UNIT 1 - Due Diligence 1 Flashcards
A solicitor acts for a client who has been ready to exchange contracts on the purchase of her new house for several weeks. The purchase is being funded by a new mortgage and the proceeds of the sale of her current flat. The plan is to exchange on the sale of the flat and the purchase of the house simultaneously. The client has phoned, in a very distressed state, to say that the buyer of the flat has just said that he can only proceed if the price of the flat is reduced by £5,500 as his surveyor says that the flat needs to be rewired.
Which of the following statements best describes the client’s position following the buyer’s demand to reduce the sale price of the flat?
A) The client will have to agree to the price reduction on the flat and proceed with the purchase of the house even though she may not have enough money to complete the purchase of the house.
B) The client cannot recover any of her wasted conveyancing costs if the sale of the flat and the purchase of the house does not proceed.
C) The client is not obliged to agree to the price reduction on the flat and can recover her wasted conveyancing costs from the buyer of the flat.
D) The client will have to agree to the price reduction on the flat because she should have told the buyer of the flat that the flat needed rewiring.
E) The client was not obliged to tell the buyer of the flat that the flat needed rewiring, but she will have to reimburse him for his wasted conveyancing costs if he decides not to proceed.
CORRECT ANSWER B - Neither party has any legal rights against the other unless and until contracts are exchanged, so the buyer is at risk of being ‘gazumped’ (where the seller raises the price at the last minute) and the seller is at risk of being ‘gazundered’ (where the buyer reduces the price at the last minute). This is what lies behind much of the criticism of the conveyancing system in England and Wales.
So, in this situation, the client cannot force the buyer of the flat to proceed, but she is not obliged to accept the price reduction (so options A and D are wrong). Nor can she sue him for wasted costs. Similarly, the client cannot be forced to complete the purchase of the house (option A is also wrong for this reason), or be sued by the seller of the house for wasted costs. The client may not have known anything about the state of the wiring, but in any event, she is not obliged to tell the buyer of the flat anything about it because of the principle of ‘caveat emptor’ (option D is also wrong for this reason). Therefore, she is not obliged to reimburse the buyer of the flat for his wasted costs and option E is wrong.
(‘the seller’) and has a received a pre-contract package from the seller’s solicitor. The estate agent acting for the seller has told the buyer that there is another person interested in buying the flat and that this other person viewed it yesterday. The estate agent has also told the buyer that the seller has instructed its solicitor to send a pre-contract package to this other person. Neither the solicitor nor the buyer has heard anything from the seller or its solicitor about this yet.
Which of the following statements best describes the position of the seller’s solicitor having received the seller’s instruction to send a pre-contract package to the other person interested in buying the flat?
A) The seller’s solicitor does not need to say anything to the buyer’s solicitor. It does not matter that there is another person interested in buying the flat as it was the estate agent that allowed them to view the flat, not the seller or the seller’s solicitor.
B) The seller’s solicitor has already breached The Code of Conduct by failing to inform the buyer’s solicitor that another interested person viewed the flat yesterday.
C) The seller’s solicitor will probably breach The Code of Conduct if, having obtained their client’s consent to the disclosure, they fail to inform the buyer’s solicitor that a pre- contract package is being sent to another interested person.
D) The seller’s solicitor should disclose to the buyer’s solicitor that they are sending a pre- contract package to the other interested person, even if their client does not agree to this disclosure.
E) The seller’s solicitor must immediately cease to act for the seller.
CORRECT ANSWER C - Once the solicitor receives the instruction from the seller to send the additional pre-contract package, then the obligation not to mislead described in paragraph 1.4 of The Code of Conduct is relevant. However, the seller’s solicitor also has a duty of confidentiality to the seller client in paragraph 6.3; they cannot disclose the contract race to prospective buyers without their seller client’s consent, so option D is wrong.
Option B is not the best answer as a mere viewing may never result in an offer for the flat.
Option A is not the best answer as the duty not to mislead arises regardless of how the other person was introduced to the property.
It is only when the seller refuses to consent to the disclosure that the seller’s solicitor must decline to act, so option E is not the best answer. So long as the seller consents to the disclosure, and that disclosure is made, then the contract race can proceed.
A solicitor is acting for the buyer of a freehold property in England. The pre-contract searches and enquiries have revealed that the designated planning use for the property is use as offices within use class E of the Town and Country Planning (Use Classes) Order 1987. Following completion, the buyer wishes to open a wine bar at the property, which is a sui generis use. Investigation of title has not revealed any restrictive covenants related to use of the property.
