STARTING ACONVEYANCING TRANSACTION (STAGES 1 & 2)

Question 1

Estate Agent Markets the Property

Answer 1

1. The frst step in a conveyancing transaction usually takes place before any solicitor is involved—in most cases, a property owner will instruct an estate agent to market the owner’s property.
2. The estate agent will advertise and show the property. Once an offer has been made and accepted, and** a price **with a prospective buyer is agreed, the estate agent will send out a memorandum of sale to all parties detailing the property, the price agreed, and the solicitors being used by the parties.

Question 2

Mandatory Energy Performance Certifcate

Answer 2

1. The seller of the property must provide the buyer with** a valid Energy Performance**
2. Certificate (‘EPC’). An EPC contains information about a property’s energy use and typical energy costs, plus recommendations about how to reduce energy use and save money. It gives a property an energy effciency rating from** ‘A’ (most effcient) to ‘G’ (least effcient) **and is valid for 10 years.
3. If a new EPC is needed, it should be ordered (usually by the estate agent) before the property is marketed for sale or to rent. There is an online EPC register where most EPCs can be viewed.
4. An EPC is not needed for a property that is a ‘listed building’.
5. It is also not necessary for a new EPC to be obtained each time a property changes hands. If a seller still has a valid (less than 10-year-old) EPC for their property, they do not need to obtain a new one.

Question 3

Commercial Estate Agent Negotiates Heads of
Terms

Answer 3

Often, a commercial estate agent will negotiate the ‘heads of terms’ (that is, the agreed terms) between the landlord of the commercial premises and the prospective tenant. The heads of terms are the commercial equivalent of the memorandum of sale in a residential conveyancing transaction.**

Question 4

Code for Leasing Business Premises

Answer 4

1. The Code for Leasing Business Premises (the ‘Code’) is produced by the Royal Institution of Chartered Surveyors (the professional body for surveyors) and it sets out best practice
   for landlords when negotiating the terms of a commercial lease with a tenant.
2. It provides that landlords must make ofers in writing which include clear terms regarding matters such as the rent and length of the term, any rights to break the lease, rent review arrangements, rights to assign, and repairing obligations.

Question 5

Assignment of Lease of commercial leasehold

Answer 5

a.Licence to Assign May Be Required
b.Landlord May Require Extra Security

Question 6

Licence to Assign May Be Required
assignment of commercial lease

Answer 6

1. If an existing tenant is assigning their lease, the land-lord’s consent to the assignment will almost invariably be required.
2. generally the landlord will need to be satisfed that the incoming tenant is of good standing and will be able to aford the rent. This means that the landlord will require the incoming tenant to provide references to demonstrate that they have the means to pay the rent and, if they have rented property before, that they have paid their rent on time and been a good tenant. The landlord will also want to take bank references or see
   business accounts for the last three years.
3. Once the landlord is satisfed that the prospective tenant will be able to meet their commitments under the lease, the landlord’s solicitor will draft a licence to assign setting out the landlord’s conditions. This document will be signed by all parties (landlord, tenant, and incoming tenant) to create privity of contract between them.

Question 7

Landlord May Require Extra Security
assignment of commercial lease

Answer 7

1. Rent Deposits
   This means that the landlord will require payment of an extra sum on completion** in addition to the first rental payment**. This money will be held in a **deposit account **and can be used by the landlord in the event of default by the tenant during the term.
2. 3 months’ rent is a typical amount for the rent deposit and the detailed
   terms are often contained in a rent deposit deed.
3. Guarantor
   On the grant of a new lease, the guarantor could be an additional party to the lease which the landlord and tenant are entering into. On the assignment of an existing lease, the guarantor and the landlord will enter into a separate deed of guarantee.
4. Recall from Land Law that, as a condition of givingconsent to an assignment, a landlord can require the outgoing tenant to enter into a written obligation called an** ‘Authorised Guarantee Agreement’ (‘AGA’),** in whichthe outgoing tenant will act as guarantor for their imme-diate successor in title.

Question 8

Seller’s Solicitor Investigates Seller’s Title

Answer 8

a.Obtaining Title Deeds
b.Remedying Defects in the Title
c.When Seller Has a Mortgage
d.Obtain Confrmation ofTitle Plan
e.Deducing Title

Question 9

Obtaining Title Deeds

Answer 9

1. Registered Title
   If the title is registered at HMLR, the seller’s solicitor will download an official copy of the register of title, title plan, and any additional available documents mentioned on the register from the HMLR Portal.
2. Unregistered Title
   If the title is unregistered, the seller’s solicitor must locate the title deeds. If the property is in mortgage, the lender will hold the title deeds. The seller’s solicitor will write to the lender to obtain the deeds and give an under-taking not to part with the deeds until such time as the mortgage is redeemed (that is, paid of) out of the sale proceeds on completion.

