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2023 > Property Practice - Freehold > Flashcards

Property Practice - Freehold Flashcards

1
Q

Pre-contract Searches and Enquiries

What six searches and enquiries are required for every property?

The buyer’s solicitor is at the heart of conveyancing process. He must find out as much about the property as he can before exchange.

A

a. Survey and personal inspection.
b. Local search.
c. Water and drainage search.
d. Pre-contract enquiries of seller.
e. Environmental searches
f. Flood search

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2
Q

Pre-contract Searches and Enquiries

Provide 8 searches and enquiries for particular properties and transactions.

A

(a) Chancel repairs
(b) Mining
(c) Canal and River Trust
(d) Commons
(e) Railways
(f) Highways
(g) Unregistered land
(h) Company search

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3
Q

Survey and personal inspection

What type of survey is always required by the lender of the borrower?

If the buyer has concerns about the state of the property or intends to carry out alterations after the purchase what surveys should they consider?

When is personal inspection typically used, and when is it likely to be unsuitable?

A

A valuation.

A full structural survey or (the less expensive) homebuyer’s valuation and survey.

High value commercial transactions; unsuitable in residential transactions - buyer is unlikely to be prepared to beat the cost of both a personal inspection and survey.

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4
Q

Pre-contract Searches and Enquiries

What is the local land search comprised of?

Three searches/enquiries

A
  • Local land charges search
  • Standard enquiries of the local authority
  • Optional enquiries
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5
Q

Pre-contract Searches and Enquiries

What does the local land charges search (LLC1) show?

A

Details of any financial charges or restrictions on land imposed by public authorities under statute.

E.g. planning consents, tree preservation orders and conservation orders.

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6
Q

Pre-contract Searches and Enquiries

What do the standard enquiries of the local authority (CON29) show?

A
  • Information on planning permissions
  • restrictions on permitted development.
  • whether it is contaminated land
  • liability for road repair.
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7
Q

Pre-contract Searches and Enquiries

What is the main purpose of the Water and drainage search?

If the property does not drain into a public sewer, who will be liable for the costs of maintaining the drains and sewers?

A

To establish whether drains and sewers are ‘adopted’ by the water company, therefore not the owner’s responsibility.

The buyer.

Buyer may also be required to bring the drains/sewers up to adoption standards if the water authority decides to adopt them.

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8
Q

Pre-contract Searches and Enquiries

Why is it important that environmental searches are carried out?

A

The buyer’s solicitor could be found negligent if property is found to be contaminated.

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9
Q

Pre-contract Searches and Enquiries

If property is adjacent to a river or canal, what search is required and why?

Searches/Enquiries for particular properties and transactions

A

The Canal and River Trust search because:

(a) buyer needs to be aware of liability for repairs/maintenance of waterways, banks and tow paths.
(b) it will show if the property has been affected by flooding in the past.

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10
Q

Pre-contract Searches and Enquiries

What two land searches are necessary for any purchase of unregistered land?

A
  • Index Map Search
  • Land Charges Department search against seller and previous owners.
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11
Q

Pre-contract Searches and Enquiries

A company search will be relevant where…
It is carried out at…
It will confirm:

A

…the seller is a company.
…Companies House
- Whether seller has capacity to enter the contract;
- Identity of current officers of the company;
- Whether any fixed/floating charges need to be discharged on completion.

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12
Q

Pre-contract Searches and Enquiries

For whom and against whom is a bankruptcy/insolvency search conducted?

Where the borrower is an individual, what form is used?

A

For the lender, against the borrower.

Form K16.

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13
Q

Pre-contract Searches and Enquiries

Why would a highways search be conducted if CON29 already provides information about roads adjoining the property?

A
  • Enquiries about verges and pavements.
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14
Q

Preparation for exchange: standard conditions

What are the two sets of standard conditions

A
  • Standard Conditions of Sale (SC)
  • Standard Commercial Property Conditions (SCPC)
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15
Q

Preparation for exchange : standard conditions

In both the SC and SCPC it is necessary to specify all ____ otherwise the ____ will be in breach of SC 3.1.2 (or SCPC 41.1).

