hours.
Enquire about the seller’s contributions to maintenance costs and any disputes regarding the right of way or cost sharing.
Recommend instructing a surveyor to inspect the land’s condition and identify potential maintenance or repair issues.
What further action is required for mines and minerals exceptions and reservations revealed in an investigation of title?
Inform the buyer that the seller cannot transfer ownership of mines/minerals to the buyer, and any encroachment would therefore constitute trespass.
Reservations may create a ‘profit a prendre’ right so enquiries about ground stability and potential subsidence due to past mining should take place.
Conduct an Index Map Search to verify if the mines/minerals are registered under a separate title and identify the owner.
What further action is required for declaration as to rights of light and air revealed in an investigation of title?
Enquire about the extent and location of the vendor’s adjoining land and inform the buyer of any reservation given their intended use and likelihood of nearby development.
What further action is required for co-ownership revealed in an investigation of title?
If property jointly owned but sold by one co-owner, investigate the status of the missing co-owner (if alive, must be a party to the transfer and if dead, provide certified copy of death certificate).
If the dead co-owner’s interest passed via will/intestacy, certified probate documents suffice. Otherwise, appoint a 2nd trustee to overreach the equitable interest for tenants in common, unless 2+ legal owners remain.
What are the 3 options available for restrictive covenants revealed in an investigation of title?
1) Ask that the seller agrees with the person with the benefit of the covenant (if known) over the proposed use; permanent release or a one-off consent.
2) Obtain a restrictive covenant insurance policy for the proposed breach of covenant.
3) Apply to Upper Tribunal for modification or discharge of the covenant, on grounds that the covenant is obsolete or confers no practical benefit of substantial value and the loss of covenant can be compensated by money.
Assess the options available when taking action on a restrictive covenant?
Mutually exclusive;
- Insurance policy generally not available where an approach has been made to a person with the benefit of the covenant alerting them of their rights.
- Approaching is not in client’s best interest where covenant is old as successor in title may be unaware of it.
- However, if the covenant is recent and imposed by a statutory authority, chances of enforcement are high so may be best to try and reach agreement as applying to UT for discharge/modification is likely to be denied (exercise caution as also takes time and at their discretion).
- Obtaining restrictive covenant insurance is commonly used and cost-effective.
What further action is required for positive covenants revealed in an investigation of title?
Check if the seller gave an indemnity covenant to their seller, as this may bind the buyer to give an equivalent indemnity covenant in the transfer.
Highlight to the buyer that they could be contractually liable for future breaches of the positive covenant.
What further action is required for unknown covenants (usually where contained in earlier lost deeds) revealed in an investigation of title?
Safest option is to assume they are restrictive and will be binding on the buyer; consider indemnity insurance policy.
What further action is required for mortgages revealed in an investigation of title?
Important to ensure that seller intends to discharge it using proceeds of sale immediately after completion.
Either ensure seller sells free of mortgage in contract, or get seller’s solicitor to give an undertaking to discharge on completion.
What further action is required for leases revealed in an investigation of title?
Acceptable if buyer is expecting to receive rental income from property; problematic where buyer requires vacant possession, as tenant will have possession and control of property for lease duration.
Report lease to buyer and assess compatibility with their intended use of the property.
What further action is required for notices (registered land only) revealed in an investigation of title?
Ask the seller’s solicitor to clarify the notice, and then insist on its cancellation by the Land Registry before contract exchange to ensure clear title.
What further action is required for Home Rights revealed in an investigation of title?
Seller should be required to obtain a release of all property rights and agreement to vacate on completion from the non-owning occupier.
Where do easements and covenants appear in unregistered land?
In or immediately after the first operative paragraph conveying the property to the purchaser.
Where will mortgages appear in registered and unregistered land?
Registered land - 2 entries in Charges register (one giving date and purpose of the charge and other stating identity of the lender).
Unregistered land - as one of the title deeds listed in the epitome of title. An undischarged mortgage will have ‘vacating receipt’ on back page.