Does the buyer need to apply for express planning permission in order to be able to use the property as a wine bar?
A) No, because there is nothing on the title restricting the use of the property.
B) No, because a change of use never constitutes development.
C) No, because whilst the proposal constitutes a material change of use, planning permission is automatically granted under the Town and Country Planning (General Permitted Development) Order 2015 (‘GPDO’).
D) Yes, because any change of use requires express planning permission.
E) Yes, because the proposal constitutes development and will not be covered by the GPDO.
CORRECT ANSWER E - Planning permission is a separate issue to restrictive covenants on title, so option A is wrong.
Planning permission is required for any activity which constitutes ‘development.’ Under s 55 of the Town and Country Planning Act 1990, ‘development’ includes the making of any material change in the use of any buildings or other land. A change between a use within use class E and a sui generis use is a material change of use, so option B is not the best answer.
Express planning permission is therefore required, unless planning permission is automatically granted under the GPDO. This change of use will not be covered by the GPDO as it is a change of use from use class E to a sui generis use; therefore planning permission is not automatically granted and express planning permission will be required, so option C is not the best answer.
Option D is not the best answer because a ‘material’ change of use will constitute development.
A commercial property is being sold with vacant possession using a contract on standard terms. Both buyer and seller are separately represented.
Which statement best describes some of the steps to be taken by each solicitor prior to exchange of contracts?
A) The seller’s solicitor will draft the contract and the buyer’s solicitor will carry out due diligence.
B) The seller’s solicitor will draft the contract and the transfer deed and the buyer’s solicitor will carry out due diligence.
C) The seller’s solicitor will draft the contract and the buyer’s solicitor will carry out due diligence and draft the transfer deed.
D) The seller’s solicitor will carry out the due diligence and the buyer’s solicitor will draft the contract.
E) The seller’s solicitor will draft the contract and the buyer’s solicitor will pay any stamp duty land tax due on the sale.
CORRECT ANSWER A - This accurately describes some of the main steps to be taken by each party’s solicitor prior to exchange.
Option B is not the best answer, as it is usual for the buyer’s solicitor to draft the transfer deed and in any event this step is carried out pre-completion, not pre-exchange.
Option C is not the best answer as the buyer’s solicitor will usually draft the transfer deed pre completion, not pre-exchange.
Option D is not the best answer, as full due diligence is only undertaken by the buyer’s solicitor and the buyer’s solicitor does not usually draft the contract.
Option E is not the best answer, as whilst the buyer’s solicitor will pay SDLT, this will be done post completion.
A client tells you that they have viewed and made an offer for a residential property. The estate agent for the seller has told the client that, subject to contract, the client’s offer is acceptable to the seller. The client tells you that the parties would like to exchange contracts within four weeks and complete two weeks after that.
Which ONE of the following statements best describes the legal position of the parties in relation to the sale and purchase?
A) Now that the seller has accepted the buyer’s offer, both parties are legally obliged to proceed with the transaction and cannot withdraw.
B) Until contracts are exchanged either side can withdraw from the transaction.
C) The seller is free to accept a higher offer for the property from another party until exchange of contracts, but the buyer cannot withdraw now that his offer has been accepted.
D) Either side can withdraw without consequence at any point up until the completion date.
E) The buyer can change his mind and withdraw from the transaction until exchange of contracts, but the seller can only withdraw before exchange if he receives a higher offer.
CORRECT ANSWER B - Until an exchange of contracts occurs, either side can withdraw from the transaction. The acceptance of an offer by an estate agent will normally be made on a ‘subject to contract’ basis- this means no legally binding contract arises from the acceptance of the offer.
Option A is therefore wrong as either side can withdraw until exchange.
Option C is partially correct as the seller can accept a higher offer and withdraw from the transaction. However, it is wrong to say the buyer cannot withdraw, as either party is free to withdraw until exchange.
Option D is wrong. The completion date is the point at which the purchase monies are paid, the transfer deed dated, and the keys handed over. However, it is the exchange of contracts that creates a legally binding commitment between the parties to buy and sell.
Option E is not the best answer. It is correct that the buyer can withdraw until exchange. It is also correct that the seller may withdraw until exchange if he receives a better offer. However, the seller can withdraw before exchange for other reasons, including that he has simply changed his mind about selling.