Which of these must the buyer’s solicitor ensure is not included?

A

Incumbrances; seller.

The seller’s mortgage.

(such as restrictive convenants, easements and obligations)

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16
Q

Preparation for exchange: seller’s title

(1) A seller should sell with full title guarantee if…

(2) A seller should sell with limited title guarantee if…

Title Guarantee

A

(1) …they own the entire legal and equitable title.

(2) …they have limited knowledge of the property (e.g. as an executor or trustee)

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17
Q

Preparation for exchange: seller’s title

Distinguish between the implied covenants given by the seller of the full title and limited title guarantees.

Title Guarantee

A

(1) Full title: The land is disposed free from incumbrances other than those the seller does not know about and could not reasonably know about.

(2) Limited title: the seller has not incumbered the property and is not aware that anyone else has done so since they acquired the property.

With both the full and limited title guarantees, the seller impliedly covenants that:

a. They have the right to dispose of the land;
b. They will do all they reasonably can to transfer title; and
c. In case of leasehold, the lease is subsisting at the time of disposal and there is no breach of covenant making it liable to forfeiture.

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18
Q

Preparation for exchange: seller’s title

Full title guarantee is a guarantee that the land is disposed free from incumbrances other than those the seller does not know about and could not reasonably know about. However, s.6 of the Law of Property (Miscellaneous Provisions) Act 1994 limits the covenant to exclude matters:

Title Guarantee

3 matters

A
  • to which the disposition is expressly made subject;
  • which the buyer knows about at the time of disposition;
  • which were entered on the registers at the time of disposal.
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19
Q

Preparation for exchange: contract rate

The contract rate is the rate of interest that will be…
The interest is charged on…

A

…charged if a party is late in completing.
…the purchase price, excluding any deposit already paid.

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20
Q

Preparation for exchange: deposit

Both the SC and the SCPC provide that a 10% deposit of the purchase price is payable on exchange to the seller’s solicitor as… What does this mean?

However, if using the SC, what is the seller allowed to do?

Deposit: Stakeholder and agent

A

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

Use the deposit as a deposit on a related purchase of a house for the seller.

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21
Q

Preparation for exchange: deposit

The parties can vary the default arrangement of seller’s solicitor as stakeholder. They can agree that the solicitor holds as agent. This means that…

Deposit: Stakeholder and Agent

A

…the deposit can be released to the seller immediately after exchange and can be used by the seller for whatever purpose.

This is riskier for the buyer, as if either party fails to complete the seller may not be able to return the deposit (e.g. where seller is insolvent).

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22
Q

Preparation for exchange

Under both the SC and SCPC, which party bears the risk of damage to the property on exchange of contracts?

What therefore needs to be in place pre-exchange?

Insurance and Risk

A

The buyer
Buyer’s insurance.

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23
Q

Preparation for exchange: VAT

VAT is not normally chargeable in …

Meanwhile, contracts for the sale and purchase of ____ should deal with whether the buyer will have to pay VAT in addition to the purchase price. In this case, when is VAT payable?

A

…residential transactions.
…commercial property.

When the building is:
- less than 3 years old; or
- older than 3 years old but the seller has exercised the option to tax.

24
Q

Preparation for exchange: VAT

In the sale and purchase of commercial property, what are the three possible ways of drafting the contract terms with respect to VAT?

VAT in commercial contracts

A

(a) The purchase price is exclusive of VAT and VAT will be added on top.
(b) The purchase price is inclusive of VAT so that VAT cannot be added on top.
(c) The purchase price is exclusive of VAT, so VAT can be added on top if the law changes to make an exempt supply chargeable at the standard rate, but seller is contractually obliged not to opt to tax.

