Steps in progressing a freehold/leasehold property transaction to exchange of contracts Flashcards
Pre-exchange
- Buyer decides to buy a property
- Surveyor surveys the property and reports on its value and condition.
- Buyer’s solicitor investigates and reports on title.
- Once buyer is satisfied they proceed to exchange
Exchange
- buyer agrees to buy property and enter into contract with seller.
- Buyer pays deposit so financial consequences for pulling out.
Pre-completion
- Buyer’s solicitor organises mortgage funds
- Seller makes sure they have all the necessary paperwork.
Completion
- Buyer’s solicitors send over the purchase price and seller’s solicitors send over necessary paper work
- Buyer gets keys
- Transfer deed is completed and sent over.
Post-completion
- Seller pays of their mortgage and retains the remaining balance
- Buyer’s solicitor pays SDLT/LTT and registers property with LR
Caveat emptor
- “buyer beware”
- Seller is under no obligation to give buyer all relevant info.
Exceptions are:
- Misrepresentations
- Latent Incumbrances (if known about at the time or reasonably should have done)
Sales of part - draft contract
it will be necessary to draft an entirely new description of the land being sold off - reference to a scaled plan is essential.
- The plan should be of sufficient size and scale to enable the boundaries to be easily identified.
-A plan on a scale of 1:1,250 should be adequate in most cases, but a larger scale may be necessary for sales of flats or the division of buildings into separate units.
-It is customary that the land being sold should be edged red on the plan, while the land being retained by the seller (normally defined in the contract as ‘the retained land’) should be edged blue.
- Other features should also be clearly marked so that, for instance, if a right of way is being granted or reserved, the route would be shown by a broken line of a different colour or, if appropriate, by hatching.
Sales of part - rules
-On a sale of part the buyer may acquire certain rights over the seller’s retained land by virtue of s62 of the Law of Property Act 1925
- As the nature and extent of these implied rights is not always clear, it is prudent for the seller’s practitioner to exclude the effect of the rules and set out expressly the rights and reservations required by the parties
- If implied rights of light or air were granted to the buyer, this could hinder any future plans of the seller to develop the retained land.
The seller’s practitioner should always consider the covenants, if any, that the seller may wish to impose on the buyer
The buyer’s practitioner in turn must determine whether the seller should enter into any new covenants, for example not to obstruct access to the property being sold or possibly a fencing obligation.
-Both practitioners should ensure that they discuss with their clients any proposed new covenants and that the covenants are not too onerous on their clients.
-If the seller has a mortgage, the mortgagee’s consent to the sale of part should be obtained as soon as possible. The lender may require all or part of the proceeds of sale to be paid to it before it is willing to release the part being sold from the mortgage.
-In registered land, the release will be effected by Form DS3, together with a plan showing the extent of the land being released. In unregistered land, the lender will execute a deed of release in respect of the land being released from the mortgage.
-The form of purchase deed on a sale of part is Land Registry Form TP1 (see 10.3). Where the part being sold is a plot on a new building estate, the draft purchase deed will usually be prepared by the seller and attached to the draft contract as part of the seller’s standard documentation (see 13.1).
Sales of part
On a sale of part the buyer may acquire certain rights over the seller’s retained land by virtue of s62 of the Law of Property Act 1925 and the rule in Wheeldon v Burrows (1879) 12 Ch D 31.
As the nature and extent of these implied rights is not always clear, it is prudent for the seller’s practitioner to exclude the effect of the rules and set out expressly the rights and reservations required by the parties. If implied rights of light or air were granted to the buyer, this could hinder any future plans of the seller to develop the retained land.
Standard conditions of sale
Standard conditions make the process of negotiating a contract more efficient and transparent. For example, although a seller’s solicitor could draft a property contract from scratch, a buyer’s solicitor would likely want to compare it with the standard conditions of sale, and see how it departs from it. This would be very wasteful of time.
Standard conditions of sale - Property address
In most cases, the property will be described by the Land Registry official copies, in which case the client needs to see these and the accompanying title plan.
Standard conditions of sale - The parties
In most cases the seller will be the registered proprietor, although there are exceptions, such as when the owner has died, and the seller is a personal representative of their estate.
In most cases, the identity of the buyer is also obvious, but this is less so in a commercial context, if the buyer is a company. They may not have chosen which company is to hold the property, or may even want to set up a new company solely for the purpose of holding the new property.
Standard conditions of sale -The deposit
Both sets of standard conditions provide for a 10% deposit by default
If acting for a buyer who is giving a 5% deposit, you should advise that the standard conditions provide a full 10% deposit if the buyer delays completion.
Both sets of standard conditions provide for the deposit to be held as stakeholder by default. This means that the seller’s solicitor holds the deposit for both parties until completion. The seller cannot access the money, even though it is held by their solicitor.
An exception is in the Standard Conditions of Sale (but not the Standard Commercial Property Conditions) which enables part or all of the deposit to be applied to a related purchase. Any part of the deposit that is not used is still held as stakeholder.
The title guarantee
The seller of a property is usually the best person to confirm that they have the right to sell the property, and it is usual for them to give a full title guarantee.
This means that the seller guarantees that they have the right to sell the property, and that it is free of all encumbrances (rights against the property) other than those disclosed in the contract, or which the seller didn’t and couldn’t have known about.
Limited title guarantee is similar but just means that no such encumbrances have been created during the seller’s period of ownership.
No title guarantee means that the seller does not give any guarantee that the property is free of encumbrances or even that the seller has the right to sell the property. This is a risk for a buyer, although insurance is available.
Be careful not to confuse the title guarantee with the class of title in the Land Registry official copies. The title guarantee is a contractual guarantee given by the seller. The class of title (such as title absolute or possessory title) is the Land Registry’s guarantee as to the quality of title.
Completion date and time
For residential transactions, this is typically (but certainly not always) one to two weeks from the date of exchange. Residential completions traditionally take place on Friday, but exchange will take place when the parties are ready.
For commercial transactions, the completion date may be much farther away in time. In the example of a contract conditional on planning, completion may not take place sometime in the next two years.
Conversely, in either residential or commercial transactions, it is possible to have simultaneous exchange and completion. This usually happens when the timing of completion is not critical, but the parties still want to take advantage of the various obligations contained in the contract.
If the completion date is left blank, then both sets of standard conditions of sale provide for completion in 20 working days. It would be rare for this provision to be used in practice.
Related to the completion date is the completion time, which is 2 pm by default under both sets of standard conditions. If there are no related transactions, this can be left. However, if the money being used for the purchase is coming from a related sale, then the times must be staggered to allow for the money to be forwarded.