Your client is acquiring the freehold of retail premises for £2,000,000. The purchase is being funded in part by a secured loan being given by Alpha Bank Ltd. Your client has been told that the mortgage documentation will be bespoke to the transaction and negotiable. Your buyer client would like you to act also for Alpha Bank in order to save legal costs.
Which ONE of the following statements best describes whether you can act for both Alpha Bank Limited and your client?
A) You cannot act for both because this is a commercial transaction.
B) You can act for both because the mortgage is a standard mortgage.
C) You can act for both because this is a residential transaction.
D) You can act for both because there is a substantially common interest.
E) You should not act for both because there is a significant risk of a conflict of interest.
CORRECT ANSWER E - The mortgage documentation is not in a standard form and is subject to negotiation. During this negotiation it will be very difficult for a firm or solicitor to act in the best interests of both lender and borrower, as a clause that is favourable to one party is likely to be detrimental to the other. As a result, there is a significant risk of conflict and you should not act.
Option A is not the best answer, as whilst this is a commercial transaction and the lender is likely to be separately represented, there is no outright prohibition on acting in the SRA’s Code of Conduct 2019.
Option B is wrong, as the facts indicate the mortgage is not a standard mortgage.
Option C is wrong, as the facts indicate this is a commercial transaction.
Option D is not the best answer, as it is very unlikely there will be a substantially common interest on the facts, given the documentation requires negotiation.
Your client, ProSearch, is a London-based scientific research company looking for new premises in Reading. ProSearch has found a commercial block in Reading, currently owned by a development company which is relocating to Leeds. Your client and the selling development company have agreed that they will both use your firm. There is no connection between ProSearch and the development company.
Which ONE of the following statements best describes whether you can act for both ProSearch and the development company?
A) Your firm can act for both because they have given their consent to you doing so.
B) Your firm can act for both because they are both competing for the same objective.
C) Your firm can act for both because they have a substantially common interest.
D) Your firm is unlikely to be able to act for both because there is a significant risk of a conflict of interest.
E) Your firm can act for both because the firm can ensure separate solicitors in the same firm act for each party.
CORRECT ANSWER D - Paragraph 6 of the SRA Codes of Conduct 2019 states that a solicitor or firm may not act if there is a conflict of interest or a significant risk of a conflict.
Paragraph 6.2(a) sets out the exception which allows a solicitor or firm to act for more than one party, even if there is a conflict of interest, where the parties have a substantially common interest in the matter. This is a situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved and the requirements in paragraphs 6.2(i) to (iii) have also been satisfied.
When selling and buying property, whilst the parties can begin with a common purpose, during due diligence and contract negotiation, the parties’ interests often diverge and any consensus vanishes. If a solicitor or the firm was acting for both parties, it must cease doing so and ask one party to find representation elsewhere. Neither client would be pleased. Any advantages would be lost.
The SRA guidance on Conflict of Interest dated October 2019 states that: ‘one client selling or leasing an asset to another client is an example of a circumstance that can give rise to a conflict of interest or a significant risk of one.’ The guidance adds that ‘you should not normally act for two or more clients in these scenarios’. In addition, the Law Society issued advice in June 2020 which rules out the use of the substantially common interest exception when acting for a buyer and seller as although they both have the common interest of completing the sale, “they also have different interests since one is buying and one is selling”; this means that Option C is wrong.
Option A is wrong as the clients’ agreement does not override the provisions of paragraph 6.2.
Option B is wrong because the parties are not competing for the same objective. These are not two buyers each wanting to buy the same property from the same seller, each knowing the other is in possession of a contract and other papers.
Option E is wrong as using separate solicitors is a way of protecting confidential information, not eliminating a conflict of interest.
A seller wants to sell an office building quickly to raise money for a new purchase so the building has been priced at a level to attract many prospective buyers. The seller has decided to proceed with three buyers simultaneously and instructs the solicitor acting to issue the pre contract package of documents to the three prospective buyers (each of whom have separate representation). However, the seller does not wish one of the parties to know that the pre-contract package has been sent to two other prospective buyers, because it thinks the party will withdraw. It therefore insists its solicitor must not reveal to that party that more than one pre-contract package of documents has been issued.
Which statement best describes the position of the solicitor?