Question 10

Remedying Defects in the Title

Answer 10

The seller’s solicitor must investigate the title to ensure that the seller is entitled to sell the property. If there are any defects in the title (for example, missing documents or name discrepancies), the Law Society Conveyancing Protocol requires the seller’s solicitor to take care of them as part of their investigation of the seller’s title (rather than waiting for the buyer’s solicitor to raise it as an enquiry).

Question 11

When Seller Has a Mortgage

Answer 11

1. the seller’s solicitor will ask the lender for an indicative redemption figure to ensure that the sale proceeds will be sufficient to redeem the existing mortgage on completion.
2. This is because the seller’s solicitor will give an undertaking (for which the solicitor is personally liable) to redeem (that is, pay of) any mortgages out of the sale proceeds on completion.

Question 12

Obtain Confrmation ofTitle Plan

Answer 12

The seller’s solicitor should send the title plan to the seller.
The title plan is a map showing the location of the property
being sold and a red outline of the land included in the title.
The seller should confrm that the property outlined on the
plan represents the full extent of the land being sold.

Question 13

Deducing Title

Answer 13

The seller’s solicitor will send a copy of the title to the buyer’s solicitor—this is known as ‘deducing title’.

Question 15

Buyer’s Investigation ofTitle

Answer 15

It is important for the buyer’s solicitor to check the title to
ensure that the seller is entitled to sell the property—this
process is also known as ‘investigating title’

Question 16

Seller’s Duty of Disclosure

Answer 16

In the contract, the seller must discloselatent defects and latent burdens on the land (known as encumbrances) but need not disclose patent defects or encumbrances.

Question 17

Latent vs Patent Defects and Encumbrances

Answer 17

1. Latent defects and encumbrances are things that **would not be apparent **from an inspection of the property, for exam-
   ple, an underground easement for a pipeline or a restrictive covenant.
2. Patent defects or encumbrances are things which would be revealed by an inspection, such as a visible right-of-way over the land (for example, one from a road to the property behind the property being sold).

Question 18

Consequences of Non-Disclosure

Answer 18

If the seller breaches their duty of disclosure, the buyer may have the right to withdraw from the contract after exchange and claim damages for losses.

Question 19

Limitation for Physical Defects—Caveat Emptor
duty to disclosure

Answer 19

1. The duty to disclose latent defects in the contract does not extend to physical defects in the property (for example, rotted timbers within walls) due to the doctrine of ‘caveat emptor,’ which means ‘buyer beware.’ It is the buyer’s responsibili-ty to inspect the property for physical defects.
2. While the seller has no duty to disclose patent defects, look out for situations on the exam where the seller tries to** cover up** a patent defect, for example, by painting over cracks in the wall. This amounts to** wilful deceit**, and the seller could be sued by the buyer in tort.

Question 20

Compare Seller’s Duty of Disclosure to Other
Disclosure Obligations

Answer 20

1. the seller’s duty to disclose with respect to the contract is fairly limited. The seller has a much greater obligation to disclose when flling out the** Property Information Form** and in their responses to the buyer’s pre-contract enquiries.
2. If the seller makes any misrepresentation on the form or in their responses, they may be sued by the buyer for misrepresentation.

Question 21

Seller’s Solicitor Sends Contract Package
to Buyer’s Solicitor
The seller’s solicitor drafts the contract and sends the con-tract package to the buyer’s solicitor. The contract package will comprise:

Answer 21

*The draft contract in duplicate (the seller will sign one copy and the buyer the other);
*The Property Information Form (‘PIF’) and Fittings and Contents Form (‘F&C’) both completed by the seller;
*A copy of the title, any relevant documents, and title plan; and
*Any guarantees or copy planning permissions.

Question 22

The Lease and
Contract Package
Grant of a New Lease

Answer 22

1. Parties Seek to Agree Form of Lease
   The seller (landlord) and the buyer (frst tenant) will seek to agree the form of lease and contract. Often, a devel-oper will be the seller
2. Seller (Landlord)’s Deduction ofTitle
   If the new lease is for a term of over seven years and reg-istrable, the landlord must deduce title which will enable the tenant to register the lease with title absolute.
3. The Contract Package
   *The draft contract with the draft lease annexed to it;
   *The seller’s freehold title;
   *The Property Information Form;
   *Replies to standard pre-contract enquiries (dealing with such issues as boundaries, disputes, services supplied to the fat);
   *If a newly built block, a copy of the planning permis-sion and building regulations consent;
   *If the building is less than 10 years old, a new build warranty;
   *If a new build development, a service charge budget; and
   *If applicable, details of any management company
   that has the responsibility for maintaining the com-
   mon parts of the development.

