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2023 > Property Practice - Fundamentals > Flashcards

Property Practice - Fundamentals Flashcards

1
Q

Freehold stages

What are the stages of a conveyancing transaction?

When are the parties bound to the transaction?

A
  • Pre-contract
  • Exchange of contracts
  • Pre-completion
  • Completion
  • Post-completion

When contracts are exchanged.

Useful to note: Gap between exchange and completion is typically a week.

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2
Q

Freehold stages

Exchange of contracts is not compulsory, but why is it useful?

A
  • It fixes the completion date.
  • It gives the buyer time to make final preparations.
  • It records the agreed terms and can be relied upon if anything goes wrong.

The buyer should not enter the contract until they have carried out searches, enquiries and a survey of the property.

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3
Q

Freehold: Pre-contract

At the pre-contract stage, what does the seller’s solicitor submit to the buyer, and what does this include?

Upon receiving this, what must the buyer’s solicitor then do?

Pre-contract stage

A

The pre-contract package.

  1. A draft contract
  2. Evidence of the seller’s title.

Buyer’s solicitor checks:
1. seller is entitled to sell the property.
2. that there are no encumbrances

Encumbrances inlcude: restrictive covenants preventing the buyer from using the property as intended.

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4
Q

Freehold: Pre-contract

Why is it important that the buyer’s solicitor is satisfied with the seller’s title before exchange of contracts?

A

The contract will usually include a “requisitions” provision, preventing the buyer from raising further queries about title after exchange.

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5
Q

Freehold: post-completion

In the post-completion stage, what must the seller’s solicitor ensure?

What are the buyer’s solicitor’s most important post-completion steps?

Post-completion

A

Seller’s solicitor: Any mortgage is paid off and removed from the title.

Buyer’s solicitor
- SDLT is paid
- Client is registered as proprietor.
- Any mortgage is registered.

Land Transaction Tax (Wales) is the equivalent of SDLT.

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6
Q

Professional Conduct issues

The SRA’s Code of Conduct (para 6.2) states that, subject to certain exceptions, a solicitor cannot act for both parties if…

What are the two exceptions?

In which situations do these exceptions never apply?

Acting for seller and buyer

A

There is a conflict of interest or significant risk of such conflict.

6.2(a) The parties have a “substantially common interest”
6.2(b) The clients are competing for the same objective.

Buyer and seller situations.

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7
Q

Professional Conduct issues

Acting for a lender and borrower is possible unless there is a significant risk of conflict of interest. When is the risk of conflict is high?

Provide an example.

2 bullets

A
  • The mortgage is not a standard mortgage.
  • It is a standard mortgage but you do not have the approved certificate of title.

Example: large commercial transactions in which documents are subject to negotiation and will not be on standard terms. The buyer and lender should have different solicitors

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8
Q

Professional Conduct issues

The paragraph 6.2(a) (substantial common interest) exception applies to lender/buyer situations if the following conditions are met:

3 conditions.

A
  1. Both clients have given their informed written consent.
  2. Effective safeguards have been put in place to protect client confidential information.
  3. The solicitor is satisfied that it is reasonable for them to act for both clients.
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9
Q

Professional Conduct issues

In what circumstances do the “Etridge guidelines” apply?

A

Where a matrimonial home is jointly owned by a married couple and one of them agrees to mortgage it as security for a business loan.

Applies to civil partners, cohabitees, parent and child, any other situation in which the property is being charged in return for a loan that is not being made to all property owners.

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10
Q

Professional Conduct issues

What are the Etridge Guidelines?

Suppose “husband” means the party needing the loan, and “wife” means the other spouse.

A

The lender must, with the husband’s consent, provide the wife’s solicitor with the following information:

(a) the purpose, amount and terms of the loan
(b) the current amount of husband’s indebtedness.
(c) amount of current overdraft facility
(d) a copy of any written application made by the husband for the loan.

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11
Q

Professional Conduct issues

Upon receiving this information, the wife’s solicitor should explain to her two things:

Etridge Guidelines

A

(i) why he is involved; and
(ii) that the lender will rely on the solicitor’s involvement to counter any suggestion of undue influence .

He will then obtain confirmation from the wife that she wishes the solicitor to act for her and to advise her on the legal and practical implications.

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12
Q

Professional Conduct issues

The solicitor’s discussion with the wife should be:

In confirming that the wife wishes to proceed, what should the solicitor ask the wife?

3 bullets

Etridge Guidelines

A
  1. Face-to-face
  2. In the absence of the husband
  3. Given in non-technical language.

If she wants the solicitor to write to the lender confirming that matters have been explained to her.

