UNIT 2 - Due Diligence 2 Flashcards
A solicitor is acting for the seller on the sale of freehold property with an unregistered title. The solicitor is preparing for deduction of title to the property to the buyer’s solicitor and has examined the deeds and documents relating to the property.
Which of the following documents is the best candidate for a good root of title?
A) A Conveyance of the property dated 10 August 1982.
B) A Mortgage of the property dated 10 August 1982.
C) A Deed of Gift dated 25 December 1990.
D) A Grant of Probate dated 30 July 2019.
E) An Assent of the property dated 8 August 2019.
CORRECT ANSWER A - Under s 44 of the Law of Property Act 1925, a root of title must be at least 15 years old so the Grant of Probate and the Assent (options D and E) are too recent to be good roots of title.
Option C is not the best answer. The Deed of Gift is old enough and will probably fulfil the other criteria set out in s 44, but as it was not a transaction between third parties for valuable consideration, it will not offer the double guarantee like the Conveyance and the Mortgage (ie that title has been investigated for at least 30 years).
Both the Conveyance and the Mortgage are capable of being good roots of title and offer the double guarantee, but the Conveyance is preferable to the Mortgage as it is likely to contain a more detailed description of the property by reference to a plan and details of the incumbrances that burden the property and deal expressly with the legal and equitable interest in the property. Therefore, option B is not the best answer.
A husband and wife are the registered proprietors of a freehold property. The husband died six months ago and the wife is selling the property. The Proprietorship register contains a restriction stating that no disposition by a sole proprietor of the land (not being a trust corporation) under which capital money arises is to be registered except under an order of the registrar or of the Court.
What is the best advice to the buyer as to whether the wife can sell the property on her own?
A) The wife is the sole legal owner of the property and can sell it on her own as she and her late husband held the legal title as joint tenants.
B) The wife is the sole legal and equitable owner of the property and can sell it on her own as she and her late husband held the legal and equitable title as joint tenants.
C) The wife needs to appoint another person to act as a legal owner alongside her in the sale of the property.
D) The wife cannot sell the property until probate has been granted and she can show that her late husband’s equitable interest in the property has been transferred to her by an assent from her late husband’s personal representatives.
E) It is safe to buy the property from the wife on her own as long as the buyer is provided with a certified copy of her late husband’s death certificate.
CORRECT ANSWER C - The husband and wife held the legal title to the property as joint tenants because that is the only way the legal title can be held by co-owners. However, the restriction in the Proprietorship Register indicates that they held the equitable title as tenants in common. Consequently, the wife cannot sell the property alone. In the light of this, options A, B and E are not good advice, although it is the case that the husband’s death certificate will need to be produced.
Where the equitable title to a property is held by co-owners as tenants in common and one of those co-owners dies, another legal owner (also referred to as a trustee) needs to be appointed to overreach the equitable interest of the deceased co-owner before completion.
In relation to option D, although it is possible that the husband’s equitable interest has passed to the wife by will or under the intestacy rules, the buyer would not need to wait for confirmation of this as long as the second trustee is appointed, thereby satisfying the wording
A solicitor acts for a buyer of a registered freehold property. The official copies have revealed that there is a covenant in the charges register not to use the property for any commercial purpose. The covenant was created in 2015 for the benefit of land then and now owned by the district council. The buyer wants to use the property as a cake shop.
What is the best advice to the buyer as to how to proceed with the purchase?
A) The buyer should withdraw from the purchase immediately to save wasted conveyancing fees.
B) The buyer should proceed with the purchase as it is unlikely that the district council will take any action if the covenant is breached.
C) The buyer should not exchange contracts until there has been a successful application to have the covenant modified or discharged by the Upper Tribunal (Lands Chamber).
D) The buyer should obtain a restrictive covenant insurance policy for the breach of covenant.
E) The buyer should ask the seller to approach the district council to see if they will release the covenant or consent to the proposed use.
CORRECT ANSWER E - This is a difficult question as it is a matter of professional judgment.
Option A is not the best advice as the problem is relatively common and may have a solution. Unless the buyer feels very strongly on the matter, it is probably too early to withdraw from the transaction altogether.
Option B is a very high-risk strategy: the covenant is relatively new and imposed by a statutory body, presumably for a good reason. It is unlikely that a breach of this covenant will go unnoticed.
Option C is also high risk in that the application will take some time and may not be successful as a covenant imposed so recently may be addressing a current and valid concern.