A) The instruction presents no problem because a solicitor’s duty is of confidentiality to the seller client.
B) The solicitor should stop acting because there is a conflict of interest between the buyer and the seller.
C) The solicitor should stop acting because they must not mislead the buyer or be complicit in their client doing so.
D) The solicitor can continue to act if the contents of the pre-contract package are not misleading.
E) The solicitor can continue to act because it is the client that is being mis-leading, not the solicitor.
CORRECT ANSWER C - This is a contract race, which occurs when a seller enters into the conveyancing process with two or more prospective buyers at the same time. The buyers are competing and the winner is the buyer who is ready to exchange contracts first. Whilst there is no explicit requirement in the SRA Code of Conduct for the solicitor to inform all buyers of the seller’s intention to deal with more than one buyer, the solicitor and firm are required to comply with paragraph 1.4 and must not mislead others either by their own acts or omissions or allowing or being complicit in the acts or omissions of the seller. Unless the solicitor can persuade the client to give an instruction to reveal the circumstances of the transaction to all the buyers, the solicitor is being complicit with the client in misleading one of them. The solicitor must cease acting.
Option A is not the best answer, because whilst it is true there is a duty of confidentiality, this does not mean the instruction is not problematic. The solicitor cannot disclose without the client’s consent, but not to disclose would be a breach of paragraph 1.4.
Option B is not the best answer, as the facts indicate all parties are separately represented and therefore this is not a conflict situation.
Option D is not the best answer, as the party will not know they are in a contract race and it is this omission that is mis-leading.
Option E is not the best answer, because paragraph 1.4 requires the solicitor not to be complicit in the acts or omissions of their client.
A buyer and seller have exchanged contracts and the completion date is in three days’ time. The contract contains an obligation that the seller will, prior to completion, remove a bollard from the driveway to the property which will prevent the buyer parking a caravan. The seller has been ill and has been unable to carry out this work. The seller is very keen for completion to go ahead on the agreed completion date and tells his solicitor he can arrange for the work to be done within a week of completion. The buyer’s solicitor telephones to say their client will only complete on the agreed completion date, if the seller’s solicitor will confirm on the telephone that the bollard will be removed within a week of completion.
Should the solicitor give the confirmation?
A) Yes, because it is the solicitor’s duty to act in the best interests of the client at all times and giving the confirmation ensures completion can happen on the contractual completion date.
B) Yes, because as long as the confirmation is given with the authority of the client it will bind the client and not the solicitor.
C) Yes, because the oral confirmation that has been requested will not amount to an undertaking and will not bind the solicitor.
D) No, because the solicitor cannot be sure the work will be carried out within a week.
E) No, because undertakings can only be given by a partner in a law firm.
CORRECT ANSWER D - If the confirmation is given by the solicitor, it may amount to an undertaking. An undertaking is a statement made by or on behalf of a solicitor or the firm to someone who reasonably places reliance on it that the solicitor will do something, cause something to be done, or will not do something. An undertaking is binding even if it is out of the solicitor’s control.
Option A is wrong as a solicitor is not obliged to give an undertaking. However, if a solicitor does give one; it must be performed within the agreed timescale (paragraph 1.3 of the SRA Codes of Conduct).
Option B is wrong as the obligation binds the solicitor.
Option C is wrong as the statement amounting to an undertaking can be oral or written.
Option E is wrong. Whilst some firms will have a policy that a partner should sign off an undertaking, it is not correct that undertakings can only be given by partners.
ACE Construction Limited (“ACE”) is an established builder. They are renovating a building constructed in 1900, into a retail shop and cafe. On completion of the renovation works ACE will sell the freehold of the building. ACE has spent VAT on the renovation works and wants to recover as much of that input VAT as possible. ACE is VAT registered.
Which ONE of the following statements bests describes the VAT position when the building is sold?
A) The sale price of the property, will automatically be subject to VAT at the standard rate because the renovation makes this a “new” commercial building. The input tax will therefore be recoverable.
B) The property is, despite the renovation, an ‘old’ building and so the sale will automatically be a standard-rated supply. The input tax will therefore be recoverable.
C) The property is, despite the renovation, an “old” building and so its sale will be an exempt supply unless ACE opts to tax. Unless it opts, it may not be able to fully recover its input VAT.
D) The property is, despite the renovation, an “old” building and so its sale will be zero-rated. Input tax spent by ACE will therefore be recoverable direct from HMRC.