25
Q

Preparation for exchange: VAT

A seller is selling a new commercial property (i.e. less than 3 years old)
A seller is selling an old commercial property, but wants to exercise the option to tax, to recover VAT paid on refurbishments, and the buyer is not VAT-sensitive.

In both these cases, how will the contract be drafted with respect to VAT?

VAT in commercial contracts

A

(a) The purchase price is exclusive of VAT and VAT will be added on top.

SCPC 2 is the appropriate term:

  1. VAT STANDARD RATED SUPPLY
    2.1 The seller warrants that the sale of the property will constitute a supply chargeable to VAT at the standard rate.
    2.2 The buyer is to pay to the seller on completion.
26
Q

Preparation for exchange: VAT

If the seller does not have any input VAT to recover on an old commercial building, or the buyer is VAT-sensitive, which two ways could the contract be drafted?

Which one of these is riskier for the seller and why?

What three entities are typically VAT-sensitive and why?

Refresher: input VAT is paid by a business on its purchases while output VAT is charged by a business on its goods and services

A

(b) Purchase price is inclusive of VAT.
(c) Purchase price is exclusive of VAT in the unlikely event that the law changes to make an exempt supply chargeable at the standard rate, but the seller is contractually obliged not to opt to tax.

(b) is riskier because the law might change to make the exempt supply a standard-rated one, meaning the seller would need to take the VAT out of the agreed purchase price and pay it to HMRC.

Banks, Building Societies and Insurance companies are typically VAT-sensitive as they only make exempt supplies (so VAT on the purchase price will not be recovered).

VAT-sensitive = as the buyer, they would not want the seller to tax as they cannot recover tax themselves.

27
Q

Preparation for exchange: VAT

You act for Kerrier Investment PLC. Kerrier agrees to buy Shatfesbury House from Cranbourne Limited as an investment property for a purchase price of £300,000 exclusive of VAT. Cranbourne hasn’t opted to tax. Their solicitor has sent through a contract incorporating SCPC.

Cranbourne bought the site in 2011 and the construction of a retail building on the site was completed in 2014.

What is the VAT status of this transaction and how should the contract be drafted?

A
  • Sale of old commercial property = exempt, subject to option to tax. Cranbourne has not opted to tax.

A fair position is for the parties to agree that Kerrier will not be liable to pay VAT in addition to the purchase price, unless the VAT status changes between exchange and completion due to a change in the law = (c) Purchase price is exclusive of VAT in the unlikely event that the law changes to make an exempt supply chargeable at the standard rate, but the seller is contractually obliged not to opt to tax.

28
Q

Preparation for exchange: Acting for the lender

(1) What would the lender (in both residential and commercial transactions) require from their solicitor?

(2) What will this confirm?

(3) The lender will require the certificate to be given immediately prior to completion. As the buyer’s solicitor, what must you ensure?

A

(1) A certificate that the property has “Good and marketable” title.

(2) Certificate:
- no legal problems with the property;
- who will own the property after completion;
- completion date when funds are required of lender.

(3) The certificate and disclosures are given to the lender before contracts are exchanged. Only when the lender confirms it is satisfied will the solicitor exchange contracts.

Lender can sue the firm if the certificate given turns out to be wrong.

29
Q

Preparation for and Exchange of Contracts

(1) In preparation for exchange, what are the steps required of the buyer’s solicitor?

(2) In terms of exchange itself, what must both solicitors ensure?

(3) What do the solicitors need to discuss with the clients and each other, in advance of exchange?

A

(1) Pre-exchange steps

  • Report to client the results of title investigation, searches and enquiries, contract terms and mortgage offer.
  • Confirm to lender that the title is “good and marketable”
  • Ensure deposit funds are available in cleared funds, ready to send on exchange.
  • Check mortgage offer is in place and that client has sufficient funds to complete.

(2) Their clients have signed their copy of the contract. This can be done by the solicitor, with the client’s express authority.

(3) Completion date.