The solicitor must not write to the lender unless they received relevant documents from the lender and have express instructions from the wife.

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13
Q

Professional Conduct issues

  1. If the solicitor believes the transaction isn’t in the wife’s best interest, what should they do?
  2. If it is “glaringly obvious” that the wife is being “grievously wronged”, what should the solicitor do?
A
  1. Give reasoned advice to that effect.
  2. Decline to act.
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14
Q

Professional Conduct issues

What is a contract race?

What are the relevant professional conduct considerations?

A

A pre-contract package is sent to multiple prospective buyers who compete to be ready to exchange contracts first.

If the seller refuses to disclose to prospective buyers that they are engaging in a contract race, the solicitor must decline to act.

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15
Q

Sources of finance

If the solicitor is carrying out a ____ in relation to a ____, then they must be authorised to so under the Financial Services and Markets Act 2000.

A

Regulated activity
Regulated Mortgage Contract

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16
Q

Sources of finance

What is a regulated mortgage contract?

A

A mortgage contract in which:

  1. The borrower is an individual
  2. The lender takes a first legal charge over UK property.
  3. At least 40% of the property is intended for occupation by the borrower or immediate family.
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17
Q

Sources of finance

In relation to mortgages, what is a regulated activity? What is not regulated activity?

A
  1. Arranging or advising on a regulated mortgage contract is a regulated activity.
  2. Giving generic advice is not.
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18
Q

Sources of finance

If a regulated activity is involved and the firm isn’t authorised by the FCA to carry out such activities (most firms will not be), what exemption can the solicitor rely upon to carry it out?

A

The s.327 exemption (FSMA 2000) for professional firms. This allows the solicitor to carry out regulated activities that are incidental to the provision of professional services that are regulated by the SRA.

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19
Q

Sources of finance

The s.327 exemption is subject to the solicitor compying with the SRA Financial Services (Scope) Rules and SRA Financial Services (Conduct of Business) rules. How are these relevant to regulated mortgage contracts?

A

The solicitor cannot recommend a regulated mortgage contract, but can endorse a recommendation made to the client by an authorised person.

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20
Q

Property Taxation

For residential properties, what tax does the buyer pay?

A

Stamp Duty Land Tax (SDLT) or Land Transaction Tax in Wales.

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21
Q

Property Taxation

A buyer of commercial property pays tax on:

A
  • SDLT
  • VAT
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22
Q

Property Taxation

Who can claim relief from SDLT? What is their SDLT rate?

A

First time buyers of residential property of £500,000 or less.

Rate
£0 - £300,000 = 0%
£300-001 - £500,000 = 5%

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23
Q

Property Taxation

What is the SDLT rate for residential buyers who are not first-time buyers?

A

£0 - £125,000 = 0%
£125,001 - £250,000= 2%
£250,001 - £925,000 = 5%
£925,001 - 1,500,000 = 10%
The remainder = 12%

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24
Q

Property Taxation

What is the SDLT payable on a £275,000 for a second-home buyer?

A

£3750 (0% on 125,000, 2% on £125,000, 5% on £25,000).

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25
Q

Property Taxation

Priya’s price is £575,000 but asks you to apportion £10,250 to the carpets and curtains (chattels are not subject to SDLT). What do you need to ensure?

A

That this is a fair reflection of the value of those chattels, otherwise it could be treated as fraud.

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26
Q

Property Taxation

What is the SDLT rate for non-residential/mixed use freehold properties?

A

£0 - 150,000 = 0%
£150,001 - £250,000 = 2%
<£250,000 = 5%

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27
Q

Property Taxation

How is SDLT paid?

What is the consequence of not paying SDLT on time?

A

Paid to HMRC within 14 days of completion, accompanied by form SDLT1.

The buyer will not be registered until it is paid, and penalties/interest will apply.

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28
Q

Property Taxation: CGT

CGT is charged on…
This includes:

4 bullets

A

…gains made on “chargeable assets”. This includes:
- Real property (freehold and leasehold)
- Interests of joint owners.
- Gifts

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29
Q

Property Taxation: CGT - Private Residential Relief

For residential properties, what are the conditions for the seller to claim Private Residential Relief from paying CGT?

What are the permitted absences?

A

Conditions

  • Dwelling house
  • occupied as.only or main residence throughout the period of ownership

Permitted absences
- Employed abroad
- Up to four years total of absence by reason of working elsewhere, whether in the UK or abroad.
- Any period up to three years total.
- Last 9 months.

If an individual has more than one residence,
they can choose which of their residences will qualify for PRR by making an election to HMRC.

PRR may be lost on any part of the house used
exclusively for business use.

