Property Practice - Fundamentals Flashcards
Freehold stages
What are the stages of a conveyancing transaction?
When are the parties bound to the transaction?
- 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.
Freehold stages
Exchange of contracts is not compulsory, but why is it useful?
- 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.
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
The pre-contract package.
- A draft contract
- 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.
Freehold: Pre-contract
Why is it important that the buyer’s solicitor is satisfied with the seller’s title before exchange of contracts?
The contract will usually include a “requisitions” provision, preventing the buyer from raising further queries about title after exchange.
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
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.
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
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.
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
- 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
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.
- Both clients have given their informed written consent.
- Effective safeguards have been put in place to protect client confidential information.
- The solicitor is satisfied that it is reasonable for them to act for both clients.
Professional Conduct issues
In what circumstances do the “Etridge guidelines” apply?
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.
Professional Conduct issues
What are the Etridge Guidelines?
Suppose “husband” means the party needing the loan, and “wife” means the other spouse.
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.
Professional Conduct issues
Upon receiving this information, the wife’s solicitor should explain to her two things:
Etridge Guidelines
(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.
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
- Face-to-face
- In the absence of the husband
- 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.
Professional Conduct issues
- If the solicitor believes the transaction isn’t in the wife’s best interest, what should they do?
- If it is “glaringly obvious” that the wife is being “grievously wronged”, what should the solicitor do?
- Give reasoned advice to that effect.
- Decline to act.
Professional Conduct issues
What is a contract race?
What are the relevant professional conduct considerations?
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.
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.
Regulated activity
Regulated Mortgage Contract
Sources of finance
What is a regulated mortgage contract?
A mortgage contract in which:
- The borrower is an individual
- The lender takes a first legal charge over UK property.
- At least 40% of the property is intended for occupation by the borrower or immediate family.
Sources of finance
In relation to mortgages, what is a regulated activity? What is not regulated activity?
- Arranging or advising on a regulated mortgage contract is a regulated activity.
- Giving generic advice is not.
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?
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.
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?
The solicitor cannot recommend a regulated mortgage contract, but can endorse a recommendation made to the client by an authorised person.
Property Taxation
For residential properties, what tax does the buyer pay?
Stamp Duty Land Tax (SDLT) or Land Transaction Tax in Wales.
Property Taxation
A buyer of commercial property pays tax on:
- SDLT
- VAT
Property Taxation
Who can claim relief from SDLT? What is their SDLT rate?
First time buyers of residential property of £500,000 or less.
Rate
£0 - £300,000 = 0%
£300-001 - £500,000 = 5%
Property Taxation
What is the SDLT rate for residential buyers who are not first-time buyers?
£0 - £125,000 = 0%
£125,001 - £250,000= 2%
£250,001 - £925,000 = 5%
£925,001 - 1,500,000 = 10%
The remainder = 12%
Property Taxation
What is the SDLT payable on a £275,000 for a second-home buyer?
£3750 (0% on 125,000, 2% on £125,000, 5% on £25,000).
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?
That this is a fair reflection of the value of those chattels, otherwise it could be treated as fraud.
Property Taxation
What is the SDLT rate for non-residential/mixed use freehold properties?
£0 - 150,000 = 0%
£150,001 - £250,000 = 2%
<£250,000 = 5%
Property Taxation
How is SDLT paid?
What is the consequence of not paying SDLT on time?
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.
Property Taxation: CGT
CGT is charged on…
This includes:
4 bullets
…gains made on “chargeable assets”. This includes:
- Real property (freehold and leasehold)
- Interests of joint owners.
- Gifts
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?
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.
Property Taxation: CGT - Private Residential Relief
If the seller has a garden of more than 0.5 hectares, will this benefit from PRR?
Only if the seller can demonstrate to HMRC that it was necessary for the reasonable enjoyment of the house.