Chapter 6: Completion Flashcards
(153 cards)
1
Q
1 Preparing for completion and the transfer deed
A
1.1 Preparing for completion
Exchange can be a tense time for solicitors, as it ends the last chance for the parties to pull out if
anything looks wrong. Completion, on the other hand, often tends to be more relaxed, and perhaps anti-climactic, especially when a lengthy or complex transaction reaches completion. However, it still important to be prepared to avoid the risk of failing to complete and, again, checklists may help.
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Q
1.1.1 Buyer’s solicitor’s checklist before completion
A
- draft the transfer deed for the seller’s solicitor’s approval
- once approved by the seller’s solicitor, arrange for the buyer to sign if it contains indemnity
covenants (or any other obligation on the part of the buyer) - send requisitions on title to the seller’s solicitor
- carry out relevant pre-completion searches
- send certificate of title to the lender, and request the loan advance in time for completion
(usually to arrive the day before) - send the buyer a statement of money needed to complete the purchase
- Stamp Duty Land Tax form approved by client
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Q
1.1.2 Seller’s solicitor’s checklist before completion
A
- approve the transfer deed drafted by the buyer’s solicitor
- arrange for the transfer to be executed by the seller
- reply to requisitions on title
- request a redemption statement from the seller’s lender (if any)
- in a residential sale, ask the seller or agent to take final meter readings
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Q
1.1.3 Who drafts the transfer deed?
A
Traditionally, the seller’s solicitor drafted the contract, and the buyer’s solicitor drafted the transfer deed.
This is still the default position taken in the Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC).
However, in recent years, it has become quite common for the seller’s solicitor to draft the transfer
at the same time as the contract, and for the draft transfer to be annexed to the contract in approved form.
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Q
1.2 Form of the transfer
A
A transfer of land must be in the form of a deed (s52, Law of Property Act 1925)
Registered land
Land Registry forms must be used:
TR1 – the most common, this transfers the whole of a freehold or leasehold title
TP1 – this is used for the transfer of part only of a registered title
TR5 – this is used for the transfer of a portfolio of registered titles (and may include unregistered
titles
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Q
Unregistered land
A
Unregistered title may still be transferred in the form of a conveyance, and could even be written in copperplate on parchment!
In practice it is usual to use the Land Registry form TR1, which can be used for unregistered land as well.
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Q
1.3 Completing panels in the TR1
Panel 1 – title number
A
(Registered property) Enter the title number or numbers.
(Unregistered property) Leave this panel blank.
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Q
Panel 2 – property
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Enter a brief description of the property. For most properties this will be the address which can be found in the official copies or root of title.
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Q
Panel 3 – date
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The date is handwritten in on completion, which has the effect of completing the deed, so it should be left blank until completion.
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Q
Panel 4 – the transferor(s)
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This will usually be the registered proprietor(s) of the property.
If the seller’s name is different than it was when they bought the property (eg, due to marriage or civil partnership), the marriage
certificate should be provided. The buyer’s solicitor will need this proof for the Land
Registry application.
If a second trustee is appointed for a sole surviving tenant in common, their details go here as well.
If the transferor is a company, the company’s registered number should be provided.
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Q
Panel 5 – the transferee(s)
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Insert the buyer’s full name. A maximum of four people or companies can be named.
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Q
Panel 6 – address for service
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Insert the buyer’s address here. Unlike the contract, where the parties’ addresses are their addresses before completion, here a
residential buyer will put the address of the property. An email address can also be provided. The Land Registry will use the address for service to direct any notices relating to the property
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Q
Panel 7 – the transfer wording
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This panel contains the wording ‘The
transferor transfers the property to the transferee’ which operates to transfer title. It cannot be amended.
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Q
Panel 8 – consideration
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There are three tick box options which are
roughly in order of how often they are used (common first)
(a) The transferee is paying a sum of money for the property – the figure is inserted
(b) The transferee is giving no monetary consideration or anything that has a monetary value – for example, a gift, or from existing trustees to new trustees
(c) Other receipts – less frequently used. Examples might be where parties swap properties (this used to have stamp duty saving advantages) or where the property is being transferred to pay off a debt.
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Q
Panel 9 – title guarantee
A
There are tick boxes for full title guarantee and limited title guarantee. This choice will
generally be governed by the contract (see Week 4). If the transferor is giving neither title
guarantee, the tick boxes are left blank
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Q
Panel 10 – declaration of trust
A
If both legal and beneficial title are being transferred to a sole transferee, then you can
skip this panel. There are tick boxes for the transferees to hold as beneficial joint tenants or tenants in
common. The third option covers all other possibilities, which may be tenants in common in unequal
shares, or may be to hold the property on trust for a third party.
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Q
Panel 11 – additional provisions
A
Anything that is not relevant to panels 1 to 10 but needs to be included in the transfer deed
is included in this panel.
This could be an indemnity covenant for positive covenants, or new covenants and easements (although these are more common in transfers of part). If the transferor is a sole surviving tenant in common, the appointment of a second trustee
would appear here.
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Q
Panel 12 – execution
A
Provides space for the attestation clauses that allow the parties to execute the TR1 as a deed.
These will depend on the parties and
circumstances. The transferor must always execute the TR1.