Question 23

The Lease and
Contract Package
Assignment of Existing Lease

Answer 23

1. The seller’s solicitor will check the terms of the existing lease to see whether the landlord’s consent is required to an assignment. Recall from Land Law that such consent is not to be unreasonably withheld. If consent is required, the seller/assignor must apply for consent at their expense and use all reasonable endeavours to obtain this consent.
2. The contract package will include:
   *A copy of the outgoing tenant’s leasehold register of title;
   *A copy of the existing lease;
   *A Property Information Form and Leasehold Information Form;
   *Copies of the last three years’ service charge accounts (if any);
   *A copy of the landlord’s freehold register of title; and
   *If the property is less than 10 years old, a copy of any new build warranty, planning permissions, and building regulations consent.

Exam Tip
Remember from the Land Law Outline that good lease-hold title is the situation where the landlord’s freehold title was not produced to HMLR upon frst registration of an unregistered leasehold title. If the incoming buyer is buying with a mortgage, this is unlikely to be accept-able to the buyer’s lender as title absolute is generally required. The buyer’s solicitor should therefore insist on requiring the landlord to produce a copy of the freehold title so that prior to the exchange the outgoing seller’s solicitor can apply to HMLR to upgrade the good lease-hold title to absolute leasehold title.

Question 24

Form of Contract and Terms

Answer 24

The form of contract typically used in residential conveyancing transactions—
whether a freehold or leasehold transaction—and the one that is testable on the SQE, is produced by the Law Society and is called the Contract Incorporating the Standard Condi-
tions of Sale. That contract is divided into three parts (dis-cussed in detail below):
*The particulars of sale;
*The standard conditions of sale; and
*The special conditions of sale.

Question 25

*

Compare Commercial Transactions: Standard
Commercial Property Conditions

Answer 25

In a commercial transaction, instead of using the Standard Conditions of Sale, the** Standard Commercial Property Condi-tions (‘SCPC’)** will be used.
The SCPC is divided into two parts:
*Part one: Contains general conditions covering issues such as service of notices, encumbrances, VAT, title, risk, insurance, completion, and remedies.** These will apply unless they are expressly excluded**.
*Part two: Contains provisions that will apply only if expressly incorporated. This part includes more detail on VAT, transfer of a business as a going concern, and taxation allowances.

Question 26

The Particulars of Sale
The particulars of sale are set out on the front page of the Contract Incorporating the Standard Conditions of Sale.

Answer 26

the date,
the names of the parties,
the details of the property
(including whether it is freehold or leasehold),
any specifed encumbrances,
the title guarantee (full or limited),
the com-pletion date,
the purchase price,
and the contents price (that
is, the price being paid for any items in or on the property not included in the purchase price).

Question 27

Key Standard Conditions of Sale
The Standard Conditions of Sale are the ‘small print’ in the middle of the contract.

Answer 27

• formation of the contract,
• service of notices,
• matters subject to which the property is sold, physical condition of the property,
• the right of the buyer to occupy the premises between exchange and completion,
• details regarding completion, and
• remedies for late completion or no completion.
• VAT
• Deposit

Question 28

VAT
Standard condition of sale

Answer 28

The standard conditions provide that the purchase price
and the contents price include any VAT.

Question 29

Deposit
Standard Condition of Sale

Answer 29

1. The Standard Conditions of Sale require the buyer to pay 10% of the purchase price on exchange of contracts. Whilst 10% is the amount recommended by the Law Society, the parties can agree a diferent amount and smaller deposits are common.Nonetheless, even if the parties agree a
   lesser amount, if the buyer breaches the contract, they are liable for the full 10% if they are using the Law Soci-ety’s standard terms.
2. If the seller has a related purchase of a property for their residence in England and Wales, they can use the de-posit received on their sale towards the deposit required on that related purchase transaction. This allows the de-posit to be passed along in a chain of transactions. Note that the deposit may not be used for a related purchase that is not in England and Wales or that will not be used as the party’s residence.

Question 30

Deposit Held as Stakeholder
Standard Condition of Sale

Answer 30

Under the Standard Conditions of Sale, on exchange of contracts, the buyer’s deposit is held by the seller’s so-licitor as stakeholder. The distinction between a solicitor **holding a deposit as agent or as stakeholder **is important.
1. Holding a deposit as stakeholder means that the seller’s solicitor holds it in their firm’s client account on behalf of both parties. The deposit cannot be paid over to the seller until completion.

2. Note, though, that the seller’s solicitor may propose to amend the Standard Conditions to allow the deposit to be** held as agent for the seller, which can occur if the buyer is buying a new build property. Holding the deposit as agent for the seller allows the seller’s solicitor to pay
   over the buyer’s deposit to the seller immediately after exchange has taken place**.

