Unit 4

Question 1

What are the pre-completion steps a solicitor must take?

Answer 1

1. Immediately after exchange the parties’ solicitors must inform their clients that exchange has taken place
2. Comply with any undertakings given in the court of any telephone exchange - usually involves sending their client’s signed and dated part of the contract with the completion date inserted to the other side.
3. Prepare the transfer deed
4. Complete pre-completion searches
5. Making practical arrangements for completion
6. Ensuring the finances are in order for completion

Question 2

What is the form of the transfer deed and formalities for execution?

Answer 2

Transfer of a legal estate in land must be by deed. To be valid a deed must:
* be in writting
* state of the face of it that it is a deed
* be signed by the parties
* be witnessed
* be delivered

Question 3

What are the three ways in which a company can execute a deed?

Answer 3

1. using the company seal in accordance with the articles of association:
   Executed as a deed by affixing the common seal of [name of company] in presence of:
2. having it signed by a director and the secretary OR by two directors of the company, provided that the deed is expressed to be executed by the company
   Executed as a deed by [name of company] acting by [a director and its secretary] [two directors]
3. having it signed by a single director in the presence of a witness who then attests that signature:
   Executed as a deed by [name of company] acting by a director in the presence of: signature of witness
   Name
   Address

Question 4

Who will execute the transfer deed?

Answer 4

The seller is always execute the transfer deed to transfer the land. If there is more than one transferor, all must execute.

The buyer will also execute the deed if the buyer is entering into an obligation or making a declaration in the TR1, such as giving an INDEMNITY COVENANT or declaring a BENEFICIAL INTEREST under a trust. (where there are two buyers, there will always be a trust and they will always need to execute the transfer)

Question 5

When is a deed considered delivered?

Answer 5

A deed is presumed to have been delivered on execution, but this presumption can be rebuted by a contrary intention.

For example, a client may sign the transfer but doesn’t intend for it to come into force yet, so the solicitor needs to expressly state so when sending the deed. This information will usually be contained in a covering letter.

Question 6

Which side usually completes the transfer deed?

Answer 6

The buyer’s solicitor

Question 6

What forms are used to transfer the whole/part of a registered freehold title?

What happens in the case of unregistered land?

Answer 6

Whole of registered freehold title: TR1
Part of registered freehold title: TP1

Transfer of unregistered land will be subject to compulsory first registration (2 months after transfer). Solicitors will choose to use a Land Registry transfer form, though conveyance is also possible to use.

Question 7

When is the transfer deed sent to the seller’s solicitor?

Answer 7

Immediately after exchange

Question 8

What must a transfer deed reflect?

Answer 8

Terms of the contract and the title deeds

Question 9

What’s important to remember about the Date on the TR1 form?

Answer 9

Remember to date the deed with the day of completion, but not before it has been signed and witnessed.

THE TRANSFER WILL ONLY BE DATED UPON COMPLETION

Question 10

What address should be included in the transfer deed for a residential transaction?

Answer 10

If the parties intend to live at the property, then it is the property’s address that should be listed as the transferee’s correspondence address.

Question 11

How should the price (consideration) be written on the transfer deed?

Answer 11

as a number and in words

Question 12

Who carries our pre-completion searches and why?

Answer 12

Generally, pre-completion is carried out by the buyer’s solicitor and should be made as close to the completion date as possible.

Pre-completion searches are carried out for 4 reasons:
1. To make sure that the seller has not further encumbered the title since investigation of title took place
2. To check the financial circumstances of the borrower when acting for the lender
3. To gain priority for the buyer, and the lender, over anyone else making an application before the buyer applies to register the change of ownership at the Land Registry.
4. If the seller is a company, to check that the company has not gone into liquidation before the balance of the purchase price if paid over on completion.

Pre-completion searches are a way to update the title position to ensure that the title is the same as it was when title investigation last took place.