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30
Q

Property Taxation: CGT - Private Residential Relief

If the seller has a garden of more than 0.5 hectares, will this benefit from PRR?

A

Only if the seller can demonstrate to HMRC that it was necessary for the reasonable enjoyment of the house.

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31
Q

Property Taxation: VAT

What is VAT taxed on?

Who is a taxable person?

A

Taxable supplies by a taxable person.

Any person registered for VAT. If a person’s last 12 months’ turnover exceeds the registration limit (currently £85,000) they must register.

32
Q

Property Taxation: VAT

What is the difference between input and output tax?

A

Input VAT: paid by a business on its purchases

Output VAT: charged by a business on the sale of goods and services..

33
Q

Property Taxation: VAT

When can a business recover their input tax?

A

If it is attributable to the output supply. There must be an immediate and direct link.

34
Q

Property Taxation: VAT

VAT is charged at different rates depending on the supply. What are the three different rates?

A
  1. Standard rate (currently 20%)
  2. Zero-rated = taxable but charged at zero.
  3. Exempt = not taxable, unless the supplier of land has the option to tax.
35
Q

Property Taxation: VAT

What is a “new commercial property?” and what is the significance of this?

A

Commercial property which is less than three years old.

Significance: sale of a new freehold property is a standard-rated supply.

In other words, it is compulsory to tax.

Other standard rated supplies are given in the book, but I see no reason why they were mentioned. These are: construction services and professional services.

36
Q

Property Taxation: VAT

While commercial land is generally exempt, what commercial supplies give the seller the option to tax?

A
  • sale of an old freehold building.
  • grant of a lease.

Also includes “sale of a greenfield site” (undeveloped land in a rural area) which is hardly as relevant.

37
Q

You act for Bankridge Estates Limited, a renovations developer. In 2018, Bankridge purchased a 1930s warehouse.

Bankridge has completed its planned works to renovate the warehouse and has decided to sell the freehold to raise capital for other projects. It has found a buyer, an insurance company.

Bankridge wants to ensure that it recoups as much of the cost of the renovation works as possible.

What are the VAT implications of this scenario?

A

Sale of old freehold = exempt, subject to the option to tax.

Bankridge may opt to tax to recover any VAT paid on the costs of refurbishment.

However, the buyer cannot recover the VAT as insurance companies do not make taxable supplies so they are unlikely to agree to this.

38
Q

Planning permission

What are the two types of development?

A
  1. Operational development
  2. Material change of use
39
Q

Planning permission: excluded from definition

What is excluded from the definition of development, thus not requiring permission?

A
  • Maintenance
  • Improvements
  • interior alterations.

If it does not materially affect the external appearance, it will be excluded.

40
Q

Planning permission: material change of use

What material changes of use are excluded from development, thus not requiring permission?

A

Change of use within the same class of use.

41
Q

Planning permission: material change of use

What are the use classes under the Use Classes Order?

Would planning permission be required for a change of use from C1 to C3?

A

B2 - Industrial
B8 - Storage and distribution
C1 - Hotels and Guest Houses
C3 - Dwelling houses
C4 - Houses in Multiple Occupation
E - Commercial uses

Yes, each of these are separate use classes.

42
Q

Planning permission: material change of use

In use class E, what are the four subcategories? Would a use from one subcategory to another (e.g. E(a) to E(g) require planning permission?

A

E(a) Retail sale of goods other than hot food.
E(b) Sale of food and drink for consumption on premises
E(c) Financial and Professional services
E(g) Offices, research and development.

No planning permission required between these subcategories.

43
Q

What are sui generis uses?

A

Uses that may adverse affect their locality.

A change to and from a sui generis use requires planning permission

Examples: entertainment establishments, pubs and bars, takeaway shops

44
Q

Planning law

Once planning permission is obtained, it exists for the benefit of…

If a previous owner breached a planning permission, are they still liable if the property changes hands?

A

…the land and all persons interested in it at the time.

No. The new owner is liable (if within the enforcement action time limit).

If planning permission is obtained but the development is not completed within a reasonable time, the Local Planning Authority can serve a completion notice, so that the permission ceases if completion does not take place within the time given. This is rarely used.

45
Q

Planning Law: Permitted Development

When is development automatically granted permission under the Town and Country Planning (General Permitted Development) Order 2015 (GDPO)?

In these cases, no application is required.

A
  • Developments within dwelling;
  • Minor exterior operations (e.g. painting)
  • Specified use class changes.
  • Changes from some sui generis uses
46
Q

Planning Law

What is the effect of an Article 4 Direction from the Secretary of State of Town and Country Planning or the Local Planning Authority?