That leaves option D and E, which are mutually exclusive. Given that the covenant is very recent and imposed by a statutory authority, the chances of enforcement must be high so a restrictive covenant insurance policy may not be available at a reasonable cost. Therefore, in these particular circumstances, option E is the best advice.
A solicitor is acting for a client who intends to purchase a property. Contracts have not yet been exchanged. The boundary of the property adjoins a river. The client wants to know who is responsible to maintain the riverbank and who has maintained it in the past. The seller has owned the property for over 20 years.
Which of the following statements best describes the searches and enquiries the solicitor should carry out to address this specific issue?
A) The solicitor should carry out a water and drainage search and raise specific pre-contract enquiries of the seller.
B) The solicitor should carry out a desktop environmental search and a flood search.
C) The solicitor should carry out a local land charges search (LLC1) and raise enquiries with the Canal & River Trust.
D) The solicitor should raise enquiries with the Canal & River Trust and raise specific pre- contract enquiries of the seller.
E) The solicitor should raise enquiries with the Canal & River Trust and carry out a flood search.
CORRECT ANSWER D - The client is concerned about the maintenance of the riverbank. The solicitor must therefore raise enquiries with the Canal & River Trust who can provide specific information regarding liability for maintenance of the riverbank. In addition, the solicitor should also raise specific pre-contract enquiries of the seller to find out further information regarding the maintenance regime in place and the level of financial contribution incurred.
The other searches will not address the client’s specific concern. The environmental search will only cover contamination risk and the flood search will only cover flood risk; accordingly options B and E are wrong. The water and drainage search will cover whether the property is connected to the public water supply and the use of a public sewer. Option C is wrong as the local land charges search (LLC1) only discloses financial charges or restrictions on land that have been imposed by public authorities under statute, none of which apply to matters concerning the maintenance of riverbanks.
A solicitor is acting for the buyer in a conveyancing transaction. The seller’s solicitor has provided official copies relating to the property. The buyer has instructed a surveyor to carry out a full structural survey. The solicitor is considering which additional pre-contract searches and enquiries should be raised in addition to the usual standard searches. The property register contains the following entry:
(2 July 1990) The conveyance of the land in this title dated 23 October 1919 referred to above contains the following provision ‘EXCEPT AND RESERVING unto the Vendor his heirs and assigns all mines and minerals within and under the property hereby conveyed with all necessary and proper powers rights and easements for working and carrying away the same.’
Which of the following statements best describes the action required as a result of this entry?
A) The solicitor should advise the client to instruct the surveyor to check for signs of subsidence at the property.
B) The solicitor should advise the client to instruct the surveyor to check for signs of subsidence at the property and carry out an Index Map search on form SIM.
C) The solicitor should conduct a search with the Coal Authority on form CON29M, carry out an Index Map search on form SIM and advise the client to instruct the surveyor to check for signs of subsidence at the property.
D) The solicitor should conduct a search with the Coal Authority on form CON29M and advise the client to instruct the surveyor to check for signs of subsidence at the property.
E) The solicitor does not need to carry out an Index Map search on form SIM as the property is registered land.
CORRECT ANSWER C - his is an example of how investigation of title and searches and enquiries overlap. The entry shows that the property is subject to a mining exception and reservation. The solicitor should conduct a search with the Coal Authority on Form CON29M as the result of the search will reveal whether the property is in an area where mining has taken place in the past or is likely to take place in the future, the existence of underground workings which may cause problems with subsidence and whether compensation for subsidence damage has been paid in the past or any claim is pending. The solicitor should also conduct an Index Map search to check that the mines and minerals are not registered under a separate title (see 2.5.2). In addition, the solicitor should advise the client to ask their surveyor to check for signs of subsidence at the property. So option E is wrong and options
A, B and D are correct insofar as they go, but not the best answer as each one of them is incomplete.
A solicitor acts for a buyer of a residential property fronting onto a road. The local search has revealed that the road is not a highway maintainable at public expense and there are no current plans for adoption by the local authority. Contracts have not yet been exchanged.
Does the buyer need to be concerned about this?
A) Yes, the buyer should be advised not to purchase the property under any circumstances.
B) Yes, further enquiries will be needed before the purchase can proceed.
C) No, the buyer should proceed with the purchase of the property if the road is in good condition.
D) No, the buyer should proceed with the purchase of the property if there is an express right of way over the road in the title documents.