Question 13

Pre-completion searches for registered land

Answer 13

Land Registry search should be made against the title number to see if any new entries have been made since the ‘search from’ date (date on which the official copies were produced)

Form OS1 is used if the whole property is being sold
Form OS2 is used if part of the property is being sold

A plan will ordinarily need to accompay a request for an OS2 (unless a layout plan has been approved by the Land Registry, which is often the case in new housing developments).

Application will include - title number, address of the property, name of the registered properietors, name of the applicant and the reason for the search.

Question 14

Pre-completion searches for unregistered land

Answer 14

Conduct a Land Charges search using a form K15. Results will be on form K18 and will confer a priority period of 15 WORKING DAYS from the date of the result. During the 15 working days, the searcher will take free of any entries made on the register between the date of the search and the date of completion (completion must take place during the 15 working days).

A land charges search will normally have been done as a pre-exchange search, but will need to be repeated against the current seller’s name unless the transaction can be completed within the 15 working day priority period conferred by the pre-exchange search.

Note - it is not necessary to search again against the names of the previous estate owners as no entries can have been registered against them adter they parted with the property.

Question 15

How are OS1/OS2 search results set out?

Answer 15

Results from the search will be set out in Form OS1R or OS2R.

The search results will reveal any new entry made since the ‘search from’ date and confer on the applicant a PRIORITY PERIOD of 30 WORKING days from the date of the search result.

Question 16

What is the priority period?

Answer 16

A priority period gives a fixed time within which the applicant has first right to register a transaction, without worrying about any other transaction which may have taken place since the date of the OS1 search.

Search results confer a priority period on the buyer. The priority period of 30 working days provides protection to the applicant against any subsequent entries which may be placed on the register after the date of the search but before the buyer is registered as proprietor.

Buyer will take free from any such entries, provided that they submit their application for registration by 12 noon on the last day of the priority period.

Question 17

How to apply for a Land Registry search (registered land) if the buyer is financing the purchase of the property with a mortgage?

Answer 17

The application for a Land Registry search should be in the name of the lender, not the buyer.

The results will confer priority upon both the buyer and lender since the mortgage is deemed to to take place slightly after the purchase by the buyer.

Question 18

Checking for buyer’s solvency on behalf of the lender

Answer 18

When the buyer is an individual, their financial standing can be checked in various ways, but the method used when property is taken as security for a loan is to apply on behalf of the lender for a land charges search against the buyer

• Registered title: the solicitor will apply for a land charges search against the name of the buyer (in addition to carrying out the pre-completion Land Registry search against the property’s title number). It will be a special land charges search, known as Bankruptcy only search using a K16 form. Note - a K16 bankruptcy search does not afford a priority period in which to complete the transaction and the search should be undertaken as close as possible to the date of completion.
• Unregistered title: the solicitor will already be making a land charges search against the seller, so the name of the buyer will be added to the names to be searched against on form K15.

Note - if the buyer is a company, a land charges search will not be carried out, but rather a company search.

COMPANY SEARCH IS USUALLY ONLY DONE AGAINST A BUYER WHERE THE BUYER IS A COMPANY BUYING WITH THE AID OF A MORTGAGE WHERE IT IS MADE TO PROTECT THE LENDER.

Question 19

Company search against a company seller

Answer 19

The buyer’s solicitor would carry out a company search to see whether the seller is still in existence, where it is solvent and whether it has created any fixed/floating charges.
* A COMPANY SEARCH SHOULD BE CARRIED OUT AGAINST THE SELLER BEFORE THE COMPLETION MONIES ARE HANDED OVER. THIS IS TO CHECK THE SELLER IS NOT INSOLVENT.

Note - a company search has not priority period. It should be carried out as close as possible to the date of completion so it reveals the latest information.

Where the transaction is high value and there is reason to be concerned about the solvency of a corporate seller/borrower, it is possible to do a telephone search at the Registry of Winding Up Petitions at the Companies Court on the day of completion.

Question 20

Bankruptcy search against an individual

Answer 20

**Unregistered land: K15 search against the seller as estate owner will reveal any entries relating to bankruptcy. **
BANKRUPTCY SEARCH AGAINST THE SELLER IS USUALLY ONLY CONSIDERED NECESSARY WHERE THE TITLE BEING PURCHASED IS UNREGISTERED LAND.