30
Q

Exchange of Contracts; Practice, Method and Authority

What must both solicitors obtain before exchanging?

What must the clients be made aware of?

For a contract of the sale of land to be binding, it must: (4 conditions)

A

Their client’s have given them authority to exchange.

That they can no longer withdraw from the contract after exchange.

i. Be in writing;
ii. Incorporate all the agreed terms;
iii. Have the terms contained in one document, or in each copy of the contract where exchanged;
iv. Signed by the parties (usually each signing their copy of the contract)

31
Q

Exchange of Contracts; Practice, Method and Authority

What are the three ways in which exchange of contracts can be done?

A
  1. In person
  2. By post
  3. Telephone
32
Q

Exchange of Contracts; Practice, Method and AuthorityTelephone

When exchanging by telephone, are the Law Society Formulae A, B and C mandatory?

Telephone: Law Society Formulae

A

No, but if used, they involve undertakings, breaches of which will result in disciplinary action.

33
Q

Exchange of Contracts; Practice, Method and AuthorityTelephone

(a) When is Formula A used? What are the undertakings?

(b) When is Formula B used? What are the undertakings?

(c) When is Formula C used?

Telephone: Law Society Formulae

A

Formula A:
One solicitor holds both parts of the contract (as the other side has already sent their client’s signed part).

Undertakings: The acting solicitor will send their client’s signed part to the other side on the same day.

If it is the buyer’s solicitor, they undertake to send the banker’s draft or client cheque for the agreed deposit.

Formula B:

Each solicitor holds their own client’s signed part.

Undertakings: Each will send their signed part to the other side on the same day.

Buyer’s solicitor: banker’s draft or client cheque for agreed deposit.

Formula C:
When there is a chain transaction.

34
Q

Exchange of Contracts: Consequences

The seller retains legal title until completion but…

A

…holds the beneficial interest on behalf of the buyer.

35
Q

Pre-Completion Steps

What are the 4 main tasks of the solicitors at the Pre-completion stage?

A
  1. Prepare transfer deed.
  2. Pre-completion searches.
  3. Practical arrangements for completion.
  4. Ensure finances are in order for completion.
36
Q

Pre-Completion Steps: Transfer Deed

Section 52 of LPA 1925 states that the transfer of a legal estate in land must be by deed. To be valid in law, the deed must be:

In what three ways can a company execute the deed?

A

Deed

(a) Clear that it is a deed.
(b) Signed by the seller.
(c) Witnessed (for individual)
(d) Delivered.

Company execution

(a) company seal
(b) signed by director and secetrary or two directors, expressed to be executed by the company.
(c) Signed by single director in presence of a witness who then attests.

37
Q

Pre-Completion Steps: Transfer Deed

Which party always executes the transfer deed?
When would the buyer also need to execute it?

If registered land, what form is used to transfer the whole freehold estate?
If unregistered land, what would the transfer be subject to?

A

The seller.
If the buyer is entering into an obligation or making a declaration e.g. beneficial interest under trust.
TR1.
First Registration.

38
Q

Pre-completion searches

Pre-completion searches are generally carried out by the buyer’s solicitor, as close to the completion date as possible. What are the four reasons why they are carried out?

A
  1. To ensure the seller hasn’t futher encumbered the title since investigation.
  2. Check financial circumstances of borrower, when acting for the lender.
  3. Gain priority for the buyer (and lender) over anyone else making an application before the buyer registers.
  4. If seller is a company, to check that the company has not gone into liquidation.
39
Q

Pre-completion searches

(1) What form is used for the pre-completion search if the whole property is being sold?

(2) These are Land Registry searches, made against the title number to check if any new entries have been made since the “search from” date. What is that date?

(3) What will the results of the search (OS1R or OS2R) confer on the applicant?

(4) The buyer will take free from subsequent entries between the date of search and the end of that period, provided that…

Registered Land

A

(1) OS1

(2) “Search from” date = Date that officlal copies were produced.

