The key elements of a freehold/leasehold residential or commercial property transaction

Question 1

Caveat Emptor

Answer 1

“let the buyer beware”
- No duty on the vendor of property to point out problems with the property
- buyers responsibility to look for defects

Question 2

Joint tenants

Answer 2

Land is owned by two or more people
- Joint tenants each have undivided interest in the property
- to sell their interest, all joint tenants must agree to sell the entirety of their interest
- right of survivorship operates before the will

Question 3

Land Registry

Answer 3

The body that administers registered freehold and long leases

Question 4

first exception to caveat emptor

Answer 4

Misrepresentation

Question 5

3 common ways misrepresentation might arise

Answer 5

Estate agents’ particulars of sale or auction particulars; remarks made by the seller on viewing the property; any communication from the seller or seller’s solicitors to the buyers

Question 6

Misrepresentation - the standard conditions of sale…

Answer 6

do not require the buyer to prove that they were induced to rely on the misrepresentation; it is sufficient to prove that there was an error or omission

Question 7

Second exception to caveat emptor

Answer 7

Latent encumbrances and title defects

Question 8

Meaning of ‘latent imcumbrance’

Answer 8

Something which is not apparent or cannot be discovered when inspected the property

Question 9

Seller’s duty in respect of latent incumbrances

Answer 9

A duty to disclose latent incumbrances of which it is aware or of which it has the means to know, acting reasonably and diligently

Question 10

Meaning of ‘defect in title’

Answer 10

A matter that brings into question the seller’s ownership of the property, or the rights and burdens that affect the property

Question 11

Two options for something discovered before exchange

Answer 11

Buyer walks away; or requires the seller to take steps to remedy the problem before completion as a condition of the sale contract

Question 12

Four overarching things you need to address when taking instructions on from a client

Answer 12

Likely timescale and costs; co-ownership; surveys; tax

Question 13

3 different types of survey

Answer 13

Basic valuation; homebuyer report; full structural survey

Question 14

When should you normally get a full structural survey

Answer 14

Where the property is listed, has had extensive renovations, or where extensive alterations are planned

Question 15

Why is not VAT not usually applicable to existing residential properties

Answer 15

They are VAT exempt

Question 16

Why is CGT not payable on most residential sales

Answer 16

If the client is selling their own home they can use an exemption called Private Residence Relief

Question 17

VAT is payable on solicitors fees regardless of…

Answer 17

the VAT treatment of the property itself

Question 18

What is a capital repayment mortgage

Answer 18

The borrower repays the capital sum by monthly payments, together with an interest amount added each month - at the end of the term the loan has been paid off in full

Question 19

What is an interest only mortgage

Answer 19

The borrower only pays the interest on the loan - the capital remains outstanding no matter how long the loan is in place - the capital will normally only be repaid by sale of the property - the borrower may still have equity higher than that required for the mortgage

Question 20

What is an endowment mortgage

Answer 20

Generally no longer available - interest only mortgages topped up with a payment that is invested in an endowment policy - the idea is that the policy repays the capital at the end of the term

Question 21

At what stage of a transaction would deducing and investigating title take place

Answer 21

Pre Exchange

Question 22

During Pre Exchange a seller would…

Answer 22

Deduce title, answer the pre-contract enquiries and prepare the draft contract

Question 23

During Pre-Exchange a buyer would…

Answer 23

Investigate title, order and review pre-contract searches, raise pre-contract enquiries and then report on title

Question 24

What does a seller’s solicitor do to deduce title

Answer 24

Gets together the title documents and checks them to ensure that the seller is entitled to sell the property

Question 25

What are title documents

Answer 25

Official copies of register; Land Registry title plan; Copies of any documents referred to and not extracted in the register

Question 26

What registers appear in the official copies

Answer 26

Property, Proprietorship, Charges

Question 27

What does the Property register do

Answer 27

Describes the property and any rights benefiting the property (covenants/easements)

Question 28

What does the Proprietorships register do

Answer 28

Gives the registered proprietor’s name and address, the class of title and entries affecting ownership