The transferee(s) must execute the TR1 if:
* if they are tenants in common or agree to hold the property on trust for someone else
in Panel 10
* they are providing an indemnity covenant, or any other obligation in Panel 11
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Q
1.4 Other transfers – TP1 and TR5
TP1 – transfer of part
A
The TP1 is used for a transfer of part of the transferor’s title. Usually the part is identified by a plan attached to the TP1, and Panel 3 refers to the plan. The ‘additional provisions’ panel, Panel 12 (similar to Panel 11 in the TR1) provides headings likely to
be appropriate, such as ‘Rights granted for the benefit of the property’ and ‘Rights reserved for
the benefit of other land’.
TR5 – transfer of portfolio of titles
The main difference is that Panel 1 contains a table where a number of properties and their title numbers (if registered) can be set out.
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Q
Example
A
Nicholson Hotels Limited want to transfer 50 hotels to a property holding company. The TR5
would be used, and the description and title number of each hotel included in Panel 1.
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Q
1.5 Executing the transfer deed – an individual
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An individual signs the transfer in the presence of an independent witness who also signs and prints their full name and address (s1(3)(a)(i), Law of Property (Miscellaneous Provisions) Act 1989)
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Q
Considered delivered
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The transfer is considered delivered (ie, comes into effect) when it is dated, usually by the transferor’s solicitor.
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Q
1.6 Executing the transfer deed - company
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- There are different options for a company executing a deed (s44, Companies Act 2006)
- It is best to check if the company has a policy on executing deeds, so that you know which attestation clause is appropriate
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Q
Options include:
A
- Company seal attached, and signed by two directors, or one director and the company secretary
- No company seal, but signed by two directors or one director and the company secretary
- Signed by one company director and witnessed by an independent witness
- Signed by a senior employee (not a director or the company secretary) who is authorised under a power of attorney
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1.8 Summary
* Preparing for completion is less involved than preparing for exchange of contracts, but it is still important to make sure everything is ready
* One important step is agreeing and arranging the execution of the transfer deed
* The TR1 is used for most transactions, registered or unregistered
* Drafting the TR1 involves completing the relevant panels – mostly these will follow the contract,
and there is not a lot of discretion
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1.8 Summary
* The Land Registry has other transfer forms for other specific circumstances
* Companies have more options for executing deeds than individuals, so the attestation clause
may depend on the company’s policy
* The transfer deed is agreed by the parties’ solicitors, and then executed, and then held by the relevant solicitor undated ready for completion
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2 Pre-completion searches
2.1 Purpose of pre-completion searches
We have looked previously at pre-exchange searches, which form part of the investigation of the property, may be numerous, and may reveal all sorts of matters that may or may not deter a buyer from proceeding to exchange.
By contrast, pre-completion searches are mainly to check and protect the buyer’s (and lender’s if appropriate) ability to obtain title to the property as per the contract
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2.1 Purpose of pre-completion searches
While some issues that might arise would be a breach of contract, it is better to identify these before completion rather than rely on the ability to sue afterwards. Pre-completion searches are concerned with (1) the property (2) the parties
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2.2 Registered land
The buyer’s solicitor carries out a search with priority (form OS1 or OS2 for part of land) at the Land Registry against the title number. This updates the official copies that were initially provided, and identifies any changes that have been made.
It also confers a priority period of 30 working days in favour of the person searching.
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2.2.1 Unregistered land
The buyer’s solicitor carries out a land charges search of the Land Charges Registry (Form K15). This identifies any incumbrances or other adverse matters registered against the owner/seller of the unregistered land. It confers a priority period of 15 working days.
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2.2.1 Unregistered land
If the buyer’s solicitor registers the transfer with the Land Registry within the priority period conferred by the search, then the buyer’s transfer will take priority over any other applications, even if they were lodged before the buyer’s transfer.
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2.3 Search from date and priority period
* As the OS1 search updates the official copies that the buyer’s solicitor has seen, the buyer’s
solicitor provides the Land Registry with their date, and this is the date from which the search is run.
* If nothing has changed since that date, then the search will come back clear; otherwise updated official copies will be sent to the searcher
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Example
The buyer’s solicitor is lodging an OS1 search on 1 June, ready for a completion date of 5 June. The buyer’s solicitors official copies are dated 10 February, so the buyer’s solicitor will use this as the ‘search from’ date for the search.
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Example
The search comes back clear (ie, with no changes since that date) and priority of 30 working days from 1 June. As long as the buyer’s solicitor applies for registration within this period, the buyer’s transfer takes priority over any intervening applications.
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2.4 Priority in operation
Under SCS or SCPC, the seller should disclose any adverse issues that may have resulted in changes to the official copies originally provided. If the seller does not, the buyer may have a claim for damages for breach of contract and/or misrepresentation, or even to rescind the contract. However, a buyer’s solicitor should never rely on this, and should always ensure that registration is protected by priority at the Land Registry.
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2.4 Priority in operation
If the search were not carried out, then it is likely to cost time and money to put right any entry (at
best correspondence with the seller’s solicitor, and at worst litigation against a seller who is unable
to pay damages). This would be a clear case of professional negligence on the part of the conveyancing solicitor. It is easy for a busy solicitor to forget the OS1 search, particularly if there is a delay to completion
– in the majority of cases, the search result would be clear anyway, but it is not worth the risk!