Registered land: more conveyancers do not consider it necessary to do a bankruptcy check on an individual seller as s 86(5) LRA provides that where no notice or restriction relating to the bankruptcy appear on the registered title, a buyer for value acting in good faith without notice of the bankruptcy petition or adjudication will take good title from the bankrupt seller, even though legal title to the land has vested in the trustee in bankruptcy.

Searches in the Land Registry ‘Bankruptcy only’ (registered land) and land charges searches against the seller K15 (unregistered land) can be done if the sale is particularly high value or there is reason to be concerned about the solvency of the individual seller.

Question 21

What are the practical arrangements for completion?

Answer 21

Buyer and seller need to agree practicalities for completion and this is done using a COMPLETION INFORMATION FORM. Buyer’s solicitor will send it to the seller’s solicitor for them to complete.

Residential properties form TA13.

Seller needs to confirm the following information relevant to completion:
* arrangements for handing over the keys
* the place and method of completion
* the documents to be handed over at completion
* the exact amount payable by the buyer on completion

Form contains undertaking the seller’s solicitor gives to redeem the mortgage out of the completion money on completion. Seller is unlikely to be able to discharge an existing mortgage over the property before receiving the completion money out of which the mortgage will be prepaid. Seller’s solicitor undertakes to discharge any outstanding mortgage and to send evidence of discharge should be agreed between the solicitors before the day of completion.

Question 22

Process of ensuring finances are in order for completion

Answer 22

Before releasing the mortgage advance a lender will expect to receive:
* certificate of title to confirm the property is adequate security for the loan
* solvency search against the borrowers
* a clear OS1R in the name of the lender
* an executed but not completed mortgage deed

Buyer’s solicitor will need to send the client a Financial Statement, advising the client of the funds needed to complete.
Statement will include:
* amount to be forwarded by the buyer to its solicitor, which will include
* balance of the purchase price
* any SDLT/LTT due
* registration fee
* amount outstanding of any disbursements
* solicitor’s fees
* any other amount owning (eg. restrictive covenant insurance policy premium)

• Buyer’s solicitor will need to ensure that they receive BOTH the mortgage advance from the lender and the balance of the purchase price from the buyer.
• The balance of the purchase price should be sent to the seller’s solicitor to the bank account specified in the replies to the Completion information form.
• Once the money has been received, the seller’s solicitor will contact the solicitor acting for the buyer and completion will take place.

Question 23

What happens after the buyer’s solicitor sends the seller’s solicitor the balance of the purchase price?

Answer 23

At completion, the buyer’s solicitor will send the balance of the purchase price and release the deposit paid on exchange to the seller.

SC 6.7 and SCPC 9.7: require the completion money to be paid by direct transfer/electronic means in cleared funds from an account held in the name of a conveyancer at a clearing bank.

On receipt of the completion money, the seller’s solicitor will complete the transaction by dating the TR1.

Then the lender’s solicitor will need to date the mortgage deed. This cannot be done before the TR1 is dated.

Question 24

Methods of completion

Completion in person

Answer 24

Buyer’s solicitor will attend the seller’s solicitor’s office. Buyer’s solicitor will usually arrange for the completion money to be send electronically.

At the completion meeting the buyer’s solicitor will check any title documents against the evidence of title previously sent to them (only relevant to unregistered land).

Seller’s solicitor will hand over title documents, other documents relating to the property, such as planning permission, and guarantees or insurance policies.

Seller’s solicitor will arrange for the release of the keys to the property.

Question 25

Methods of completion

Completion by post

Answer 25

Law Society introduced a Code of Completion by Post - relies on undertakings given by the solicitors involved in order to be effective. (undertaking can be enforced through courts)

Seller’s solicitor will act as the agent of the buyer’s solicitor for the purpose of carrying out the completion procedure.

This is done at no cost to the buyer, on the basis that the seller will be a buyer at some point and will likewise benefit from using the Code.