E) No, because the local authority will not be reclaiming the cost of adopting the road from the frontagers.
CORRECT ANSWER B - The buyer does need to be concerned as there is no automatic right
to use the road and the local authority is not paying for its maintenance. The solicitor will need to check the title deeds and raise pre-contract enquiries of the seller to establish whether the buyer will have a legal right to use the road and what arrangements are in place for maintenance. However, there are many properties that front on to roads that are not highways maintainable at public expense, including properties on new developments and high value houses on private developments, so option B is better advice than option A.
Options C, D and E are not the best advice as they imply that the buyer need not be concerned and each only address one aspect of the issue (right of way, maintenance and the possibility of adoption). Option E is also misconceived; just because the local authority has no current plans to adopt the road does not mean that they will not do so in the future. If they do so, they can require the frontagers to contribute to the costs of bringing the road up to adoption standard.
You are acting for a sole trader business which has been successful selling kit for professional DJs and musicians from a Facebook marketplace page. The client is ready to move the business from his garage, to a small unit on an industrial estate. This unit is next door to the place of work of the client’s father, who found the unit for the client. The client is funding the purchase without the aid of a mortgage and is keen to save money on fees. He questions whether it is necessary to obtain the usual searches or undertake a survey, as there is nothing “wrong” with his father’s next door unit and the seller has said the unit he is purchasing is “alright”.
What statement best describes the advice the client should be given?
A) If there are a package of searches and a survey for the next door unit, these will provide adequate information about the unit the client is acquiring.
B) As long as the right pre contract enquiries are raised with the seller, there is no need to raise searches or undertake a survey, given the client’s knowledge of the property.
C) The searches and survey should be undertaken because the seller’s duty to reveal a detrimental matter is very limited.
D) The seller’s solicitors will usually do all the searches and survey and send them to you, so there should not be extra costs for the client in this respect.
E) The seller is obliged to disclose any issues with the property and so even if searches and a survey are not undertaken, the buyer will have a remedy against the seller if any issues arise after completion.
CORRECT ANSWER C - It is up to the buyer to find out as much as possible about a property (i.e. do due diligence).
Option E is wrong as the seller’s duties to disclose information are limited.
Option A is not the best answer: the survey and searches for the next-door unit won’t be sufficient. The physical condition of the units may be completely different as may, for example, the position on planning permission.
Option B is not the best answer: there can be overlap between the information revealed by pre-contract enquiries and the information revealed by the usual searches. However, often the seller (particularly in a commercial transaction) will give replies to certain enquiries that require the buyer to rely on their own survey and searches. Further, the seller may be unaware of matters that may be revealed by a survey or the usual searches. Option D is not the best answer as it is usually the buyer’s solicitor who undertakes the searches and the buyer who instructs a surveyor.
An individual is purchasing a buy to let house from a company. The buyer is purchasing with the help of a mortgage.
Which ONE of the following statements best describes the searches that will be needed to check solvency?
A) A company search at Companies House against both seller and buyer.
B) A company search at Companies House against the seller.
C) A bankruptcy search at the Land Charges Department against the buyer.
D) A bankruptcy search at the Land Charges Department against the buyer and a company search at Companies House against the seller.
E) A bankruptcy search at the Land Charges Department against both buyer and seller.
CORRECT ANSWER D - The seller is a company and therefore a company search will be needed to check for solvency issues. This is usually carried out before exchange and then repeated before completion. The buyer is an individual. As there is a lender involved in the transaction a bankruptcy search against the buyer will be required. This is carried out the Land Charges Department. It is often carried out before exchange and then repeated before completion.
Option A is wrong, as the buyer is not a company.
Option B is not the best answer as the lender will want to check the solvency of the buyer/borrower.
Option C is also not the best answer as it only refers to one of the required searches.
Option E is not the best answer as the seller is a company and therefore a company search should be undertaken to check its solvency.
A client is acquiring a property to use as a shop. The property is in a former coal-mining town but has a lovely canal-side location. The property is currently unoccupied, but the client believes the seller but may have used the property for industrial purposes at some point. The official copies to the property reveal that mines and minerals are excluded from the title. The solicitor has raised standard local searches, a water and drainage search, pre-contract enquiries of the seller and a flood search.
Which ONE of the following statements best describes some of the additional searches that should be carried out?
A) None, the searches already done will cover everything.
B) An environmental survey by a specialist environmental surveyor, a Canal and River Trust search and a mining search.