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Example
Continuing the previous example, where the buyer’s solicitor carried out an OS1 search on 1 June,
completion takes place as scheduled on 5 June. In the meantime, however, the seller has dishonestly applied to remortgage the property with a
new lender.
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Example
If the new lender’s solicitor applies to register a charge against the property on 7 June, the Land Registry will advise that there is a prior application, ie, the buyer’s transfer. Only if the buyer fails to register within the priority period will the lender’s solicitor be able to register the charge. In practice, the lender’s solicitor would take out their own OS1 search before completing the
mortgage, which would show there is an intended sale, and the lender’s solicitor would refuse to complete the mortgage.
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Example
If the buyer’s solicitor had not carried out the priority search, then the new lender’s charge would take priority, and the buyer would not be able to register the transfer.
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2.5 Land charges search
Similarly, the land charges search gives priority (although only 15 working days) . Any entry against the landowner during the priority period, does not affect the ability of the buyer to register the transfer .
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2.5 Land charges search
In the chapter dealing with investigation of unregistered title, we discussed how the land charges
search is carried out against all owners in the chain of title . For the purposes of priority, however,
it is unnecessary to update land charges searches against previous owners, as any entries that may affect them after their period of ownership are not relevant to the property.
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2.5 Land charges search
The land charges search against the seller, however, should be carried out just before completion to give a sufficient priority period to lodge the application for first registration
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2.6 Solvency searches
When acting for buyer and lender, the buyer’s solicitor must carry out a bankruptcy search (Form K16) against the buyer to protect the lender. Like a land charges search, it confers a priority period of 15 working days.
It is not usual practice to carry out a bankruptcy search against an individual seller. The buyer can (and should) rely on the OS1 search for registered land. For unregistered land, bankruptcy is covered by the land charges search.
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2.6 Solvency searches
If the buyer is a company, then a lender will want a company search carried out against the buyer to check that there is no pending insolvency or crystallisation of a floating charge.
A company search gives no priority period, so should be carried out as late as possible and updated if necessary. If the seller is a company, then the buyer’s solicitor should carry out a company search immediately before completion.
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2.6 Solvency searches
This checks that there is no pending insolvency or crystallisation of a floating charge. Again, there is no priority period.
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2.7 Summary
* Pre-completion searches are much more limited than pre-exchange searches, and are to check and protect the buyer’s and lender’s ability to register their transfer and legal charge.
* With registered land, an OS1 search with priority should be carried out.
* With unregistered land, an updated land charges search against the seller should be carried out.
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2.7 Summary
* A solvency search will be needed against the buyer if the buyer is relying on a mortgage.
* A solvency search against the seller is not recommended for registered land, and is included in a land charges search for unregistered land.
* A companies search is recommended for a seller and/or a buyer that is a company.
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3 Requisitions on title
In the last section, we looked at pre-completion searches, which are much simpler than preexchange searches.
Requisitions on title are similar to pre-exchange enquiries, and again, they are much simpler and just cover the information necessary for completion
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3.1 Form and purpose of requisitions on title
* Historically, ‘requisitions on title’ were the specific questions that the buyer’s solicitor raised about the title after reviewing the title deeds.
* However, they are now used more generally to refer to the questions that the buyer’s solicitor needs answering before completion.
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3.1 Form and purpose of requisitions on title
* Requisitions on title for residential transactions are usually in the form of Law Society TA13. The form is also headed ‘Completion information and undertakings’ which is a more accurate description than ‘requisitions on title’.
* Requisitions on title for commercial transactions may be in the firm’s own precedent form, or the Commercial Property Standard Enquiries (CPSE) form SCR (Solicitor’s completion
requirements)
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3.1 Form and purpose of requisitions on title
* The forms are similar in content, if not in form, so we will just look at TA13 (Completion information and undertakings)
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3.2 Content of TA13 (completion information and undertakings)
1 Vacant possession
Asks about arrangements for collecting the keys; for example, whether they are left with
the agents. If there is a rent-paying tenant, then asks for an authority for the tenant to pay the rent to the buyer following completion.
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2 Deeds and documents
For unregistered property, asks for a list of deeds and documents to be sent on completion
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3 Completion
Asks for confirmation that completion will take place according to the Law Society’s Code for Completion by Post. Similar to Law Society Formula B for exchange, the Code for Completion by Post sets out expectations and undertakings of the solicitors on completion.
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4 Money
Asks for the seller’s solicitor’s client account details (to send the money), and for the exact amount payable on completion.
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5 Mortgages and charges
Asks the seller’s solicitor to list any mortgages secured on the property and confirm their undertaking to redeem them on completion
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3.3 Seller’s solicitor’s undertaking to redeem mortgage
The buyer’s solicitor wants to ensure that the mortgage is cleared from the property promptly after completion so that the buyer’s transfer can be registered.Ideally, this would be done before completion, but this is usually not possible, as the seller will rely on the sale proceeds to pay off the mortgage.