Buyer’s solicitor must set out in writing what the seller’s solicitor needs to do on their behalf (precision is key). Buyer’s S will be asking the seller’s S to do exactly what they would have done if they were attending the completion in person.

On receiving the money, the seller’s S will carry out the instructions and complete. SS must then inform the buyer’s solicitor.

Documents that would have been handed over to the buyer’s solicitor are sent by first-class post or document exchange.

Question 26

Effect of completion

Answer 26

Unregistered land: legal title passes to the buyer on completion
Registered land: legal title does NOT pass to the buyer until the buyer is registered at the Land Registry as proprietor of the land.

Question 27

Post completion steps

Discharge of the seller’s mortgage

Answer 27

Discharge of the seller’s mortgage needs to be arranged/agreed using the completion information form.

Buy will often agree to allow the seller’s solicitor to discharge the mortgage after completion using th emoney received at completion. Seller’s solicitor can also ask the buyer’s solicitor to send the amount required to redeem the mortgage direct to the lender on the day of completion, with only the balance being sent to the seller’s solicitor.

Lender has received the amount required to redeem the mortgage from the seller’s solicitor, they will either:
* complete DS1 form + send it to the seller’s solicitor for onwards transmission to the buyer’s solicitor; or
* submit an e-DS1 electronic discharge through the Land Registry portal; or
* use the Electronic Discharge (ED) system, sending an electronic message to the Land Registry which automatically removes the charge from the register.

If ED or e-DS1 is used, the seller’s solicitor will send the buyer’s solicitor confirmation that the notice of release or discharge in electronic form has been given to the Land Registry. Will do this instead of sending the DS1 form.

Question 28

Post completion steps

Registration of the new charge at Companies House

Answer 28

Company used mortgage to purchase property. Lender’s solicitor will have to register the charge at Companies House within 21 days of completion (which is when the charge is created) to ensure constructive notice of it is given to other creditors of the company.

Note - the 21 day time limit is absolute. It cannot be extended without a court order.

Failure to register the charge renders it void against a liquidator or administrator of the borrower and the borrower’s other creditors, so would prejudice the lender’s security.

Question 29

Post completion steps

Land Registry application(s)

Answer 29

Once SDLT/LTT is paid and if relevant the charge is registered at Companies House, the buyer’s solicitor will need to apply to have the buyer registered as the new proprietor. The lender’s solicitor will need to apply to register the charge.

Registered land:
AP1 form - used to apply to register the buyer as the proprietor and the lender as the registered proprietor of the charge.
* Electronically discharged mortgage - entries in the charges register protecting the mortgage will be automatically removed.
* DS1 - if the DS1 form was used the buyer’s solicitor must apply for the mortgage to be discharged. (use AP1 form)
* Certified copy of the transfer (NOT ORIGINAL) should be submitted with the application + fee + SDLT5/WRA certificate + DS1 (if used)

Active policy to reduce the number of overriding interests, an application for registration msut complete form DI setting out any overriding interests that burden the title. These will be entered onto the register and cease to be overriding.

If the buyer created a new mortgage, these docs will also be needed:
* certified copy of the mortgage deed
* if the buyer is a company, certified copy of the certificate of registration issued by Companies House
* if the buyer is a company, the solicitor’s/lender’s written confirmation that the enclosed certified copy mortgage deed is the same as the one filed at Companies House and to which the certificate of registration relates.

Applications must be made before the expiry of the PRIORITY PERIOD of the OS1 search. Failure to register within the priority period will mean that th ebuyer and lender will lose the benefit of the priority period and would take subject to matters registered during that period.

Unregistered land:
First registration application must be made within 2 months of completion - FR1 form.

Application form + fee + all docs evidencing title supplied by the seller’s solicitor + buyer’s pre-contract searches and enquiries + contract + requisitions on title with their replies + pre-completion search certificates + transfer deed + seller’s mortgage duly receipted + SDLT/LTT certificate + Form DI (to set out overriding interests) should be sent to the Land Registry
(if there is a new mortgage, include original mortgage deed)

Documents accompanying the application must be listed in duplicate on form DL

Registrar will investigate title at first application to decide which class of title can be allocated.