Why are pre-contract searches and enquiries necessary?
‘Caveat emptor’ applies when a person buys a property.
What searches and enquiries are relevant to every property?
- Survey and personal inspection.
- The local search.
- Water and drainage search.
- Pre-contract enquiries of the seller.
- Environmental searches.
- Flood search.
Explain what the survey and personal inspection involves?
Professional survey to always be recommended to clients; solicitors to then advise on the most appropriate survey type in any case.
A full structural survey will give a detailed commentary; appropriate if the buyer has concerns or intends to carry out alterations after purchase.
Otherwise, a ‘homebuyers’ valuation is a cheaper and less detailed option whilst providing advice on necessary repairs and maintenance requirements.
Personal inspection comes at an additional cost and tends to suit high value commercial transactions.
Explain what the local search involves?
Form LLC1 provides details of any financial charges or restrictions on land that have been imposed by public authorities under statute (e.g. planning consents, tree preservation orders, and conservation area designation orders).
Standard enquiries (form CON29) give information such as planning permissions, restrictions on permitted development (Article 4 Direction) and raise questions of liability for road repair.
Optional enquiries (form CON290) may be raised to cover issues such as environmental/pollution notices and common land rights.
N.B. The local search only relates to the property itself and not adjoining land.
Explain what the water and drainage search involves?
Enquiries raised with the statutory undertaker (usually a water company) with forms for residential (CON29DW) and commercial (CommercialDW) properties.
Main purpose = to establish whether the drains and sewers serving the property are ‘adopted’ and thus the responsibility of the statutory undertaker not property owner.
Search aims to establish a connection between the property and a public sewer and public water supply.
If the property does not drain into a public sewer, the buyer will be liable for the costs of maintaining the drains and sewers, and perhaps the cost of bringing them up to adoption standard if the water authority decides to adopt.
Explain what pre-contract enquiries of the seller might involve?
Varies, but typically includes whether the seller has had any disputes regarding the property, whether any 3rd parties occupy the property, compliance with covenants contained within title, planning permission etc.
Explain what the environmental searches involve?
Important for solicitors who need to advise on the risk and liability where the property is found to be contaminated land.
Both the CON29 and CON29O forms contain some relevant questions, but additional ‘desktop’ search is needed (carried out by a specialist environmental search company and looks at all plans of the area, information published by LA and EA).
If any risk that the land may be contaminated exists, buyers may consider commissioning a physical land survey by a specialist environmental surveyor or getting insurance against environmental liability to manage the risk.
When will a flood search be indicated?
To identify whether the property is at greater than normal risk of flooding.
Property-specific flood risk searches are available from commercial providers.
If a flood risk is identified, a specialist report can be obtained to advise buyer on flood risk and possible mitigation measures.
What searches and enquiries are relevant for particular properties and transactions?
- Chancel repairs search.
- Mining searches.
- Canal & River Trust search.
- Commons search.
- Railways.
- Highways.
- Unregistered land searches.
- Company search.
What does a Chancel repairs search involve?
Determining if a property is liable for repair costs of a medieval parish church.
In registered land, liability applies only if the transfer occurred before 13/10/2013.
Insurance against liability may be considered more cost-effective.
When is a coal mining search carried out?
If the property is in a coal mining area and/or with a mines and minerals reservation in the title, a CON29M search checks for potential subsidence, mining shaft issues and previous subsidence claims, with specific searches for heavily affected areas.
When is a Canal & River Trust search carried out?
If the property is adjacent to a river or canal and buyer needs to be aware of any liability for maintenance repairs of the waterways and banks, and previous flooding.
When is a Commons search carried out?
If the property is adjacent to open land, a CON290 enquiry 22 is made to the LA to check that the property is not protected as common law or a town and village green.
When is a Railways search carried out?
Specific searches available for proposed major rail undertakings (e.g. HS2) to Network Rail, but otherwise specific proposals raised with Network Rail to establish liability for boundary maintenance and/or use restrictions.