Question 31

Proof ofTitle and Title Guarantee

Answer 31

1. The Standard Conditions of Sale require the seller to prove their title and their ability to transfer it.
2. The seller provestitle by production of an offcial copy of a registered title or by production of an** ‘epitome of title’** (a chronological listof documents proving title to the land with copies of those documents attached) if the title isunregistered.
3. And unless the parties agree otherwise, the standard conditions pro-vide that the seller sells the property with full title guaran-tee. This includes a guarantee that:
   *The seller is entitled to sell the property;
   *They will, at their own cost, do all in their power to transfer the purported title to the buyer; and
   *The seller is selling the property free from all charges or encumbrances other than those disclosed in the contract.

Question 32

Limited Title Guarantee

Answer 32

A limited title guarantee is narrower in scope in that the seller merely warrants that the seller has not created any charges or granted any rights during their period of ownership that have not been disclosed in the contract. This type of guarantee is typically given by a seller with
less knowledge or involvement with the property (for example, a personal representative).

Question 33

No Title Guarantee

Answer 33

Land is typically conveyed without any title guarantees when a seller has no knowledge of the property at all (for example, a mortgagee in possession or someone disposing of the property by way of gift).

Question 34

Indemnity Covenant

Answer 34

If the contract discloses obligations relating to the prop-erty which will bind the buyer (for example, to maintain a fence for the beneft of the property owner next door), the Standard Conditions of Sale provide that the buyer agrees to perform the obligation and to indemnify the seller if the buyer breaches the obligation in the future.
This provision is included in the transfer document and is
called an ‘indemnity covenant’.

Question 35

Risk and Insurance

Answer 35

1. The Standard Conditions of Sale provide that risk in the property passes to the buyer on exchange of contracts.
2. The Standard Conditions also provide that the seller does not have to insure the property between exchange and completion.

Question 36

Completion

Answer 36

If the completion date is not inserted into the contract on exchange (in most cases, it will be), the Standard Condi-tions of Sale provide that completion will take place 20 working days after exchange.

Question 37

Special Conditions
As mentioned previously, the standard conditions of sale
include a section on the last page of the contract for adding special conditions.

Answer 37

*Whether the property being sold will be vacant on com-pletion or whether there will be a tenant in situ (in which case the tenancy agreement subject to which the proper-ty is being sold will be inserted);

*Whether a diferent time for completion has been agreed (a time prior to 2pm is often desired by the parties if their purchase is part of a long chain of transactions); and

*Whether there are any occupiers on the property, such as the seller’s relative (in which case they will need to confrm their relinquishment of any rights on completion)

Question 38

Property Information Form (‘PIF’)

Answer 38

In a Protocol transaction, the PIF is completed by the seller and is designed to give the buyer practical information about the property.

*The position of the property’s boundaries;
*Any disputes with neighbours about the property;
*Any building work and/or alterations by the seller to the property;
*Any notices received by the seller about the property;
…

Question 39

Occupiers—Take Care!

Answer 39

The buyer’s solicitor must check who occupies the proper-ty to see that this accords with the information given in the contract. Any non-owning occupier (for example, a parent or an adult child of the seller) must agree to sign the contract as confrmation that they will relinquish any rights in the proper-
ty and move out of the property on completion.

Question 40

Fittings and Contents Form

Answer 40

The Fittings and Contents Form lists the items which are at
the property and included in the sale price and those which
are excluded from the sale price. This list is annexed to, and
forms part of, the contract.

Question 41

Investigating Title

Answer 41

As noted above, the process of checking that the seller has a good title that they can convey is called ‘investigation of title.’ The** seller’s solicitor should carry out this process when they are drafting the contract. The buyer’s solicitor** should also do so when they receive the contract package.

Question 42

Raising Requisitions on Title

Answer 42

If there are any issues with the title that require resolution, the buyer’s solicitor will ask questions of the seller’s solici-tor—the technical term for this is ‘raising requisitions on ti-tle’—but this is often done now as part of the process of raising pre-contract enquiries

Question 43

How Is a Defect in Title Discovered?

Answer 43

1. Any defects in the title should come to light when the seller’s solicitor investigates the seller’s title. These defects should be disclosed in the contract.
2. Many defects, however, are not discovered until the buyer’s solicitor investigates the title and considers the contents of the PIF, the seller’s replies to the buyer’s enquiries, and the search results.
3. If the buyer’s solicitor discovers the problem, they should raise it with the seller’s solicitor, request that the seller’s solicitor provide a draft insurance policy, confirm that the seller will pay the cost of the policy, and include this agreement as a special condi-tion in the contract.

Question 44

Indemnity Insurance
defect of title

Answer 44

1. If a defect in title is identifed, the best way of resolving the problem is to enter into a deed of variation or deed of recti-fcation to put the problem right once and for all.
2. When this is not possible, indemnity insurance may be purchased to cover future losses that might arise from the defect. Indemnity insurance policies may cover specifc title issues, such as an undisclosed covenant, a missing deed in the chain of title, a breach of a covenant, or adverse possession.