Topic 4 - Principles of Mortgage and Property Law

Question 1

Freehold -

Answer 1

Estate in fee simple absolute in possession

Question 2

Leasehold -

Answer 2

Estate for a term of years absolute

Question 3

Cuius est solum, eius est usque ad coelum et ad inferos

Answer 3

Whoever owns the soil owns everything up to the heavens and down to the deposits of the earth

Question 4

The priority of charges is determined by…

Answer 4

…the data order of registration.

On unregistered land it’s the lender who holds the title deeds. Subsequent charges will be recorded with the land charges registry

Question 5

Second charges present the lender with higher risk so are likely to be…

Answer 5

…offered at higher rates of interest or with higher tariffs of charges and fees.

Question 6

Joint tenancy -

Answer 6

Most common type of ownership.

Each person owns 100 % on death any joint owner takes over legal ownership automatically and wills cannot alter this.

Question 7

Tenants in common -

Answer 7

The joint legal owners are one single owner, as trustees of the land, but each is also the beneficial owner of a defined interest in the property as agreed between them.

A restriction is placed on the title at the Land Registry, preventing either party selling the property without agreement from the co-owner.

It can be useful when a someone wants to leave their share to someone else rather than the joint owner.

Question 8

Ground rent:

Answer 8

Paid by the leaseholder to the freeholder. It is typically low, between £50 and £200 a year.

Qualifying tenants, who have held a lease for longer than 2 years have the right to buy a new lease, increasing the lease by 90 years. No ground rent is paid during this term.

Question 9

Leases may carry out constraints such as on:

Answer 9

• Specific conditions relating to maintenance and repairs
• Use of the property
• Alterations or enlargement
• In respect of common areas

Question 10

A typical requirement for a mortgage for a leasehold property is:

Answer 10

30-40 years more than the mortgage term.

Question 11

Enfranchisement:

Answer 11

The right of owners of leasehold properties in a building to joint together to buy the freehold.

The qualifying criteria are:
-Building must contain two or more flats

• At least 2/3 must be held on a long lease
• No more than 25% of the building can be used for non-residence purposes
• At least 50% of the leaseholders must agree to participate

Question 12

Buying a freehold of a flat:

Answer 12

Must be qualifying tenants

Original lease on flat more than 21 years

Building must have more than 2 flats

At least 2/3 of flats must have leases which were granted originally for more than 21 years

No more than 25% of internal floor area must be non-residential
At least 50% of leaseholders in block must agree to participate. Those who don’t can agree a lease with new freeholders

Question 13

What are the 3 significant property acts of 1925

Answer 13

Law of property Act

Land Charges Act

Land Registration Act

Question 14

What is fee simple

Answer 14

The right for property to be inherited on death.

Question 15

What is absolute

Answer 15

No limits on ownership

Question 16

What is “in possession”

Answer 16

Immediate entitlement to occupation: nobody else has a prior claim.

Question 17

Terms of years absolute means:

Answer 17

Leasehold estate, which has a limited duration must be fixed and certain.

Question 18

Under 18s can’t:

Answer 18

Hold an interest in land

Question 19

Can a borrower let a mortgages property

Answer 19

Yes they have the right unless the mortgage deed states otherwise. (Most mortgage lenders insert this deed)

Question 20

The lender is or is not liable from loss made on execution on sale?

Answer 20

Is not

Question 21

What rights do lenders have on insurance proceeds

Answer 21

The right to determine how insurance proceeds are used on the property

Question 22

How can you extend the lease

Answer 22

If you’ve held lease for more than 2 years

Can buy a new lease running for 90 years from end of CURRENT lease

Landlord not able to refuse an application to extend, the cost to leaseholder must be “FAIR VALUE” based on open market values

Question 23

What is legal and equitable owners

Answer 23

4 people can be registered as legal owners at the land registry. If more than four the others with a right to share are called equitable owners.

Equitable owners do not have the right to transfer property like legal owners.

The legal owners jointly hold the land in trust.

Question 24

Leaseholders cannot buy the freehold if

Answer 24

It is a converted property with 4 flats or less

The same person has held the freehold since before the conversion and has lived in one of the flats as main residence in the past 12 months.

More than 25% of the building’s internal floor areas is for commercial use

Question 25

If one person dies in tenancy in common what happens to the deceased’s share

Answer 25

It’s is held in trust by the heir by the owner until a joint legal owner is appointed and the property is sold, if appropriate.

Question 26

How is tenancy in common set up?

Answer 26

A notice of severance is served on the other owners. The original notice or a certified copy of the notice is sent to the land registry along with a form A restriction request on the property. This form prevents the other owner from selling without agreement and shows up on conveyancing searches

Question 27

Factors that affect freeholder rights?

Answer 27

Local authority conditions

Local and national planning legislation

Covenants or easements

Restrictions by earlier owner

Former public utilities eg, water company owns rainwater

Owner has obligations to those who enter or pass eg. A tile falling off the roof and injuring someone

Question 28

Roughly how many years do lenders want lease to extend past the mortgage term?

Answer 28

30-40 years

Question 29

What is commonhold

Answer 29

Commonhold is an alternative to the long leasehold system. It allows you to own the freehold of individual flats, houses and non-residential units in a building or on an estate. Unlike leasehold, there is no limit on how long you can own the property for. Registered with land registry.

The rest of the building or estate which forms the commonhold is owned and managed jointly by the flat owners (referred to as unit-holders) through a commonhold association.

There is an annual charge to unit holders to cover costs and a fund for repairs.

Question 30

When are leaseholders not qualifying tenants wrt buying freehold.

Answer 30

Landlord is a charitable housing trust

Lease is for commercial property

Leaseholder owns qualifying lease of more than two flats in the building.

Question 31

Since 2002 how long do you need to be in a lease to extend and how many years can you extend

Answer 31

2 years and extend by 90

Question 32

What is the payment premium to the landlord when extending a lease based on:

Answer 32

Landlords financial loss

Reduction in financial interest

Element of increase in property value

Compensation for loss of ground rent