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Property Practice > Contract and Exchange > Flashcards

Contract and Exchange Flashcards

1
Q

What are the similar aims that a buyer/lender would have in a residential transaction?

A
  • ensure property is worth what buyer paid
  • ensure suitable for its purpose
  • easy to sell if the buyer wants to move or lender needs to repossess and sell
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2
Q

Why is there a low risk of conflict when acting for buyer/lender in residential transactions?

A
  • high street lender = standard non-negotiable mortgage terms, conditions documents
  • solicitor’s discretion in acting is tightly controlled by standard instructions
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3
Q

What does the lender’s solicitor do in commercial transactions?

A
  • specify enquiries and searches needed
  • ask buyer’s solicitor to send copies of searches and replies to enquiries
  • review them and ask buyer’s solicitor to make additional enquiries as required
  • draft the legal charge and other security documents
  • either draft the certificate of title or ask the buyer’s solicitor to provide it
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4
Q

What is a mortgage offer?

A

formal offer by lender to lend, subject to being satisfied with transaction + security (the property) (set out terms and conditions of the loan)

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5
Q

What is a certificate of title?

A

document where solicitor certifies that the title is satisfactory for lending

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6
Q

What is a facility letter?

A

commercial equivalent of a mortgage offer (terms and conditions of the loan)

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7
Q

What is a legal charge/mortgage deed?

A

creates the security interest and registered at LR
o the security is a charge by way of legal mortgage - gives lender right to repossess.

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8
Q

What is the format of a certificate of title for residential transactions?

A

usually a one page form which is completed and signed

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9
Q

What is the format of a certificate of title for commercial transactions?

A

City of London Law Society (CCLS) industry standard. series of statements that would be given if the property title is in perfect order. solicitor must give a disclosure after a statement if any are incorrect.

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10
Q

What are the formalities of the contract for sale?

A
  • in writing
  • incorporate all the terms which the parties have expressly agreed
  • be signed by, or on behalf of, each party to the contract
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11
Q

When might a contract be unnecessary?

A
  • a gift of property between family members
  • land of low value
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12
Q

Why do we need a contract for sale?

A
  • fix a completion date – for money and practical arrangements eg removal vans
  • tie related transactions
  • set out related obligations – eg buying furniture
  • include conditions, such as obtaining specific planning permission
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13
Q

What is the standard form contract for sale?

A
  • almost always standard form residential contract
  • SFRC refers to Standard Conditions of Sale
  • commercial standard contract incorporates the Standard Commercial Property Conditions
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14
Q

What is the tailor made contract for sale?

A
  • Commercial – often firm’s own precedent bank/sources eg Practical Law
  • contracts tend to run to more pages
  • usually incorporate Standard Commercial Property Conditions and amend
  • may be weighted in favour of seller expecting buyer’s solicitor to negotiate terms
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15
Q

What are the standard conditions of sale?

A
  • incorporated into residential contracts
  • LS Conv Protocol = obligatory
  • also used for simple/low value commercial
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16
Q

What are the standard commercial property conditions?

A
  • incorporate into most commercial transactions
  • more detail on relevance to commercial property eg taxation, occupational leases
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17
Q

When can special conditions be used?

A
  • standard form contracts have some tick boxes to choose as appropriate
  • Seller’s solicitor following protocol = add other special conditions if absolutely necessary
  • Otherwise matter of negotiation
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18
Q

What are the contract conditions for specified incumbrances?

A

Seller must disclose:
* Latent incumbrances - rights burdening the property not apparent on inspection eg covenants/easements
* Defects in title - issues that cast doubt on the seller’s ownership/ rights that affect it eg deed containing covenant missing
Standard conditions amend duty and list incumbrances need not disclose.

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19
Q

What are the specified incumbrances for Standard Conditions of Sale?

A

a) specified in the contract
b) discoverable by inspection before date of contract
c) seller does not/could not reasonably know about
d) those, other than mortgages, which the buyer knows about
e) Entries made before date of contract except in LR/Land Charges Dept/CH
f) public requirements

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20
Q

What are the specified incumbrances for Standard Commercial Property Conditions?

A

a) specified in the contract
b) discoverable by inspection before date of contract
c) seller does not/could not reasonably know about
d) Matters other than mortgages disclosed/would have been disclosed by searches and enquiries which prudent buyer would have made
e) public requirements

21
Q

What are the different types of title guarantee?

A
  • Full title guarantee – default, offered unless good reason not to.
    o Property free of all incumbrances other than disclosed in contract
    o and those which the seller didn’t/couldn’t reasonably have known
  • Limited title guarantee - little knowledge of the property eg Executors
    o seller covenants that they have not created any third party rights or charges or incumbrances
  • No title guarantee - doesn’t guarantee right to sell/free of incumbrances
22
Q

When is completion if not fixed by the parties?