C) An environmental desktop search, a Canal and River Trust search and a mining search.
D) An environmental survey by a specialist environmental surveyor, a Canal and River Trust search, a mining search and an index map search.
E) An environmental desktop search, a Canal and River Trust search, a mining search and an index map search.
CORRECT ANSWER E. - it describes the additional searches indicated by the facts. The property may previously have had an industrial use and this raises the possibility of contamination. However, the former industrial use is not certain and, as environmental surveys are expensive, it would be sensible to do the desktop search first. The desk top search should reveal if the site has a former industrial use and assess the risk of it being contaminated. If that risk is high, a full environmental survey should then be carried out.
Options B and D are not the best options at this stage. The property is adjacent to a canal so there may be liability for banks and towpaths and an enquiry of the Canal and River Trust should be raised. Mines and minerals are excluded from the title, which means they belong to a third party. A search of the index map will reveal if title to the mines and minerals is registered.
Option C does not mention this search and is therefore not the best answer. The facts reveal the property is in a former mining town and so a mining search should be undertaken to reveal past, present or intended mining activity near to the property.
Option A is not the best answer given that there are several additional searches that should be made on the facts.
A client is buying an industrial unit near to a river. The solicitor has carried out a water and drainage search.
Which statement best describes the purpose of this search?
A) To discover if the property is at risk of flooding from overflowing drainage systems.
B) To discover if sewers serving the property are maintained at the cost of the water and sewage company.
C) To discover if the there is any liability for the riverbanks.
D) To discover if the industrial unit might have contaminated the river.
E) To discover the costs of maintaining any private sewage system that may serve the property.
CORRECT ANSWER B - The water and drainage search will reveal if the property is connected to the mains sewer. If not, enquiries will need to be made with the seller as to how waste from the property is dealt with and what costs are involved.
Option E is not the best answer as questions as to cost associated with any private sewage system would need to be raised with the seller.
Option A is not the best answer as the flood risk will need to be assessed by a separate flood search.
Option C is wrong as an enquiry of the Canal and River Trust is needed to find out if there is a liability to maintain riverbanks.
Option D is wrong as an environmental search or survey will be needed to assess the risk or existence of contamination.
A client is buying a field on which she intends to build a house and a large stable that she will keep her horses in. The field is in the countryside and surrounded by undeveloped land, but there is a village about a mile away with a local pub and village green. When submitting the local search, the solicitor is planning to raise the optional enquiry of the local authority that covers common land and village green status.
Which ONE of the following statements best describes the purpose of this enquiry?
A) To find out if there are common rights over the field
B) To find out if the client can graze her horses on the village green
C) To see if there are any public rights of way over the field
D) To find out if the village green is at risk of being developed.
E) To find out if the field is in a conservation area.
CORRECT ANSWER A - this enquiry should be raised if a client is acquiring land or property on a green-field site or adjoining an open space. It will reveal whether the land being acquired is affected by common rights (such as rights of grazing or pasture).
Option B is wrong: the enquiry relates to the land being acquired and land abutting it, so it will not reveal the status of the village green as this is a mile away.
Option C is not the best answer: there is an optional enquiry that deals with public rights of way but it is a separate and distinct enquiry to the one dealing with common land.
Option D is not the best answer: the search is against the land the client is acquiring not the village green.
Option E is wrong: the conservation area designation is revealed by the local land charges search.
A solicitor is investigating title to a property that is not yet registered at Land Registry. The epitome contains several documents, listed in the Options below, that all contain a recognisable description of the property, do not cast doubt on the seller’s title and deal with the whole interest in the property.
Which of the documents would be the best root of title document?
A) A mortgage dated 1.7.2000
B) A conveyance dated 26.03.2003
C) A deed of gift dated 18.6.2001
D) A conveyance dated 3.04.2015
E) An assent dated 1.01.2004
CORRECT ANSWER B - A good root of title must satisfy the requirements of section 44 of the Law of Property Act 1925. These include that the root must be at least 15 years old.
Option D is wrong as this document is not 15 years old.
Options C and D are not the best answers. A deed of gift and assent can be used but are not as good roots as a conveyance of sale, as investigation of title is unlikely to have taken place at the date of the gift or assent.
Option A is not the best answer. A mortgage can be a good root of title, but as there is a more recent conveyance that it at least 15 years old, it is not the best root of title.