E) The property is, despite the renovation, an ‘old’ building and so its sale will be an exempt supply. The input tax cannot therefore be recovered.
CORRECT ANSWER C - This is a commercial property and VAT considerations apply. It is more than three years old and is therefore an “old” property for the purpose of VAT (despite repair and refurbishment). Unless ACE opts to tax the property, the sale of the freehold will be an exempt supply and ACE could not charge output VAT on the sale price. If it opts to tax the property, it could charge VAT at the standard rate. ACE will be paying input VAT on its refurbishment works and, in that case, could use the VAT it receives from a buyer to offset the VAT it has paid, paying only the balance, (if there is any), to HMRC.
Option A is wrong, because as explained above, the property is an ‘old’ building for VAT purposes.
Option B is wrong: this is “old” commercial property and so the sale will only be standard-rated if the seller opts to tax. If this were the sale of a “new” commercial property, it would be standard-rated.
Option D is wrong as the sale is not zero-rated.
Option E is not the best answer: it is true that the sale is exempt, but it can be changed to a standard-rated supply by the seller opting to tax. The option to tax will enable the seller to recover the input VAT.
A client is buying a residential property built 20 years ago that he will occupy as his home. The seller has lived in the property since it was built and has carried out substantial renovations to it in the past year. The purchase price is £500,000.
Will VAT be payable on the purchase price?
A) No, because the property sale is not made in the course of a business.
B) No, because VAT is not payable on the sale of property.
C) Yes, because the purchase price exceeds the threshold for VAT registration.
D) Yes, because the seller will be making a taxable supply by selling the property.
E) Yes, because the seller will make an option to tax.
CORRECT ANSWER A - VAT is chargeable in respect of a supply of goods or services made in the course of a business. In the case of residential property, the impact of VAT is, therefore, relatively uncomplicated. The sale of a property occupied by the seller as his home will not be made in the course of a business and VAT is not therefore payable.
Option B is not the best answer: VAT can be payable on the sale of property (e.g. on the sale of a new freehold commercial building or the sale of old commercial property where the seller has opted to tax).
Option C is wrong as the threshold for VAT registration is relevant to businesses and is reached when a business has a specified turnover. This scenario does not involve a business.
Option D is wrong because the taxable supply must be made in the course of a business for it to be taxable: this sale is not in the course of a business.
Option E is wrong: the option to tax is relevant to the sale of ‘old’ commercial property and this is residential property.
Rohan is selling a residential house he bought in 1990. The house is called ‘The Rowans”. Rohan bought and moved to his current house in 2000 but kept The Rowans and lets it out. Every now and again Rohan stayed in The Rowans for very short periods between lettings to make it easier to redecorate and do some DIY. When Rohan bought The Rowans, he paid £75,000 for it and he is now hoping to sell it for £450,000. Rohan owns The Rowans outright on his own. You have seen the agent’s details and you noticed the garden looked quite small.
Rohan has asked the solicitor to help work out whether capital gains tax (“CGT”) is likely to be charged on the sale of The Rowans.
Which ONE of the following statements best describes the advice the solicitor should give?
A) CGT is likely to be payable because Rohan has made a capital gain and principal private residence relief will not apply.
B) CGT will not be payable because, although Rohan has made a capital gain, principal private residence relief will apply.
C) CGT will not be payable because residential property is not a chargeable asset for CGT purposes.
D) CGT will be payable because the sale of the property is a taxable supply and CGT must be paid at the standard rate.
E) CGT will be payable because a seller always has to pay CGT if they make a capital gain when they sell an asset.
CORRECT ANSWER A - Rohan has made a capital gain as he is selling for more than he purchased. He is unlikely to be able to claim principal private residence relief as he does not live at The Rowans and he owns another house he lives in.
Option B is wrong, as he has not occupied the house as his main residence throughout his period of ownership and therefore the relief will not apply.
Option C is wrong as ‘chargeable assets’ include property and that property can be residential or commercial.
Option D is wrong. VAT is payable on chargeable supplies and such supplies can be standard-rated or zero-rated. So, the terminology used in this Option is relevant to VAT, not CGT.
Option E is wrong because it is incorrect to say CGT will always be payable if a gain is made on the sale of the property. For any property, the gain would have to exceed an individual’s annual exemption and if the property is an individual’s only or main residence the principal private residence relief is likely to apply.