When is a Highways search carried out?
Where there appears to be land in private ownership separating the property from the highway, a search is made available to the Local Highway authority to establish whether verges and pavements are publicly maintainable.
What do Unregistered land searches involve?
An Index Map Search (SIM) and a Land Charges Department search against the seller and previous estate owners.
N.B. Index Map Searches can also be used to check that mines and minerals are not registered under a separate title to be able to identify the owner of those mines and minerals and any associated rights.
When should a bankruptcy/insolvency search be done?
Just before completion or prior to exchange to enable time to sort problems out.
If the borrower is an individual, send K16 to Land Charges Department.
What matters are commonly revealed in search results and replies to enquiries?
Planning permissions;
- Check whether there are any planning conditions attached to the permission which would prevent the buyer’s proposed alterations or future use of the property.
- Check whether there are any existing breaches of the planning conditions for which action could be taken against the buyer after completion (up to 10 years from breach) so check if any enforcement proceedings have been taken.
Road adoption;
- Revealed on CON29 local search.
- If a road is not a public highway maintainable at public expense, there is no automatic right of use and the local authority is not paying its maintenance.
Tree preservation orders (TPO);
- Revealed as a local land charge in LLC1 result and buyer to be informed accordingly as a criminal offence to lop or fell a tree subject to a TPO without LPA consent.
Smoke control orders;
- Revealed as a local land charge in LLC1 result and may be a problem for buyers if the property has an open fireplace they intend to use.
Conservation areas;
- Revealed as a local charge in LLC1 or CON29 results and buyer to be informed accordingly as will affect ability to make changes to property.
Occupiers;
- If an adult occupier exists, the seller should be required to obtain a release of all rights in the property and agreement to vacate on or prior to completion.
What position should the buyer be in at exchange of contracts?
One where they know exactly what they are getting and by exchanging contracts, both parties become bound to complete the transaction on the terms agreed.
What choices need to be made once the parties decide that they need a contract?
Whether to use a pre-printed form or draft a contract in their firm’s preferred style.
Regardless of choice, a set of ‘Standard Conditions’ need to be incorporated.
Explain the 2 sets of Standard Conditions currently in use?
1) The Standard Conditions of Sale (all residential and some simple commercial transactions).
2) The Standard Commercial Property Conditions (high value commercial properties).
How are both sets of Standard Conditions divided?
Both into 3 parts;
1) Front page - particulars of sale (description of property and terms of sale).
2) Middle page - standard conditions to apply to all transactions (either SC or SCPC) unless parties specifically agree something different.
3) Back page - special conditions that are specifically drafted to meet the requirements of the particular transaction; some pre-printed special conditions at the top and space for parties to insert theirs.
List some of the key conditions in the SC and SCPC?
- For registered property, contract to state title number and class of title.
- For unregistered property, defined in contract by reference to root of title.
- Specified incumbrances.
- Title guarantee.
- Contract rate.
- Deposit; stakeholder and agent.
How are specified incumbrances dealt with?
Listed by both SC and SCPC as;
- 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.
In addition, SC also includes;
- Those, other than mortgages, which the buyer knows about.
- Entries made before the contract date in any public register, except for those maintained by Land Registry, Land Charges Department and CH.
SCPC also expresses same concept and includes;
- Matters, other than mortgages, disclosed or which would have been disclosed by the searches and enquiries which a prudent buyer would have made before entering the contract.
What should solicitors do considering the 2 sets of Standard Conditions are expressed differently?
List all incumbrances revealed by their title investigation to ensure they are brought within the category of ‘those specified in the contract’ as non-disclosure of an incumbrance may result in the buyer having a right to rescind the contract and/or claim damages.
How is title guarantee dealt with?
Both SC and SCPC provide that the seller will sell with full title guarantee, so a special condition amending the standard conditions needed if not.
Sellers should sell with full title guarantee if they own the entire legal and equitable title to the property.