Question 29

What does the Charges register do

Answer 29

Lists rights burdening the property

Question 30

What are the aims of the buyer’s solicitors’ investigation of title

Answer 30

Check the seller has legal right to sell the property; ensure the property is adequate for the buyer’s intended use; ensure that there are no title defects that could affect the value or ability to sell in future

Question 31

What is included in the property description on the Property register

Answer 31

Whether the property is freehold or leasehold; property’s address and reference to the title plan (usually ‘edged red’)

Question 32

Why should the buyer’s solicitor always send the buyer a copy of the title plan

Answer 32

So that the buyer can confirm it agrees with their understanding of the size and location of the land they are buying

Question 33

Two ways rights benefitting the property might be set out in the Property register

Answer 33

Extracted or by reference to a filed document

Question 34

What should you check if the rights benefitting a property are ‘NONE’ (example)

Answer 34

That the land has access from a public highway without the need for a private right of way

Question 35

What should a solicitor do about excluded rights on the property register

Answer 35

Report to the buyer but not normally not a serious issue

Question 36

If a property has a right of way what four further issues need to be considered

Answer 36

RAMA !!!
Registration of the burden (the burden must also be registered against the servient land); ;
adequacy;
maintenance;
adoption

Question 37

What does investigating adequacy of a right of way involve

Answer 37

May be legal or physical adequacy for the use intended by the buyer, might involve inspection

Question 38

What does investigating maintenance of a right of way involve

Answer 38

Inspection and enquiries should assess how likely the common law obligation to contribute to maintenance is to affect the buyer

Question 39

What does adoption mean in respect of a right of way

Answer 39

If a private road is adopted (as a public highway maintainable by the local authority) the frontagers are required to pay the costs of bringing the road up to adoptable standard

Question 40

Why is the class of title on the Proprietorship register so important

Answer 40

Because the Land Registry guarantees its titles with compensation

Question 41

Best class of title (as reflected on the proprietorship register)

Answer 41

Title absolute (freehold or leasehold)

Question 42

What does absolute title mean

Answer 42

Indicates no issues - the proprietor has satisfied the Land Register that it is the true and proper owner

Question 43

What does qualified title mean

Answer 43

There is a specific defect in the title
- very rare
- It will be given where the Registrar considers that the applicant’s title can only be established for a limited period, or subject to certain reservations that are such that the title is not a good holding title (s9(4)

Question 44

Example of qualified title

Answer 44

Where a deed known to contain covenants or easements was missing on first registration

Question 45

Possessory title

Answer 45

• A possessory title will be given either where the applicant’s title is based on adverse possession or where title cannot be proven because the title deeds have been lost or destroyed.

-Registration with a possessory freehold title has the same effect as registration with an absolute title, except that it does not affect the enforcement of any estate, right or interest adverse to, or in derogation of, the proprietor’s title subsisting at the time of registration or then capable of arising (s11(7)).

• A possessory title can be upgraded to absolute if missing deeds are found or if the title has been registered with possessory title for 12 years and the proprietor is still in possession (s2(4)).

Question 46

Easements in registered land

Answer 46

• Registration of title includes the benefit of any appurtenant easements, whether or not expressly referred to on the register.

-Section 27(2)(d) of the LRA 2002 provides that an express easement over registered land must be completed by registration.

• This applies even in respect of estates not capable of substantive registration, for example a lease for a term not exceeding seven years.

-In this case, the easement must be registered even though the lease itself cannot be registered. The easement is not a legal easement until it has been registered; namely, it takes effect only in equity.

Question 47

Easements that are overriding interests

Answer 47

• Under Sch 3 to the LRA 2002, since 13 October 2006 any legal easement arising through implied grant or reservation or prescription is an overriding interest binding on a buyer, only if:
• it is known to the buyer; or
  it would have been obvious to the buyer on a reasonably careful inspection; or
  it has been exercised in the 12 months prior to the disposition.

-In registered land, equitable easements can be protected by the entry of a notice under s34 of the LRA 2002. In unregistered land, equitable easements can be protected by registering a class D(iii) land charge against the name of the estate owner.