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3.3 Seller’s solicitor’s undertaking to redeem mortgage
The seller’s solicitor undertakes in the Law Society Code for Completion by Post to redeem the mortgages (ie, pay in full) against the property which it will have already notified to the buyer’s solicitor. Note that the undertaking is not to discharge the charge, as this is not within the solicitor’s power.
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3.3 Seller’s solicitor’s undertaking to redeem mortgage
On the loan being redeemed, the lender should either discharge the charge at the Land Registry
electronically (most common) or provide a form DS1 which can be produced to the Land Registry
to discharge the charge.The seller’s solicitor’s undertaking will be to forward the appropriate form
of discharge to the buyer’s solicitor once received by the seller’s solicitor.
With large value transactions, the buyer’s solicitor may insist that the seller’s solicitor obtains an executed but undated DS1 in advance of completion.
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3.4 Summary
* Requisitions on title are simple questions to elicit certain information that the buyer’s solicitor needs to complete.
* In residential transactions, Law Society Form TA13 should be used.
* In commercial transactions, CPSE SCR or the firm’s own precedent may be used.
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3.4 Summary
* The replies are generally straightforward, but care must be taken as they contain undertakings, and both solicitors should be familiar with the Law Society Code for Completion by Post.
* An important part of the replies is the seller’s solicitor’s undertaking to redeem mortgages against the seller’s title, as this is necessary for the buyer’s solicitor to be able to register the buyer’s transfer
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4 Completion
The process of completion involves the balance of the purchase price (ie, after the deposit) being paid to the seller, and the legal title in the property being passed to the buyer.
Traditionally, solicitors would visit each other’s offices to complete the transaction in person, generally reserving Friday for this purpose.
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4 Completion
Completion now almost always happens by post, which is facilitated by the Law Society Code for
Completion by Post. Although completion can take place on any working day, many residential transactions still take place on Friday. This gives a buyer the weekend to settle in, and the seller the weekend to spend some of the sale proceeds.
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4.1 The Law Society Code for Completion by Post
The Law Society Code for Completion by Post (‘the Code’) avoids the need for the solicitors to physically attend each other’s office by treating the seller’s solicitor as an agent for the buyer’s solicitor.
The seller’s solicitor provides various undertakings under the Code which the buyer’s solicitor can rely on to know that if the necessary money is sent, completion will take place, or the seller’s solicitor will return the money to the buyer’s solicitor.
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4.1 The Law Society Code for Completion by Post
Immediately following completion, the seller’s solicitor holds the transfer deed and other deeds and documents to the buyer’s solicitor’s order. This means that the buyer’s solicitor can direct what happens to them. As soon as possible, and no later than the end of the working day after completion, the seller’s solicitor undertakes to send the transfer deed and other deeds and documents to the buyer’s solicitor. To illustrate how completion works, and how the Code works, we will look step by step at a typical completion transaction.
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4.2 A typical completion
Stephanie is the seller’s solicitor and Bertie is the buyer’s solicitor. Contracts were exchanged on 9
October, a Thursday for completion on 17 October, the following Friday.
The purchase price is £180,000, and a ten per cent deposit was paid on exchange. The seller has a mortgage against the property of £110,000.
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4.2 A typical completion
The buyer is a first time buyer (no chain) relying on a mortgage of £140,000. Requisitions on title and pre-completion searches have been dealt with, and no issues have arisen
from them. The transfer has been agreed, and only needs to be executed by the seller, as there is
no indemnity covenant, declaration of trust or any other matter that would require the buyer’s
execution.
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4.2.1 Thursday, 16 October The day before completion
The buyer’s solicitor will use reasonable endeavours to ensure that enough funds are collected
from the buyer and any mortgage lender in good time to transmit to the Seller’s Solicitor on or behalf the completion date. (Paragraph 5 of the code)
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4.2.1 Thursday, 16 October The day before completion
Bertie sent his client a completion statement just after exchange of contracts, advising her how
much she would need to complete. It has still not arrived, so he telephones his client to remind her. It arrives later that morning.
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4.2.1 Thursday, 16 October The day before completion
This money includes £22,000 (the £40,000 cash element of the price less the deposit of £18,000).
It also includes any money needed to pay Bertie’s costs, Stamp Duty Land Tax (if any) and registration fees.
Bertie sent his certificate of title to the mortgage lender the week before, asking for the money to
arrive the day before completion.
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4.2.1 Thursday, 16 October The day before completion
In the afternoon, accounts notify him that the mortgage funds of £140,000 have arrived, and there is now sufficient in the client account to complete. Bertie has complied with paragraph 5 of the Code.