Sellers should sell with limited title guarantee if they have limited knowledge of the property.
With full title guarantee, the seller impliedly covenants that the land is disposed free from incumbrances other than those the seller does not know about and could not reasonably know about. This is wider than covenant implied in limited title guarantee; seller has not encumbered the property and is not aware that anyone else has since they acquired the property.
How is the contract rate dealt with?
The rate of interest (charged on the purchase price) if a party is late in completing.
Both SC and SCPC provide the ‘Law Society’s interest rate from time to time in force’ (currently 4% above the base lending rate) so can apply this or negotiate different.
How is deposit: stakeholder and agent dealt with?
SC and SCPC provide that a 10% deposit is paid to the seller’s solicitor as ‘stakeholder’ (seller’s solicitor cannot hand it to seller until completion).
N.B. If SC is being used, the seller may use any deposit as a deposit on a related purchase of a house for the seller, with any leftovers then held as stakeholder.
Parties can agree to vary this arrangement;
- Sellers may agree to accept a reduced deposit but risky as less of a fund to forfeit if the buyer fails to complete.
- Buyer may agree that deposit can be held by seller’s solicitor as ‘agent’ (deposit can be released to the seller immediately after exchange and can be used for any purpose) rather than ‘stakeholder’ but risky as if parties do not complete, seller may be insolvent and unable to return deposit to buyer.
What matters are covered by special conditions?
- Whether the sale includes any contents or excludes any fixtures.
- Whether the property is to be sold with vacant possession or subject to leases and tenancies.
- If completion time has been altered by agreement.
- Parties to not rely on any representations not made in writing.
- If there is a non-owning adult occupier, releasing any rights in the property.
List some (of infinite) possible new special conditions?
- Appointment of a 2nd trustee for purposes of transfer.
- Arranging for seller to obtain or pay for a restrictive covenant insurance policy.
- Disclosing a defect in title.
- Seller selling with limited or no title guarantee.
- A deposit of < 10% and/or for the deposit to be held as agent not stakeholder.
- The payment of VAT.
- Removal of fixtures by the seller and timetable for this; make the seller responsible for making good any damage caused by its removal.
When does the risk of damage to the property pass to the buyer under SC and SCPC?
From the moment of contract exchange; onus on buyer to put adequate insurance in place from this point onwards.
What are the VAT options in a contract for residential property?
Not usually chargeable in residential transactions; seller’s solicitor will incorporate special condition to provide that purchase price and contents price are inclusive of VAT (as none to be paid).
SCPC’s provide that the sale of property constitutes a supply chargeable to VAT at the standard rate and the buyer will pay VAT on completion.
What are the VAT options in a contract for commercial property?
VAT is payable when the property is less than 3 years old, or because the seller has exercised the option to tax. 3 options;
1) The purchase price is exclusive of VAT and VAT will be added on top.
– Appropriate for standard rated supply of a commercial building within 3 years of construction where seller has no choice but to charge VAT, or where seller needs to opt to tax to recover VAT paid on refurb/professional costs and buyer is not VAT-sensitive.
2) The purchase price is inclusive of VAT so VAT (if any) cannot be added on top.
– May be appropriate for the supply of an old commercial building where the seller does not have input VAT to recover and so has no reason to opt to tax.
– Popular amongst VAT-sensitive buyers who cannot recover VAT paid on purchase price.
3) The purchase price is exclusive of VAT, so VAT may be added on top in the unlikely event that law changes.
– Appropriate for 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 risk of law changing and turning originally exempt supply into a taxable supply and buyer is VAT-sensitive.
– Here, parties should incorporate special condition giving them the right to charge VAT in addition to purchase price in that event.
How do mortgage lenders seek to limit their exposure?
By issuing specific instructions to conveyancers and ensuring property is good security and buyer is creditworthy before offering loan.
Providing a mortgage offer (residential/simple commercial) or commitment letter (complex loans) detailing terms, repayments and conditions - offer may be withdrawn even after contract exchange.