A client is buying unregistered land. On the epitome of title, the only document listed is a conveyance dated 26.03.2000. It was made between Chloe Harris (referred to in the conveyance as the seller) and Joanne Smith (referred to in the conveyance as the buyer).
Which ONE of the following statements best describes the land charges search or searches that should be carried out by the buyer’s solicitor?
A) A search against Chloe Harris and Joanne Smith for the years from 2000 to the current year
B) A search against Chloe Harris for the years 1926 to 2000 and Joanne Smith for the years from 2000 to the current year
C) A search against Chloe Harris and Joanne Smith for the years 1926 to 2000
D) A search against Joanne Smith for the years from 2000 to the current year
E) A search against Joanne Smith for the years from 1926 to the current year
CORRECT ANSWER B - Land charges searches are required against the names of all owners revealed in the epitome of title. In this question, there are 2 owners. Chloe Harris sold the property in 2000, but we do not know when Chloe acquired it. So, the search should cover the period 1926 (when the land charges system was introduced) until she sold it (2000). That way, there is no risk of missing anything. Joanne Smith bought the property in 2000 and (given there are no further documents in the Epitome showing a further disposal) still owns it. So, a search must be undertaken against her name for the period of her ownership.
Option A is not the best answer as it does not show the correct search period for Chloe: Chloe sold the property in 2000.
Option C is not the best answer as it does not show the correct search period for Joanne: Joanne did not own the property until 2000.
Option D is not the best answer as it does specify the correct search against Joanne but omits the search against Chloe.
Option E is not the best answer as it omits the search against Chloe and the search period for Joanne is unnecessarily long as we know Joanne did not own the property until 2000.
You are acting for an investment buyer of the freehold of a small shopping precinct which includes shops below and flats above. The precinct was built in the 1970s. The flats are all let on long leases. The schedule to the result of the local land charges search (LLC1) reveals the existence of a planning permission “72/3496: shopping precinct with nine residential dwellings conditions attached”. No information is provided on the conditions. The buyer is in a hurry and everything else is in place for exchange.
Which ONE of the following statements best describes the advice that should be given to the client?
A) That you should ask the seller to find a copy of the relevant permission. Conditions to planning permissions are important and they can affect how a property may be used thereby affecting its value.
B) That in view of the urgency, the buyer should go ahead. Conditions are important but it looks as if the conditions mentioned are attached to the dwellings and not the development as a whole.
C) That in view of the urgency, the buyer should go ahead. The conditions will have been complied with at the time the development was constructed.
D) That in view of the urgency, the buyer should go ahead. The ten year enforcement period for breach of a condition has passed.
E) That you should ask the seller to find a copy of the relevant permission. However, conditions to planning permission are not important and do not affect value.
CORRECT ANSWER A - you should advise the buyer not to go ahead until they understand what the conditions are. Conditions are likely to attach to the commercial element of the precinct, for example, in relation to times of opening and the type of business permitted to operate there, to protect the amenity of the dwelling houses.
Option B is not the best answer: a solicitor cannot assume the conditions only affect the residential part of the development.
Option C is not the best answer: whilst some of the conditions might have related to matters around construction, others may relate to the ongoing use of the development.
Option D is wrong: the time limit for enforcement of breach of condition is ten years from the date of breach of the condition (not ten years from the date of the planning permission).
Option E is not the best answer: the conditions could affect the investment value of the property if, for example, they restrict opening hours.
A client owns a residential property. They wish to remove an internal structural wall to create an open plan living space. The building is not listed or in a conservation area.
Which ONE of the following statements best describes the position regarding the removal of the wall?
A) Planning permission is required because structural alterations constitute development.
B) Planning permission is required because building works constitute development.
C) Planning permission is not required because internal works do not constitute development.
D) Planning permission is not required because the removal of the wall is permitted development.
E) Planning permission is not required because building works only constitute development if they are associated with a material change of use.
CORRECT ANSWER C - Planning permission is required for development and development includes building works, but it excludes works that affect only the interior of a building.
Option A is therefore wrong. In any case planning law does not distinguish between structural and non-structural alterations.
Option B is not the best answer: although building works do constitute development, internal works are excluded from the definition of development.
Option D is not the best answer: internal works do not constitute development and therefore there is no need to consider whether they are permitted under the General Permitted Development Order.
Option E is not the best answer as building works can constitute development if they affect the external appearance of the building. This is the case regardless of whether there is a change of use occurring at the same time.