The Seller’s Solicitor undertakes:
1. to have the Seller’s authority to receive the purchase money on completion; and
2. on completion, to have the authority of the proprietor of each mortgage, charge or other financial incumbrance […] to receive the sum intended to repay it; (Paragraph 5 of the Code) Stephanie calls her client, who confirms he is happy to complete on Friday as planned
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4.2.1 Thursday, 16 October The day before completion
Following exchange of contracts, she ordered a redemption statement showing the amount needed to repay the mortgage. This statement confirms that the lender will accept the money from Stephanie’s firm to redeem the mortgage. Stephanie has an executed but undated transfer deed from her client, and is also ready to complete
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4.2.2 Friday, 17 October Completion day - morning
The buyer’s solicitor will remit to the Seller’s Solicitor the sum required to complete […] If the funds are remitted by transfer between banks, immediately upon becoming aware of their receipt, the Seller’s Solicitor will report to the buyer’s solicitor that the funds have been received. (Paragraph 10 of the Code)
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4.2.2 Friday, 17 October Completion day - morning
On the morning of the completion day, Bertie sends the balance of the purchase by telegraphic transfer (often referred to as a ‘TT’) to Stephanie’s client account. The Seller’s Solicitor will complete upon becoming aware of the receipt of the [completion monies] Paragraph 11 of the Code
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4.2.2 Friday, 17 October Completion day - morning
Stephanie calls Bertie just before lunch time to let him know that the completion monies have arrived, and they agree that completion has taken place. Stephanie hand writes the date on to the TR1, which operates as delivery and the deed is completed.
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4.2.3 Friday, 17 October Completion day - lunchtime
Before she goes for her lunch, Stephanie calls the estate agent to release the keys, and her client
to let him know. Accounts have already been told to send the redemption money to the lender.
She will deal with the rest when she returns to the office in the afternoon.
Bertie calls his client to let her know that she has completed, and emails his secretary to send their usual letter confirming this to the client. He can turn to other things for the rest of the day.
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4.2.4 Friday, 17 October Completion day - after lunch
The Seller’s Solicitor undertakes:
… as soon as possible after completion and in any event by the end of the working day following completion, to send written confirmation that completion has taken place … and the [executed transfer and other deeds and documents] (Paragraph 10 of the Code)
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4.2.4 Friday, 17 October Completion day - after lunch
Stephanie dictates the letter and enclosures to go to Bertie, but tells the secretary that this can go
in Monday evening’s post or DX (document exchange). She also asks accounts to send the balance of the sale proceeds to her client, and dictates a letter to her client confirming completion. Stephanie can also turn to other matters or possibly even go home!
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4.4 Summary
* Completion is usually carried out by post, with the seller’s solicitor acting as agent for the buyer’s solicitor under the Law Society Code for Completion by Post
* The Code sets out the parties’ expectations and undertakings, and helps completion to go smoothly
* Completion in practice is usually straightforward, helped by forward planning.
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5 Delay or failure to complete
5.1 What does failure to complete mean?
5.1.1 Seller’s failure to complete
A seller’s failure to complete means that the seller’s solicitor is unable to date an executed transfer.
For example:
* the seller has not returned the executed transfer
* the seller has returned the executed transfer but instructs the solicitor not to date it
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5.1.2 Buyer’s failure to complete
A buyer’s failure to complete means that the seller’s solicitor has:
* not received the money needed to complete from the buyer’s solicitor or
* has received the money, but the buyer instructs the buyer’s solicitor not to release it to the seller’s solicitor (for example, if the buyer changes their mind at the last moment). A party who fails to complete is the defaulting party, and the party who is ready to complete is
the non-defaulting party
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5.2 Failure to complete and Standard Conditions of Sale (SCS)
(used in most residential transactions If either party fails to complete by the time and date specified in the contract, then they are obliged to pay interest for each day’s delay under SCS.
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5.2 Failure to complete and Standard Conditions of Sale (SCS)
This is calculated at the interest rate specified in the contract. If none is specified, then SCS 1.1.1(e) provides that the Law Society interest rate (the current rate is published on their website) applies. If the seller is late in completing, then the seller pays interest on the full purchase price.
If the buyer is late in completing, then the buyer pays interest on the purchase price less any deposit paid.
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5.3 Common law damages
As seen in the previous example, unless it is either a large value transaction, or a long delay, the
interest is relatively low.
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Example
A seller delays completion for four days. The buyer arrived at the house on completion with their belongings in a removal truck, and could not move in. The buyer has to pay the removal company an additional £500 to store their belongings, and for £400 a hotel for the family for four days. The buyer’s solicitor charges an additional £90 for legal fees in dealing with the delay. The interest payable under the contract was £120. It is clear that this is not enough to compensate the buyer for the buyer’s losses (£990).
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5.3 Common law damages
As the seller has breached the contract, the buyer can claim common law damages for the
buyer’s losses. However, it is not always practical/cost effective to take proceedings if the seller resists the claim. If the buyer is successful in a claim, the interest received under SCS is deducted from such sum.
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5.4 Rescission
Recission: This is a remedy where the contract is set aside and the parties are put back in the position in which they were before the contract was made
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5.4 Rescission
Unlike the interest under the standard conditions and common law damages, rescission is not
automatically available to the non-defaulting party. This is because under a standard contract, time is not of the essence (SCS 6.1.1 or SCPC 9.1.1) .
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5.4 Rescission
After either party has failed to complete on time, however, the non-defaulting party can serve
notice to complete on the other (SCS 6.8.1 or SCPC 9.8.1) . This has the effect of making time of the essence . The parties must then complete within ten working days (excluding the day on which notice is given)
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5.5 Serving notice to complete
If completion has not taken place by the date and time stated in the contract (2pm under the standard conditions if not amended), then either party if they are ready, able and willing to complete, may give the other notice to complete If it is the buyer who is the defaulting party, and they have not given a full 10% deposit, they must make it up to 10% without delay.
