Workshop 5 - finance

Question 1

When should finance raised and checked?

Answer 1

 should be raised with client when taking instructions, and just before exchange of contracts.

Question 2

If the client has already arranged a mortgage

Answer 2

 solicitor should ensure all necessary items of expenditure have been taken into account.
 if appears mortgage arrangements are patently unsatisfactory may be a duty on solicitor to suggest that the client reconsiders his choice of finance.

Question 3

specified activity - to regulated mortgage contract

Answer 3

FSMA 2000.

Question 4

Main sources of finance

Answer 4

	(a) banks;
	(b) building societies;
	(c) the client’s employer;
	(d) a private mortgage (eg, a loan from a relative or from a trust fund); and
	(e) finance houses.

Question 5

Building societies and banks

Answer 5

 Both will offer long-term loans at commercially competitive interest rates.
 Banks are slightly more flexible in the application of their lending criteria and more willing to consider unusual property and higher-value loans.

Question 6

The client’s employer

Answer 6

 Can borrow a substantially higher sum at a lower rate of interest.
 employee may be deemed by HMRC to be in receipt of a benefit in kind which is taxable.
 Disadvantage – will be difficult to leave employment

Question 7

Private mortgage

Answer 7

 A loan from a relative or from a private trust fund.

 Both parties need separate legal advice.

Question 8

Finance houses

Answer 8

 The terms offered by a finance house may be less generous than those offered by the banks and building societies (ie, a shorter period of loan and higher rate of interest).
 Client may approach finance house for second loan (eg, for improvements to the property).
 Second mortgages from finance houses may be affected by the notice provisions contained in s 58 of the Consumer Credit Act 1974.

Question 9

Types of mortgage

Answer 9

a) Repayment mortgage
b) Interest only mortgage
c) Interest rate
d) Payment protection
e) Islamic mortgage

Question 10

When should the deposit be paid?

Answer 10

 Neither party needs to pay a preliminary deposit since neither is committed to the sale and purchase until contracts have been exchanged.

Question 11

Should the seller’s solicitor accept reduced deposit?

Answer 11

 Neither party needs to pay a preliminary deposit since neither is committed to the sale and purchase until contracts have been exchanged.

Question 12

Calculating the deposit

Answer 12

 SC 2.2.1 it is calculated as 10% of the total of the purchase price and does not include the price payable for any contents included in the sale.
 SCPC 2.2.1 the deposit is 10% of the ‘purchase price’ and whether the ‘purchase price’ includes any chattels will depend upon the special conditions

Question 13

Funding the deposit

Answer 13

a) Investment account
b) Bridging finance
c) Deposit guarantees
d) Use of deposit from related sale

Question 14

Bridging finance

Answer 14

 Needed in a situation where the purchase is dependent on a related sale.
 ‘bridge the gap’ between when money needed (exchange) and when available (completion of the sale).
 Undertaking to repay bridging loan from proceeds of sale will be required from the solicitor.
 Costs and risks – high interest rate which payable over uncertain period if sale goes off, and the arrangement fees charged by the lender for negotiating the loan.
 If client has high cash flow passing through current account, more cost effective to take advantage of lower interest rates payable on an overdraft on current account.
 Secured bridging loan will be a regulated mortgage contract for purposes of the FSMA 2000.

Question 15

Deposit guarantees

Answer 15

 Insurance policy bought by buyer and tendered to seller in place of payment of money.
 seller’s consent must be obtained and contract amended.

Question 16

Use of deposit from related sale

Answer 16

 SC 2.2.5 permits this in certain circumstances.
 If deposit received on sale less deposit required, balance can be funded by one of the above.
 Alternatively, it may be possible to persuade the seller to accept a reduced deposit.
 Such a provision is obviously inapplicable in a commercial transaction and so the Standard Commercial Property Conditions do not include a similar provision.

Question 17

Clearing funds

Answer 17

 Buyer’s solicitor must ensure deposit received in sufficient time to allow client’s cheque to be cleared through the solicitor’s client account before drawing the cheque in favour of the seller.

Question 18

Capacity in which deposit is held

Answer 18

 (a) agent for the seller;
 (b) agent for the buyer;
 (c) stakeholder.

Question 19

Capacity implied by law

Answer 19

 Solicitors and estate agents hold in capacity of agent for the seller, but an auctioneer holds as stakeholder (see Edgell v Day (1865) LR 1 CP 80; Ryan v Pilkington [1959] 1 All ER 689).
 SC 2.2/SCPC 2.2 generally provide for the deposit to be held as stakeholder.
 SC 2.2.5 allows the seller to use the deposit to fund his own deposit on a related purchase without the need for the express permission of the buyer, provided that in such related purchase it will be held on the same terms as SC 2.2.5 and SCPC 2.2.6.