(3) A “priority period” of 30 working days from the date of the search result.

(4) The buyer submits their application for registration within that 30 day priority period.

To be precise, on (4), they must submit for registration at 12 noon on the last day of the priority period.

OS2 is used for sale of part of the property?

40
Q

Pre-completion searches

(1) What search is made for unregistered land, and on what form?

(2) The result of that search confers on the applicant…

Unregistered Land

A

(1) Land charges search on form K15.
(2) a priority period of 15 working days from the date of the result.

The K15 search is usually done as a pre-exchange search, but will need to be done just before completion as well, unless the transaction can be completed with the priority period of the pre-exchange K15 search.

41
Q

Pre-completion searches: buyer’s solicitor acting for lender

(1) Registered Property: Acting for the lender, what search will the solicitor apply for, against whom, and on what form?

(2) Unregistered Property: What form already deals with this?

(3) In the case of registered land, why do most solicitors consider it unnecessary to do a bankruptcy check against an individual?

A

(1) A “Bankruptcy Only” land charges search against the buyer, using form K16.

(2) K15.

(3) Because s.86(5) Land Registration Act 2002 provides that where there is no notice/restriction relating to the bankruptcy, a buyer for value acting in good faith without notice of the bankruptcy takes good title from a bankrupt seller.

42
Q

Pre-completion Steps: Practical Arrangements for Completion

How do the buyer and seller agree practicalities for completion?

What is the significance of this?

A

By using a Completion information form.
The form contains an undertaking that the seller’s solicitor will discharge the mortgage out of the completion money.

43
Q

Pre-completion Steps: Finances for Completion

Prior to completion, what must the buyer’s solicitor ensure they have received?

A
  • the mortgage advance from the lender
  • the balance from the buyer.

These should then be sent to the seller solicitor’s bank account and will notify the seller solicitor that the money is on its way. Once received, completion will take place.

44
Q

Completion: Methods and Effect

The two most common ways to complete a property sale and purchase transaction are:

A

In person and by post.

Only after TR1 has been dated by the seller’s solicitor, the lender’s solicitor will date the mortgage deed, officially granting the mortgage over the property.

45
Q

Completion by Post

What requirements are given by the Law Society’s Code for Completion by Post?

Law Society Code for Completion by Post

A

The seller’s solicitor:

  1. Acts as agent for buyer’s solicitor at no cost.
  2. Undertakes to carry out the buyer’s solicitors instructions.
  3. Completes the transaction (by dating the TR1) and sends the documents to the buyer’s solicitor by first-class post or DX.

Only after TR1 has been dated by the seller’s solicitor, the lender’s solicitor will date the mortgage deed, officially granting the mortgage over the property.

46
Q

Post-completion steps: Discharging seller’s mortgage

(1) Once the seller’s lender receives the amount required to redeem the mortgage, they will discharge the mortgage. How is this done?

(2) If one of the electronic forms of discharge are carried out, the seller’s solicitor will…

A

Discharging the mortgage

  • Complete Land Registry form DS1 and send to the seller’s solicitor for onward transmission to the buyer’s solicitor;
  • submit e-DS1 electronic discharge via Land Registry portal; or
  • send a message through the Electronic Discharge system, which automatically removes the charge.

(2) …confirm to the buyer’s solicitor that notice of discharge has been given to the Land Registry.

DS1 - Discharge form.

47
Q

Post-completion steps: SDLT/LTT

Once the seller’s solicitor sends TR1 to the buyer’s solicitor, the latter will arrange for SDLT to be paid to HMRC within…

A

14 days of completion.

LTT is 30 days.

HMRC will then produce SDLT5 as proof that the tax has been paid.

48
Q

Post-completion steps: Acting for lender

If buyer is a company purchasing with a mortgage, what else would the lender’s solicitor need to do?

What is the effect of a failure to do so?

A

Register the charge at Companies House within 21 days of completion.

The charge will be void against any liquidator, administrator and creditor of the borrower’s.