A

Excludes the effect of the GDPO.

For the avoidance of doubt, the solicitor should apply for a Certificate of Lawfulness of Proposed Use or Development before works are commenced.

47
Q

Planning Law: Enforcement

What are the Local Planning Authority’s four powers of enforcement?

A
  • Enforcement notice
  • Stop notice
  • Breach of condition notice
  • Injunction
48
Q

When would the Local Authority use an enforcement notice and when would it take effect?

A
  • When there is a breach of planning control; and
  • it is expedient to issue the notice.

It takes effect 28 days after service.

A right of appeal exists against an enforcement notice.

49
Q

What is a stop notice and when would the Local Authority use a stop notice?

A

It is served alongside an enforcement notice. It prevents a breach for the 28 day period that the enforcement notice is not yet effective.

Also useful where the recipient appeals an enforcement notice, which suspends the effect of the enforcement notice.

50
Q

Can a stop notice be served by itself?

A

No. Unless it is a temporary stop notice of 28 days, allowing for further investigation.

51
Q

Breach of condition notice is the equivalent of an enforcement notice but for breaches of condition, but in what other way do they differ?

A

No appeal against this notice.

52
Q

Planning permission

When would the Local Planning Authority be successful in their application to the court for an injunction?

A
  • Injunction is expedient, necessary and appropriate.
53
Q

Planning Law: Enforcement

(1) What are the time limits for taking enforcement action by a local authority?
​
(2) When unauthorised development was deliberately concealed, what can the Local Authority do?

IMPORTANT

A

(1) Time Limits

  • 4 years from the date of breach for operational development without planning permission.
  • 4 years from the date of an unauthorised change of use to a single private dwelling house.
  • 10 years from the date of breach for any other breach (i.e. other unauthorised material changes of use or breaching a condition)

(2) Apply to the Magistrate’s Court within 6 months of discovery of the breach.

Other breaches include: other unauthorised material changes of use or breaching a condition.

54
Q

Building Regulation Control

These controls are concerned with:

A

Health and safety aspect of buildings being constructed or altered.

They control the materials and construction methods used.

55
Q

Building Regulation Control

Local authorities can prosecute in the magistrates court for breach of building regulations control. What is the time limit for them to start proceedings?

Alternatively, when can they issue an enforcement notice?

When can they take out an injunction?

A

Prosecution: Within two years of the relevant work being completed.

Enforcement notices: within one year of work being completed requiring the work to be altered or removed.

Injunction is not time limited if the work is unsafe.

56
Q

Building Regulation Control

If a buyer finds that building regulation consent hasn’t been granted, what can they do?

A

They can ask the seller to obtain a regularisation certificate from the local authority or obtain insurance.

57
Q

Listed Buildings

What are listed buildings and how are they addressed differently to other buildings?

A
  • Buidlings of special architectural or historic interest.
  • Owner is likely to need building consent even for internal alterations.
  • Several permitted developments under GDPO require planning permission in respect of listed buildings.
58
Q

Planning Law: Conservation Areas

What are conservation areas? Give three examples of planning permission being more stringent in relation to conservation areas.

A

Areas of special architectural or historic interest.

  • Changes to external appearances - some GDPO permitted developments are curtailed.
  • Demolition will always require planning permission.
  • Any work planned to a tree in a conservation area requires notification to the LPA six weeks in advance.
59
Q

Investigation of Title: Registered Land

What is deduction of title?

In order to deduce title, what does the seller need to supply? What do these show?

A

Seller’s obligation to prove to the buyer their ownership of the property

Official copies that are less than six months old.

These show entries on three registers:

(a) Property Register
(b) Properietorship Register
(c) Charges Register

60
Q

Investigation of Title: Registered Land

The property register contains two things:
Additionally, it may show 2 other things:

Property Register

A
  • Description of the land
  • Whether the title is freehold or leasehold.

It may also show

(i) easements or rights benefiting the land;
(ii) things which are excluded that might be expected to come with the land.

61
Q

Investigation of Title: Registered Land - Proprietorship Register

The Proprietorship Register identifies three things:

A
  • Identity of current owners and their address
  • Class of title
  • Restrictions on the owner’s ability to sell.

It may also indicate the price paid for land by the owners and whether the owners gave an indemnity covenant when they bought the land

62
Q

Investigation of Title: Registered Land - Proprietorship Register

What are the three possible classes of title for freehold land?

A

(1) Absolute Title
(2) Possessory Title
(3) Qualified Title

Absolute = best title. Legal estate vests in proprietor subject only to entries on the register and overriding interests.

Possessory = Proprietor lost the title deeds or claiming through adverse possession. Legal title vests subject to adverse interests existing at the date of registration.