Conveyancer’s can submit certified copies, all non-conveyancers will need to submit original docs on form DL.

AP1 and FR1 forms relate to properties of more than 5k in value require applicant to give details of the conveyancer acting for each party, and where a party is not represented, provide evidence of the party’s identity.

Once Land Registry registeres the new proprietor and the lender, the LR will forward an official copy of the entries on the register, known as a Title Information Document (TID) to the buyer’s solicitor. TID is evidence that the buyer is the new owner.

Check TID and then the buyer’s solicitor will need to deal with the safe custody of the TID and any other papers. If the property was bought using a mortgage, the lender should be asked to retain the docs. Often the lender will only require the updated TID.

Once the matters listed above have been dealt with and the bill paid, it is possible to close the file.

Question 30

Steps the buyer’s solicitor needs to follow after the exchange of contracts and before completion.

Answer 30

• In anticipation of completion, the TR1, which will transfer the legal title from the seller to the buyer, will need to be executed.
• On completion, the buyer’s solicitor will send the balance of the purchase price (as the seller will already have been given the deposit on exchange).
• On receipt of the money, the seller’s solicitor will complete the transaction by dating the TR1.
• Once the TR1 has been dated, the buyer’s solicitor will need to date the mortgage deed. This cannot be done until after the TR1 has been dated, as technically, the buyer does not own the property until then and so would not be in a position to grant a mortgage over it.
• The seller’s solicitor will send the TR1 to the buyer’s solicitor who must then arrange for SDLT to be paid, if due. The application to register the buyer as the new registered proprietor cannot take place until this has been done.
• Once SDLT, if due, has been paid, the buyer’s solicitor will then need to apply to have the buyer registered as the new registered proprietor of the land in the title. This must be done before the expiry of the priority period of the OS1 search that should have been carried out prior to completion.
• The Land Registry will process the application for registration and insert the buyer as the new registered proprietor. Then the Land Registry will forward an official copy of the entries on the register, known as a Title Information Document (or TID), to the buyer’s solicitor. This is not a document of title but it is for the buyer to keep as evidence that it is the new owner and should be checked to ensure that the transfer has been correctly carried out.
• Once the TID has been checked, the buyer’s solicitor will need to deal with the safe custody of the TID and other papers. Where the property has been bought with the aid of a mortgage, as here, you should check with the lender about whether it wants you to send in these papers. Often a lender will only require the updated TID.
• Finally, when all the above matters have been dealt with and the bill paid, it is possible to close the file.

Question 31

Post-completion steps

SDLT/LTT

Answer 31

The seller’s solicitor will send the TR1 to the buyer’s solicitor, who must then arrange for any SDLT/LTT to be paid.

SDLT must be paid within 14 days of completion
LTT must be paid to the Welsh Revenue Authority (WRA) within 30 days of completion

Payment + tax return (SDLT1 and Land Transaction Return) will need to be sent to the relevant authority (online or paper application).

HMRC will provide an SDLT5 / WRA will return a WRA certificate as proof that tax has been duly paid.

Failure to pay SDLT/LTT will result in penalties and application to the Land Registry to register the buyer as the new proprietor will be rejected unless the SDLT5/WRA certificate accompanies the application.

Question 32

Remedies for dellayed completion

Contractual compensation

Answer 32

SC and SCPC provide for compensation to be paid.
SC 7.2 - both the buyer and seller can be asked to pay compensation
SCPC 10.3 - only the buyer can be required the pay compensation

Compensation calcuated at the CONTRACT RATE specified in the contract on balance of purchase price (minus the deposit) for the period between the contractual completion date and the date of actual completion.

Daily rate for compensation

If the non-paying party was also at fault for some of that period, those days are ignored.

Compensation is payable on completion.