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Example
Contracts have been exchanged for sale of a house at £200,000, a 5% deposit of £10,000 having
been paid on exchange. The completion time is 2.30 pm on 5 June.
At 2.45 pm, the seller’s solicitor has not received the money from the buyer’s solicitor, and cannot get hold of the buyer’s solicitor for an explanation. The seller is ready to complete. The seller’s solicitor may serve notice to complete on the buyer (via the buyer’s solicitor).
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5.6 Effect of notice to complete
The parties must complete within ten working days, the first day being the day after the notice to complete has been served. The party serving the notice to complete is bound by the notice as well, so they must make sur that they will continue to be ready to complete within the ten working day period. Once served, the notice to complete cannot be withdrawn unless both parties agree. If either party fails to complete within the ten working day period, the remedies available depend on whether the non-defaulting party is the seller or the buyer.
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5.7 Seller’s remedies
The seller may rescind the contract, and on doing so, may also:
* forfeit the deposit and any interest accrued on it
* resell the property and any contents included in it
* claim contractual damages
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5.8 Buyer’s remedies
The buyer may rescind the contract, and on doing so, may also:
* demand return of the deposit with any interest accrued on it
* claim contractual damages or even specific performance (an equitable remedy forcing the seller to complete the sale)
Note that contractual compensation (interest) only applies to delayed completion, so where completion does not take place at all, the remedy is damages
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5.9 Summary
* If either party does not complete on the contractual completion date, this is a breach of the contract entitling the other to damages and contractual interest under the standard conditions.
* If the non-defaulting party is ready, willing and able to complete, then after the contractual date and time for completion has been missed, they can serve notice to complete
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5.9 Summary
* The effect of the notice to complete is to make time of the essence and giving both parties ten working days (after service of the notice) to complete.
* If either of them fail to complete, then the non-defaulting party (at that point) can rescind the contract.
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6 Post-completion steps
Once the seller has received their money, and the buyer their property, the transaction is ended for them. Post-completion work happens behind the scenes. The buyer’s solicitor still has work to do, particularly settling Stamp Duty Land Tax and registering the buyer’s title at Land Registry
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6 Post-completion steps
It can be tempting for a busy solicitor to put off post-completion work in favour of transactions where clients are still chasing and there are fees to bill. However, it is important to keep on top of post-completion tasks, as some tasks have set timescales, and there can be serious repercussions if they are neglected or forgotten
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6.1 Comparison of SDLT and LTT
Following completion, the buyer’s solicitor needs to attend to reporting and paying the appropriate tax. This will depend whether the property is in England or Wales.
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Properties in England
Stamp Duty Land Tax (SDLT)
Properties in Wales
Land Transaction Tax (LTT)
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Dependent on purchase price
Dependent on purchase price (but different thresholds and rates apply)
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Buyer’s solicitor prepares and submits SDLT return on buyer’s behalf
Same but LTT return
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SDLT return must be submitted and tax paid within 14 days of completion to avoid penalties
LTT return must be submitted and tax paid within 30 days of completion to avoid penalties
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Solicitors can prepare and submit SDLT return online using HM Revenue & Customs portal
Same but Welsh Revenue Authority (WRA) portal
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On submitting the return, buyer’s solicitor receives SDLT5 certificate
Same but WRA certificate
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6.2 Registration of charge at Companies House
However, it is also important to get the application right – if there is a problem, and Companies House return it, the 21 day period is still running
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6.2 Registration of charge at Companies House
It is very important to register a charge given by a company at Companies House within a 21 day
period starting the day after the creation of the charge. If this is not done, then the charge is void
against any liquidator or administrator, and the lender is not protected. This deadline is strict, and
Companies House have no discretion to extend the deadline.
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6.2 Registration of charge at Companies House
If the deadline is missed, then it will be necessary to apply for a court order to allow the filing out of time. This will involve time and expense that the client will likely expect the solicitor’s firm to cover
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6.2 Registration of charge at Companies House
This does not apply to charges given by an individual, so conveyancers who deal with mainly residential transactions will usually not need to worry. However, this can make them more prone to missing this step on the odd occasion when they are dealing with a company buyer/borrower.
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6.3 The Land Registry application
The last step of the post-completion work is often the Land Registry application. The process and timing of this differ for transfers of registered land and transfers of unregistered land that trigger first registration. The Land Registry are very user friendly, and will usually raise requisitions on any issue that
arises from an application, such as a missing deed or document, or use of an incorrect form. However, some errors will lead to the application being returned completely, so it is best to get the application right first time.
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6.4 Application for registration – registered title
If the title is already registered, then Land Registry form AP1 is used to set out the details of the application and the documents provided.
For a purchase, these will include:
(a) The transfer deed (eg TR1)
(b) SDLT5 or WRA certificate to prove payment of SDLT or LTT
(c) Form DS1 to discharge the seller’s mortgage if appropriate (this can be sent on later if not yet available)
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6.4 Application for registration – registered title
(d) Mortgage deed in favour of the buyer’s lender
(e) If appropriate, certificate of registration of charge at Companies House
(f) Other documents as appropriate (eg, death certificate for deceased joint proprietor if the seller is a sole surviving beneficial joint tenant)
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6.5 Application for registration – unregistered title
An application for first registration is usually a little more involved than for a transfer of registered title.