Qualified Title = Specific identified defect.

63
Q

Investigation of Title: Registered Land - Charges Register

How are third party rights generally protected?

Which third party interest is the outlier and how is it protected?

A

Notices and Restrictions in the Charges Register.

Beneficial interests under trust are protected as a Restriction in the Proprietorship Register.

64
Q

Investigation of Title: Registered Land - Charges Register

Does a notice in the charges register give the person who registered it any rights in the land?

A

Not necessarily. It serves to ensure that the priority of the interest is protected against any subsequent interests.

Whether it is valid is another question. Buyer should require seller to get it cancelled by the Land Registry before exchange of contracts. If it is a valid interest, then this will be a concern.

65
Q

Investigation of Title: Registered Land - Charges Register

What are the five encumbrances which might be revealed in the Charges Register?

A

i. Covenants (Restrictive or Positive)
ii. Easements affecting the land.
iii. Mortgages
iv. Leases
v. Notices

66
Q

Investigation of Title: Unregistered Land

What is the process of deduction of title in unregistered land?

A

(1) The seller obtains the title deeds from the client.
(2) He then finds the document representing the “root of title”.
(3) He then prepares an ‘epitome of title’, a schedule of all documents from the root until the present day.

Title deeds: Seller gives copies of the title deeds to the buyer typically before exchange.
If selling the whole property, the Seller gives the original title deeds to the buyer on completion.
If selling part of the property, the Seller hands over certified copies only.

Root of title = Document from which to begin the title investigation.

Attached to the epitome are copies (not originals) of each of these documents.

67
Q

What represents a good root of title according to section 44 of the LPA 1925?

A

A document that:

  • deals with/shows ownership of the whole legal and equitable interest in the land.
  • contains a recognisable description of the land.
  • Does nothing to cast doubt on the seller’s title.
  • Is at least 15 years old.

The two most acceptable roots of title are conveyances of sale and mortgages because for each of these, the buyer/lender would have held similar investigations.

68
Q

Investigation of Title: Unregistered Land

Once the root of title is identified, older documents can be ignored. What is the exception?

A

Where the root document refers back to a third party right created in an earlier conveyance: the buyer will be entitled to call for that earlier conveyance.

69
Q

Investigation of Title: Unregistered Land

Once the root of title is identified, the solicitor carefully investigates the root and all the subsequent title deeds. What matters does the solicitor focus on?

6 matters

A
  • Unbroken chain of ownership
  • Description of the land
  • Stamp duties
  • Incumbrances
  • Execution
  • Land charges searches
70
Q

Investigation of Title: Unregistered Land

Some incumbrances such as restrictive covenants only bind unregistered land if they are correctly registered as a land charge at the Land Charges Department. It is important that it is registered against…

Land Charges Search

A

…the name of the estate owner at the time.

71
Q

Investigation of Title: Unregistered Land

What are the four most important land charges?

A

C(i) - Puisne Mortgage
C(iv) - Estate contract
D(ii) - Restrictive Covenant
D(iii) Equitable easement
F - Home right

72
Q

Investigation of title: co-ownership

How is the equitable interest of a jointly held estate assumed to be held?

A

As a joint tenancy, unless a restriction appears in the Proprietorship register.

Note: in unregistered land, easements are usually granted/reserved in the first paragraph.

RESTRICTION: No Disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court

In unregistered land, the conveyance will state whether equitable interest is held as joint tenancy or tenancy in common.

73
Q

Investigation of title: co-ownership

Suppose an unregistered estate is co-owned but one owner dies. If the surviving owner sells the property, can the buyer assume that the joint tenancy was not severed at any point (therefore the whole property passed to the survivor)?

A

Yes, provided that:

  1. There is no record of severance on the conveyance.
  2. No bankruptcy proceedings against either joint tenant.
  3. Transfer contained a statement that the survivor is solely and beneficially entitled to the land.
74
Q

Investigation of Title: General issues

In registered land, what are the effects of the following entry: “The transfer to the proprietor contains a covenant to observe and perform the covenants referred to in the Charges Register and of indemnity in respect thereof”?

A

This is an indemnity covenant. If it is in the contract, the buyer will be bound to both restrictive covenants and positive covenants by virtue of indemnity.

(without the indemnity the positive covenant would not have run with the land)

75
Q

Investigation of Title: General issues

There is a lease with more than seven years to run affecting the freehold estate, but it is not registered. The buyer of the freehold estate wants to know whether they will be bound?

A

No, unless the tenant is in occupation, in which case an overriding interest may have arisen.

2023 (26 decks)

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