Example:
Purchase price: 300k
Deposit: 30k

270k x 8.5% (contract rate)

22,950 / 365

62.88 x 3 days (NOTE - WEEKENDS ARE ALSO COUNTED) = £188.64

Question 33

Remedies for delayed completion

What do the SC and SCPC state about delayed completion?

Answer 33

Exchange contrcts usually provide a certain date for completion. If not, SC 6.1.1 and SCPC 9.1.1 provide that completion date is 20 WORKING DAYS after the date of the contract.

In both sets of conditions the money must be paid before 2pm on the day of completion. If it is not, completion will be treated as taking place on the next working day. Parties can agree to vary the completion time in the contract.

Both the SC and SCPC provide that time is not of the essence of the contract unless a notice to complete has been served.

No immediate right to terminate the contract.

Question 34

Remedies for delayed completion

Common law damages

Answer 34

Seller could claim for breach of contract

Damages will be assessed under Hadley v Baxendale - measure being that of putting the C in the position that it would have been has the contract been correctly performed.

SDamages will be awarded for losses naturally flowing from the breach as well as for any reasonably foreseeable consequential loss (eg. wasted legal costs, putting furniture into storage, cost of renting another property, cost of bridging finance, rebooking removal etc.)

Contractual compensation does not prevent the seller from claiming damages for extra losses for breach of contract in the normal way. However, contractual compensation the innocent party receives will be deduced from the contractual damages.

Question 35

Remedies for delayed completion

Notice to completion

Answer 35

Can only be served after the contractual completion time on the contractual completion date.

Can be served by the party who is ready, willing and able to complete themselves.

Once served, it makes time of the essence and gives the other party 10 WORKING DAYS to complete. If the defaulting party fails to complete within 10 working days, the party who served the notice can rescind the contract. Seller can forfeit the deposit, but if the seller is the defaulting party, then they must pay the deposit back to the buyer.

Question 36

Remedies for delayed completion

Rescission

Answer 36

Contracts incorporating SC and SCPC provide for rescission in specified circumstances eg. party failed to comply with notice to complete, misrepresentation by seller.

Rescission will only be allowed where the seller’s error or mission results from fraud or recklessness, or th ebuyer would be obliged to accept a property differing substantially (quality, quality or tenure) from what the error or omission had led them to expect. Less serious misrepresentation only entitle the buyer to damages.

Question 37

Example Question

The property market is buoyant. A client buys property to refurbish then let out or sell. The client owns the freehold of a small shop premises (the shop) which he has contracted to sell. The buyer paid a 5% deposit to be held as stakeholder. The contract incorporates the Standard Commercial Property Conditions (Third Edition) (SCPCs) according to which completion is due at 14:00 hrs today. Today, at 14:00 hrs, the buyer’s solicitor calls to say the buyer has insufficient funds to complete today and is unsure how long it will take to get them. The client needs part of the proceeds of sale quickly, to pay for refurbishing other premises in order to rent them out for profit as soon as they are refurbished. The client stands to lose money for every day that the completion is delayed and the losses are likely to exceed the amount of the deposit.

Answer 37

Which of the following options best described the advice to the client?

A - Serve a notice to complete immediately. If the buyer does not comply with the notice then forfeit the deposit, re-sell the shop and claim damages.

B - Claim compensation for delay under the SCPCs and immediately rescind the contract so that the deposit can be forfeited.

C - Apply to the court for an order for specific performance of the contract.

D - Use the deposit monies immediately and claim compensation for delay under the SCPCs.

E - Claim compensation for delay under the SCPCs and then sue the buyer for breach of contract to recover any additional losses.

Option A is correct - it enables the client to obtain more money (the deposit), sooner, in order to spend on the refurbishment. As the property market is buoyant there is not a great risk that the client will not be able to find another buyer.

The amount of compensation payable under the SCPC would probably be insufficient to pay for the refurbishment and the seller cannot rescind the contract and retain the deposit without serving a notice to complete.

Question 38

What form must be used to release part of the land that is subject to a registered charge?

Answer 38

DS3

The seller’s solicitor will prepare form DS3 for the mortgagee to release the plot from the registered charge.