Requires a first legal mortgage over the property, ensuring repayment priority in case of default; solicitor must advise borrower on consequences.
What to do when acting for the lender?
Buyer’s solicitor must ensure that the borrower has good title to the property, safeguarding the lender’s security in case enforcement becomes necessary.
Key responsibilities;
1) Reporting on title and pre-contract searches
– Investigate title and prepare certificate of title to disclose any property issues that may affect lender’s security.
2) Follow the UK Finance Mortgage Lenders’ Handbook (most UK mortgage lenders adhere to it).
– Part 1 = General instructions.
– Part 2 = Lender-specific requirements.
– Part 3 = Instructions when the conveyancer acts only for the lender.
3) Ensuring compliance before fund release;
– Solicitor must meet lender’s requirements before requesting the drawdown of mortgage funds.
What does a certificate of title approved by Law Society and UK Finance confirm to the lender?
There are no legal problems with the property so the lender can safely lend against it.
Who will own the property once the sale is completed.
The completion date when funds are needed.
N.B. More detailed certificate needed for commercial transactions, structured as a series of statements about property. By solicitor giving it, they confirm that title to the property being reported on is good and marketable.
What happens if the information given in the certificate of title is wrong?
Lender can sue the firm who gave the certificate as there are warranties as to the correctness of information contained within it.
What does the pre-contract report show?
Sums up the result of the pre-contract searches and investigation of title; also explains the contract terms and mortgage offer.
Is sent by the buyer’s solicitor to the buyer.
List the steps to be taken in preparation for contract exchange?
- Report to client.
- Report to lender.
- Ensure deposit funds are available.
- Check the mortgage offer is in place and the client has sufficient funds to complete.
- Ensure insurance arrangements are in place immediately following exchange.
- Contract signed ‘wet ink’ but electronic signature may be used lawfully and solicitor may sign on client’s behalf.
- Completion date.
Do solicitors need to obtain their client’s authority to exchange?
Yes - in writing and a note made on file as a solicitor will be liable to the client in negligence if contracts are exchanged without express or implied authority.
What are the 3 ways that exchange of contracts can be done?
1) In person, by one solicitor attending the other’s office and handing the contract over.
2) By post, with each solicitor sending their client’s part of the contract by post to the other solicitor’s office.
3) Over telephone; quickest, most cost-effective and reliable, especially if Law Society Formula A, B and C (rarely used, chain transactions) are followed as they involve undertakings from the solicitors which, if breached can result in disciplinary action against the offending party.
When is each Formula used?
Formula A - where one solicitor holds both parts of the contract duly signed AND the deposit is sent by electronic means.
Undertakings;
- The solicitor holding both signed parts of the contract will send their client’s signed part of the contract to the other side by 1st class post that same day through doc exchange or by hand.
- Buyer’s solicitor to send a banker’s draft or client account cheque for the agreed deposit to the other side that same day.
Formula B - (most common). Where each solicitor holds their own client’s signed part of the contract.
Undertakings;
- Each solicitor will send their client’s signed part of the contract to the other side by 1st class post (doc exchange or by hand) that same day.
- Buyer’s solicitor will also send to other side a banker’s draft or client account cheque for agreed deposit.
N.B. In each case, the solicitor should record the exchange with a file note logging the date and time of exchange, formula used, completion date, deposit to be paid and the identities of the solicitors involved in the exchange.
What are the consequences of exchange?
A binding contract exists. Neither party can withdraw without liability for breach.
Seller retains legal title in property until completion, but holds the beneficial interest on behalf of the buyer.
Sellers must pay outgoings until completion, and the buyer bears the risk of any loss/damage to the property (unless contract says otherwise).
What are solicitors required to do on exchange?
Inform clients and estate agents that an exchange has occurred and comply with relevant undertakings if done via phone (usually involves sending their client’s signed and dated contract part with the completion date inserted to the other side).
