The Contract and Exchange

Question 1

What is the Role of the Lender’s Solicitor?

Answer 1

• Specify what Enquiries and Searches are needed;
• Ask the Buyer’s Solicitor to send copies of all Searches and Replies to Enquiries;
• Review the copies and ask the Buyer’s Solicitor to make further Enquiries as required;
• Draft the Legal Charge and other Security documents.
• Either draft the Certificate of Title or ask the Buyer’s Solicitor to provide it.

Question 2

What is the Certificate of Title?

Question 3

What are the Two Standard Forms of the Certificate of Title?

Question 4

How is the Certificate of Titles structured?

Question 5

What is the Conduct Issue when acting for the Buyer and Lender in a Residential Transaction?

Answer 5

Establishing that:

• The Clients have a substantially common interest in relation to the purchase; meaning that
• They possess a clear, common purpose and a strong consensus on how to achieve it.

In practice, generally, these are two Parties you can concurrently represent. The same is not true for commercial transactions.

Question 6

What Requirements must a Contract for Land satisfy?

Answer 6

It must:

• Be in writing;
• Incorporate all expressly-agreed terms; and
• Be signed by, or on behalf of, all Parties.

LP(MP)A 1989 —s. 2.

Question 7

In a Contract for Land, what is a Specified Incumbrances Clause?

Answer 7

A clause obliging the Seller to disclose, among other things:

• Rights burdening the Property that are not apparent on inspection; or
• Defects in Title.

Question 8

In a Contract for Land, what is a Title Guarantee?

Answer 8

A clause confirming the Seller has the right to sell the Property, of which there are two types:

• Limited Title Guarantee: No Incumbrances have been created by the Seller during their tenure.
• Full Title Guarantee: The Property is free from all Incumbrances, barring those already disclosed (if any).

Question 9

What is the difference between a Solicitor holding a Deposit as an Agent vs. as a Stakeholder?

Answer 9

A Seller may demand a Deposit immediately after exchange if the Solicitor is holding it as an Agent, whereas they otherwise cannot.

Because a Residential Seller may need the Deposit for a related transaction, standard terms provide that the Deposit may be used therefor, regardless of how it is held.

Question 10

Between Residential and Commercial Property Transactions, which pays VAT?

Answer 10

Commercial.

Question 11

What is a Value Added Tax?

Answer 11

A charge on any taxable supply.

Businesses can net the VAT they charge Customers (Output Tax) against the VAT Suppliers charge them (Input Tax).

In other words: Output Tax − Input Tax = VAT Owed to HMRC.

Question 12

What is the Threshold for VAT?

Answer 12

£85,000 p/a in taxable turnover.

Question 13

What is the VAT Treatment of Different Types of Property?

Answer 13

Exempt Supplies (No VAT charged):

• Residential Property, except for New-Builds.
• Commercial Property over 3 years old, where the Owner has not opted to tax.

Zero-Rated Supplies (0% VAT, Input Tax Recoverable):

• Residential New Builds.

Standard-Rated Supplies (20% VAT charged):

• Commercial Property less than 3 years old.
• Commercial Property over 3 years old, where the Owner has opted to tax.

If a Seller opts to tax property, any subsequent Sale is standard-rated, and any Tenants would pay VAT on their rent.

Question 14

What is the Buyer’s Solicitor’s Checklist before Exchange?

Answer 14

1. Ensure receipt of all Search Results and Replies to Enquiries, and follow up on any issues as needed.
2. Ensure the Buyer has received the Survey and is satisfied.
3. Advise the Buyer that insurance must be in place from Exchange.
4. Ensure you have Cleared Funds from the Buyer for the Deposit.
5. For Commercial Transactions, ensure the Lender’s Solicitor has approved the Draft Certificate of Title at least two days before Exchange.
6. Ensure you have reported fully to the Buyer on the Title and advised on any concerning issues.
7. Send the Contract to the Buyer for Signature.
8. Obtain instructions on the proposed Completion Date.
9. Obtain the Buyer’s express authority to Exchange.

Question 15

What is the Seller’s Checklist before Exchange?

Answer 15

1. Obtain a Redemption Figure from the Lender to ensure the sale proceeds will suffice.
2. Reply to any outstanding Enquiries.
3. Prepare engrossments of the Contract and send copies to the Seller, for signature, and the Buyer’s Solicitor.
4. Obtain the Seller’s express authority to Exchange.

The Redemption Figure is the amounted needed to repay the loan in full.

Question 16

How are Contracts Exchanged?

Answer 16

By telephone. During the conversation, the Solicitors should:

• Identify blanks left in the Contract and insert the appropriate wording or figures.
• Agree any handwritten amendments or special conditions.
• Agree on and fill in the Completion Date.
• Agree the fact that Contracts have been exchanged, the date and time that happened, and the relevant names.

Afterward, the Solicitors must that day:

• Hold the signed contracts to the other Solicitor’s order;
• Post the signed contracts to the other Solicitor that day by First Class Post or DX; and
• Send and confirm receipt of the Deposit in the form of payment specified by the Contract.

The latter part is a series of Solicitors’ Undertakings, and by using the words ‘Formula B’ on the call, you automatically give those Undertakings.

This is according to Law Society Formula B. Formula A may be used when the same Solicitor holds the contracts for both Parties, and Formula C may be used in chain transactions, although its complexity dissuades use.

Question 17

How must Related Transactions be Exchanged?

Answer 17

Always together:

• Solicitors will release their Contract if their counterparties Exchange by a certain time.
• Otherwise, the first Contract will be deemed cancelled.