Instead of the form AP1, a form FR1 is used, which contains additional boxes relevant to unregistered title.
Unlike the AP1, the FR1 does not have a box where the enclosures are listed. Instead they are listed on a separate form DL
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The following documents are included:
(a) Numbers 1 to 6 on the previous page
(b) The epitome of title and the deeds and documents referred to in it
(c) Land charges searches for the seller and previous owners in the chain of title
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6.6 Overriding interests
For both registered and unregistered land, the buyer’s conveyancer should either tick the AP1 or FR1 to state that there are no overriding interests, or if there are, complete a Form DI
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6.6 Overriding interests
The rationale behind disclosing overriding interests is to expand the scope of entries that are on
the register. For more on overriding interests, refer to Land Registry Practice Guide 15 on HM
Government’s website.
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6.7 Submitting the Land Registry application
Most solicitors have an account on the Land Registry online portal, enabling registration applications to be submitted online. However, this is not possible for a first registration.
The application is instead made by post or document exchange (DX), and this is possible for a transfer of registered land if the solicitor does not have access to the online portal
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6.7 Submitting the Land Registry application
If this is the case, it is best to send certified copies of the transfer and mortgage deed, as the Land Registry do not return paper documents. The original mortgage deed should be sent to the lender, and the original transfer deed should be kept if it has covenants.
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Certified copy:
This is a copy of a document that has been stamped and signed by a solicitor to confirm that it is a true copy of the original. Certified copies are usually (not just in property
law) treated as equivalent to original documents for evidential purposes, although there are times when only an original will suffice.
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6.8 Land Registry priority period
The Land Registry application is less pressing than the SDLT and Companies House registration,
but should still be attended to as soon as possible.If the application is not submitted within 30
working days of the buyer’s solicitor’s OS1 search with priority, then priority will be lost. The original OS1 search cannot be extended.A new OS1 search can be submitted, but this will start a new priority period, not extend the existing one.
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Example
The buyer’s solicitor submits an OS1 search and completes 10 working days later. The solicitor has still not sent the Land Registry application 20 working days later, when the priority period expires.
The solicitor submits a new OS1 search, which shows that a notice has been entered against the
register. The new search (and therefore the Land Registry application) does not take priority
against this notice.
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6.9 Land Registry deadlines
For registered land, there is no deadline for application other than the time limit for priority under the OS1 search. The Land Registry will allow an application to be submitted at any time after
completion, but may query it if a long period has elapsed
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Example
A solicitor finds an old file that has slipped down the side of the desk. It contains an executed
transfer of a piece of garden (registered) from one property to a neighbouring property, and
fortunately the original neighbours are still there. The transfer is dated 10 years ago. The solicitor submits a Land Registry application with a note of apology that the delay is due to an oversight. The solicitor sends the updated official copies to the client and makes a mental note to improve filing procedures
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Example
For unregistered land, however, there is a deadline of two months from completion. If this is not
complied with, the transaction is void. An application must then be made to the Land Registrar to extend the period.
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6.10 The end!
Once the application has been completed, the Land Registry will issue new official copies showing
the buyer as registered proprietor, and the lender (if any) as the proprietor of the legal charge. They are accompanied by a title information document (TID) but really the title is in the Land
Registry’s electronic registers, not in the document
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6.10 The end!
Although mistakes are rare, the buyer’s solicitor should check that all the details are correct before sending a copy to the buyer and to the lender (if they instruct). In most cases, sending the client the updated official copies is the end of the transaction.
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6.11 Summary
* The buyer’s solicitor must attend to various tasks following completion.
* Stamp Duty Land Transaction Tax (SDLT) in England or Land Transaction Tax (LTT) in Wales
must be notified and paid within 14 days or 30 days respectively
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6.11 Summary
* Charges created by companies must be registered at Companies House within a 21 day period starting the day after the creation of the charge
* The Land Registry application must be made within 30 working days of the OS1 search to protect priority
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6.11 Summary
* An unregistered application must be made within 2 months or the transaction is void
* SDLT, LTT, Companies House and Land Registry applications can be made online, except for
unregistered applications to the Land Registry
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7 Stamp Duty Land Tax calculations
As we have already seen, SDLT is paid on freehold purchases in England, and LTT is paid on
freehold purchases in Wales.
In the previous section, we saw some differences between SDLT and LTT. In this section, we will
look at the basis of the SDLT charge, and then at LTT.
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7 Stamp Duty Land Tax calculations
The charge differs depending whether the property is residential (intended to live in) or nonresidential. Note – you do not have to know the rates for SQE1, which will be given, but they are given here to illustrate the basis of the charge. Note that rates change frequently! These are the rates as at July
2023.
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7.1 SDLT on residential transactions
SDLT is assessed on the purchase price paid for the property, and different percentage rates apply to the slices of the total purchase price.
* Up to £250,000, there is no SDLT payable.