Question 48

What does title plan show

Answer 48

The title plan shows the location of the property together with adjoining property. The title plan shows general boundaries only unless the exact line of the boundary has been determined (which is rare).

Question 49

Joint tenancy

Answer 49

A tenancy in common should be recommended where the buyers are neither married nor in a stable relationship, where they have contributed in unequal proportions to the purchase price or where they are business partners. It would also be appropriate for couples where one or both have children from a previous relationship, so that those children (and possibly any grandchildren) can be provided for.

Question 50

Trusts - co ownership and joint tenancy

Answer 50

Where two or more persons are entitled to possession of land at the same time, there is a trust of land governed by the Trusts of Land and Appointment of Trustees Act 1996.

The legal estate is vested in the trustees, and the persons with co-ownership rights are known as the beneficiaries.

The trustees hold the legal estate but the beneficiaries as owners in equity are effectively the ‘real’ owners.

Very often the trustees and beneficiaries are one and the same, for example husband and wife or unmarried couples.

Trusts can be created expressly or may be implied by

Question 51

Where is a restriction entered?

Answer 51

Entered in the proprietorship register

Question 52

what is the purpose of a restriction?

Answer 52

makes it apparent either that the powers of the proprietor are limited or that a prior condition must be met before a disposition can be registered.

The presence of a restriction does not necessarily mean there is a title defect because the seller may be in a position to satisfy the terms of the restriction.

It is a matter of examining the precise terms of the restriction as the wording will indicate what procedure must be followed to conduct a valid disposition of the land.

The buyer must either follow that procedure or require the seller to remove the restriction on or before completion

Question 53

Example of a restriction

Answer 53

if there is a co-ownership restriction indicating a tenancy in common, it may be the case that the purchase money will actually be paid to two trustees (or that a second trustee is being appointed), in which case the buyer can safely accept the position.

However, if one of two trustees has died then a second trustee must be appointed to satisfy the restriction.

Question 54

Joint tenancy

Answer 54

The purchasers own collectively the whole of the equitable estate with each other - they do not own individual shares

A share in the property cannot be left by will, because upon death the deceased’s ‘share’ automatically passed to the survivor(s) (known as right of survivorship)

A joint tenancy is normally suitable for a married couple, or cohabitees in a stable relationship, but not for those who have children from a previous relationship

Question 55

Tenancy in common

Answer 55

The opposite of joint tenancy and the buyers do own separate shares that may be left by will, or pass on intestacy in the event of no will (or disposed of inter vivos)

A tenancy in common should be recommended where the buyers are neither married nor in a stable relationship, where they have contributed in unequal proportions to the purchase price or where they are business partners.

It would also be appropriate for couples where one or both have children from a previous relationship, so that those children (and possibly any grandchildren) can be provided for.

Question 56

Trust declaration

Answer 56

Where purchasers buy as tenants in common you should, on or before completion of the purchase, prepare a declaration of trust, signed by the parties, setting out their respective financial contributions and agreeing their share of the beneficial interest in the property.

The declaration can also deal with other matters, such as the proportions each will pay towards the mortgage (if any) and other household expenditure, and the procedures for a later sale if one wishes to sell and the other does not.

Question 57

Severance of joint tenancy

Answer 57

joint tenancy in equity can be severed and thereby converted into a tenancy in common. In this case, the right of survivorship no longer applies.

If there are more than two joint tenants, severance operates only on the share of the party effecting the severance.

The other parties remain as joint tenants as between themselves.

The different methods of severance are:

1. written notice under s36(2) of the LPA 1925 given by one or more joint tenants to all the other joint tenants;
2. selling or charging the beneficial interest (including a charging order made by a court);
3. bankruptcy—the bankrupt’s severed beneficial interest vests in the trustee in bankruptcy.
   - Remember that a legal estate cannot be held as a tenancy in common, so notwithstanding severance of an equitable joint tenancy the legal estate will remain as a joint tenancy.

• the maximum number of trustees of the legal estate permitted by statute is four (s34(2) Trustee Act 1925). Where more than four are named in the deed, the property vests in the first four who are of full age.