This time limit can only be extended with a court order.

49
Q

Post-completion steps: Land Registry Application

(1) After SDLT is paid, what form does the buyer use to register as proprietor? (lender uses the same for registering as proprietor of the charge)

(2) If the seller used DS1 for the discharge of their mortgage, what will the buyer’s solicitor need to do to discharge it?

(3) What documents need to be submitted to the Land Registry post-completion?

(4) Application DI will also be completed. What does this set out?

Registered Land

A

(1) AP1.

(2) Apply for the mortgage to be discharged.

(3)

  • Certified copy of the transfer
  • Fee
  • SDLT certificate
  • DS1 (if used)

(4) The overriding interests burdening the title.

Note: electronic form of discharge requires no further steps, as automatically discharges.

DI = Disclosing Interests. Overriding interests will be entered on the register and will cease to be overriding interests.

If the buyer has created a new mortgage, the following documents also must be sent:
- certified copy of mortgage deed.
- certified copy of certificate of registration issued by Companies House (if buyer is a company)
- Solicitor’s/lender’s written confirmation of mortgage deed copy

50
Q

Post-completion: Unregistered Land

When must an application for first registration be made?

The Registrar will need all documents that formed the evidence of title in order to register the property. In this respect, what option do conveyancers have?

A

Within two months of completion (FR1)

Applying using certified copy deeds and documents

Non-conveyancers must submit the originals.

51
Q

Post-completion: Land Registry application

What details are required of AP1 and FR1 forms relating to properties of more than £5000?

A

Details of the conveyancer acting for each party (or the party’s identity, where they are not represented).

52
Q

Remedies for delayed completion

(1) If the exchanged contracts do not contain the date for completion, what is the default date for completion?

(2) In both the SC and SCPC, when must the money due on completion be paid before?

(3) If one party is late in completing, is there an immediate right for the non-defaulting party to terminate the contract?

A

(1) 20 working days after the contract date.
(2) 2pm on the day of completion. Otherwise it is treated as taking place on the next working day.

(3) No, time is not of the essence.

Parties can vary the completion time.

53
Q

Remedies for delayed completion: Contractual Compensation

Both sets of standard conditions provide for compensation to be paid, with one significant distinction:

Following exchange of contracts incorporating SC, the buyer delays completion by three days. The contract rate is 4.75%, the purchase price is £300,000, the buyer has paid 10% deposit.

Calculate the compensation payable by the buyer.

A

SC - both parties can be asked to pay compensation.
SCPC: Only the buyer can be required to pay compensation.

4.75% x £270,000 = 12,825 divided by 365 = £35.13 per day.

£35.13 x 3 = £105.41 due.

If the non-defaulting party was at fault for some of the period, those days are ignored.

54
Q

Remedies for delayed completion: Common Law Damages

Damages are awarded for losses that… as well as for any reasonably foreseeable…

If the seller has received contractual compensation, will they be prevented from claiming damages for damages on the basis of breach of contract?

A

naturally flow from the breach, as well as reasonably foreseeable consequential loss.

No.

E.g. wasted legal costs, costs of renting another property.

55
Q

Remedies for delayed completion: Notice to complete

If delay in completion is unlikely to be resolved quickly, either party may serve a notice to complete. What are the effects of the notice?

If the defaulting party is the buyer, and they fail to complete within that time limit given in the notice, will the seller be able to keep the deposit? What if the defaulting party was the seller?

A

It makes time of the essence and gives the other party 10 working days to complete.

Yes. If the defaulting party was the seller, they would need to repay the deposit to the buyer.

If the other party fails, the party serving the notice can rescind the contract.

56
Q

Remedies for delayed completion: Rescission

Other than upon failure to comply with a notice to complete, when will rescission be allowed?

A

When the seller made an error/ omission that resulted from fraud; recklessness; or serious misrepresentation whereby the property is substantially different from what they had expected.

2023 (26 decks)

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