Yesterday a buyer completed the purchase of a residential property. The buyer paid the seller a sum for curtains, in addition to the purchase price. The buyer’s solicitor is satisfied that the amount paid for the curtains is a fair reflection of their value.
Which statement best describes the position in respect of SDLT?
A) Any SDLT due will need to be paid by the buyer on the combined amount of the purchase price and the curtains within 14 days of completion.
B) Any SDLT due will need to be paid by the buyer on the purchase price within 14 days of completion. No SDLT needs to be paid on the amount paid for the curtains.
C) Any SDLT due will need to be paid by the buyer on the purchase price within 30 days of completion. No SDLT needs to be paid on the amount paid for the curtains.
D) Any SDLT due will need to be paid by the seller on the purchase price within 14 days of completion. No SDLT needs to be paid on the amount paid for the curtains.
E) Any SDLT due will need to be paid by the seller on the combined amount of the purchase price and the curtains within 14 days of completion.
CORRECT ANSWER B - Options D and E are wrong as SDLT (if due) is payable by a buyer.
The time limit for payment is 14 days and so Option C is wrong, as penalties apply for late payment.
SDLT is not payable on the amount paid for chattels/fittings (provided the value attributed to them is a fair one). So, Option A is wrong as it refers to paying SDLT on the curtains which is unnecessary.
A solicitor finds, in the Proprietorship Register of official copies of a registered title he is investigating, the following entries:
(1 May 2009) Proprietor(s): ROGER EVANS AND MARGARET EVANS of 47 Queens Road, Birmingham B17 8QY
(1 May 2009) RESTRICTION: No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.
Which of the following best describes how the legal estate and beneficial interests in the property are held?
A) Both the legal estate and beneficial interests are held as tenants in common.
B) Both the legal estate and beneficial interests are held as joint tenants.
C) The legal estate is held as joint tenants and the beneficial interest is held as tenants in common.
D) The beneficial interest is held as tenants in common, but it is not possible to determine how the legal estate is held.
E) The beneficial interest is held as joint tenants, but it is not possible to determine how the legal estate is held.
CORRECT ANSWER C - The legal estate can only be held as joint tenants and
so Option A is wrong. The beneficial (or equitable) interest in the property can be
held either as joint tenants or tenants in common. Entry 2 of the Proprietorship
Register is a standard restriction which indicates the proprietors own the beneficial
interest in the property as tenants in common. As a result, options B and E are
wrong. Option E also incorrectly states it is not possible to determine how the legal estate is held. Whilst the registers of title are silent on this issue, it is the law that
determines how the legal estate is held. Option D is therefore also wrong, as whilst it correctly states the beneficial interest, it does not reflect the fact that the legal estate
can ONLY be held as a joint tenancy and does not therefore require any
determination.
In acting for a client buying a property, a solicitor finds an entry in the Proprietorship Register in the following terms:
‘The transfer to the proprietor contains a covenant to observe and perform the covenants referred to in the Charges Register and of indemnity in respect thereof’. The Charges Register contains an entry that refers to a covenant to repair and maintain shared drainage pipes. The seller’s solicitor has indicated that the buyer will be required to enter into an indemnity covenant in the transfer deed.
Will the client have to observe the covenant to repair and maintain the shared drainage pipes?
A) No, because this is a positive covenant and the burden of positive covenants does not run with the land.
B) No, because the entry in the Proprietorship Register indicates that the seller entered into an indemnity covenant and therefore liability will remain with the seller.
C) Yes, because the covenant is restrictive and the burden of restrictive covenants automatically runs with the land.
D) Yes, because the buyer has notice of the covenant and is therefore bound by it regardless of whether it is positive or restrictive.
E) Yes, because although the covenant is positive and the burden does not run, the buyer will be indirectly bound through the chain of indemnity covenants.
CORRECT ANSWER E - The covenant is positive (it requires the covenantor
to spend money). Option C is therefore wrong. The burden of positive covenants
does not run with land, but a buyer can be made indirectly liable through a chain of
indemnity covenants. The entry on the Proprietorship Register indicates that the
seller gave an indemnity covenant when they purchased, and the facts tell you the
client will have to continue that chain. Liability will therefore indirectly pass to the
buyer when it enters into the indemnity covenant and Options A and B are therefore
wrong. Notice is not relevant to positive covenants and therefore Option D is also
wrong.