A

20 working days after the date of the contract

23
Q

What time should completion be done?

A

2pm

24
Q

What does ‘time is not of the essence until notice to complete is served’ mean?

A

If notice to complete is served then the party not at fault can walk away from the transaction and claim damages for breach

25
Q

What is the contract rate?

A

sets interest payable by defaulting party for delayed completion

26
Q

What is the standard deposit?

A

10%

27
Q

What happens if a lower deposit is agreed but the buyer defaults and a notice to complete is served?

A

The buyer must immediately pay 10%

28
Q

How can the deposit be paid?

A
  • SCS = cheque from buyer’s solicitor or electronically
  • SCPC = electronically
29
Q

How may a deposit be held by the seller’s solicitor?

A

Stakeholder: Must keep deposit safe and not pay until completion
Agent: Seller may demand immediately after exchange

30
Q

What is VAT for residential transactions?

A

Usually exempt supply or zero rated supple (no VAT)

31
Q

What is VAT for commercial transactions?

A

default = standard rated supply (20%)

32
Q

How does risk pass after exchange?

A

To the buyer. If property is damaged/destroyed, they still have to complete.

33
Q

What are the Pre-written special conditions in the standard residential contract?

A
  1. Clauses tieing the contract to SCS
  2. Allowing amendment of title from full to limited by changing front page
  3. included and excluded contents on an attached list.
  4. Vacant possession or leases and tenancies
  5. Agreeing different completion time
  6. Limiting liability for misrep to written statements (except fraudulant/reckless)
  7. Signature of adult occupiers
34
Q

What are the differences for standard form commercial contract?

A
  • Special condition 3: tick box for limited title guarantee
  • Special condition 6: deposit + balance from account other than the buyer’s solicitor’s.
  • Special condition 8: specific terms of the transfer/draft transfer to be annexed
  • Special condition 9: tick for the VAT treatment, capital allowances (a tax applicable to plant and machinery) and rights of residential tenants in a property.
35
Q

When is commercial property subject to standard rate tax?

A

Newly constructed commercial property (<3 years old) = standard rate
Older = standard rated if opted to tax

36
Q

What is standard rate VAT?

A

20%

37
Q

When is property subject to exempt supplies tax?

A

Residential except newly developed property.
Commercial property over 3 years old and owner not opted to tax.

38
Q

What is special condition 9 A1?

A

Exempt supply
o seller warrants that the property is not subject to VAT
o seller agrees not to exercise the option to tax

39
Q

What is special condition 9 A2?

A

Transfer of a going concern
o seller warrants that it is using property for letting (rental income)
o parties agree other matters necessary being treated as a TOGC

40
Q

What is SCPC Condition 2?

A

default standard rated
o seller warrants that the property is a standard-rated supply
o buyer agrees to pay VAT over purchase price in exchange for VAT invoice from seller

41
Q

What does the seller’s solicitor do when preparing the draft contract?

A
  • refer to heads of terms, seller’s instructions on any points of doubt, title
  • Protocol – standard form, office copies + protocol forms sent at same time
  • Known collectively as contract bundle
42
Q

What does the buyer’s solicitor do when checking the draft contract?

A
  • Check against heads of terms, and the buyer’s instructions
  • May amend if weighted towards seller/take account of matters arising from investigations.
  • Commercial - contract may go back and forth until terms are agreed
43
Q

What does the buyer’s solicitor do when preparing for exchange?

A
  • Rec’d search results/reply to enquiries
  • buyer has received survey + satisfied
  • advise buyer on insurance
  • Check cleared funds for deposit
  • Commercial – lender’s solicitor approved draft certificate of title
  • Reported to buyer on title/issues
  • Send contract to buyer to sign
  • Instructions on completion date
  • Authority from buyer to exchange
44
Q

What does the seller’s solicitor do when preparing for exchange?

A
  • Obtained redemption figure from lender
  • Reply to outstanding additional enquiries
  • Prepare engrossment contracts + send to seller and buyer solicitor
  • Authority from seller to exchange
45
Q

What is the point when parties enter into a binding contract?

A

Exchange

46
Q

What is the Law Society Formula B method?

A
  • Identify blanks in contract, agree what words/figures need to be inserted
  • Agree handwritten amendments/special conditions
  • Agree + writing completion date
  • Agree date + time of exchange and write their names on contract.
47
Q

What undertakings does Formula B impose?

A
  • To hold signed contract to other solicitor’s order
  • Post signed contracts that day by first class post/DX/hand delivery
  • Buyer solicitor – send deposit
48
Q

What is Formula A?

A

Same solicitor holds contracts signed by both

49
Q

What is the release method?

A

if the solicitor manages to exchange on the related transaction by an agreed time, the first contract is treated as exchanged, but if not, the exchange is cancelled.

Property Practice (11 decks)

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