* Over £250,000 up to £925,000, SDLT of 5% is payable
* Over £925,000 up to £1.5 million, SDLT of 10% is payable
* Over £1.5 million, SDLT of 12% is payable
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7.1.1 Contents of residential properties
It is possible for the parties to allocate a separate value to contents, such as carpets, white goods and furniture, etc. This value does not form part of the purchase price for the purposes of the SDLT/LTT calculation. Care must be taken that it is a genuine value, however, as otherwise HM
Revenue & Customs/the Welsh Revenue Authority could consider it as tax fraud.
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7.1.1 Contents of residential properties
This used to be more common when SDLT was calculated in thresholds rather than slices. This is because the percentage when a threshold was exceeded applied to the whole purchase price, not
that slice. This meant that a small change in price could make a big difference to the SDLT bill.
As this is no longer the case, it is less common that contents will be valued separately unless they
are particularly valuable.
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7.2 SDLT on residential transactions – first time buyers
A discount (relief) is applicable for a person buying their first home provided the purchase price is
no more than £625,000. If there is more than one person buying, all must be first-time buyers.
If the relief applies, there is no SDLT for the first £425,000 of the purchase price, and 5% on any
part of the price over £425,000 (but not exceeding £625,000). In the example given above, the
buyer who paid £2,500 on a £300,000 purchase would pay no SDLT if a first-time buyer.
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7.2.1 Second properties
If the buyer is buying a second property, then additional SDLT of 3% is charged on the whole of
the purchase price. You can calculate the SDLT that would be chargeable as usual, and then add 3% of the total purchase price.
There are qualifications to this rule, such as if the property bought is replacing the buyer’s main home, or if the first property is sold within 36 months, but these are outside the scope of this course. If you are interested in learning more, refer to HMRC’s website.
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7.3 SDLT on non-residential transactions
SDLT is simpler on non-residential transactions:
* Up to £150,000, there is no SDLT payable.
* Over £150,000 up to £250,000, SDLT of 2% is payable.
* Over £250,000, SDLT of 5% is payable.
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7.4 Land Transaction Tax (LTT)
Land Transaction Tax (LTT) is the equivalent of SDLT in Wales, but there are differences in how it is
charged:
* there is no relief for first-time buyers
* LTT is increased for buyers who will have a second property after the purchase but for LTT there is a different set of rates for this rather than simply adding a percentage
* the rates are different (again, you do not need to know the rates – if you are asked to perform a calculation, you will be given the rates)
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7.4.1 LTT on residential transactions
LTT is calculated in similar fashion to SDLT:
* Up to £225,000, there is no LTT payable.
* Above £225,000 up to £400,000, LTT of 6% is payable.
* Above £400,000 up to £750,000, LTT of 7.5% is payable.
* Above £400,000 up to £750,000, LTT of 7.5% is payable.
* Above £750,000 up to £1.5 million, LTT of 10% is payable.
* Above £1.5 million, LTT of 12% is payable.
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7.5 Summary
* SDLT and LTT are charged on the purchase price, applying increasing rates to each slice of the purchase price.
* Rates are subject to change, and you do not need to know them for SQE1.
* There are different rates for residential and non-residential, and for SDLT and LTT.
* Residential buyers pay lower rates if they are first-time buyers (SDLT only) or higher rates if
they are acquiring a second property (SDLT or LTT).
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Capital Gains Tax
8.1 What is Capital Gains Tax?
Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’)
that’s increased in value. HM Revenue & Customs (www.gov.uk/capital-gains-tax)
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8.2 Basis of the charge to Capital Gains Tax
Not every profit on every asset will give rise to CGT.
CGT arises when:
* there is a chargeable disposal
* of a chargeable asset
* by a chargeable person
* which gives rise to a chargeable gain
All of these elements must be satisfied or there is no CGT liability
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8.2.1 Chargeable disposal
Two examples of a chargeable disposal are:
* the sale of an asset
* the lifetime gift of an asset
However, a gift on death (whether by the person’s will or the rules of intestacy) is not a chargeable
disposal.
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8.2.2 Chargeable asset
Chargeable assets include certain valuable personal possessions (but not cars) and certain nonphysical assets, such as shares. However, this section will focus on real property (land), and it is simple because all property assets are chargeable assets, except the main home where and insofar as it qualifies for Private
Residence Relief.
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8.2.3 Chargeable person
A chargeable person is an individual who is a UK taxpayer (under the residence rules) for the
relevant tax year. Companies do not pay CGT (as they are in the corporation tax regime). Charities are usually exempt from paying CGT.
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8.2.4 Chargeable gain
Even if a chargeable person makes a chargeable disposal of a chargeable asset, there still needs
to be a chargeable gain to give rise to a CGT liability. Chargeable gain looks at the increase in value of the asset.
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In calculating the chargeable gain, the taxpayer can take into account allowable expenditure.
In the case of property, this may include:
* costs incurred in acquiring the asset (such as conveyancers’ fees for the purchase)
* costs incurred that contribute to the value of the asset (such as the cost of building an extension but not costs of maintenance or repair)
* costs incurred in disposing of the asset (such as conveyancers’ fees for the sale and estate
agents’ commission)
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8.3 Capital losses and the annual exemption
If a taxpayer has made losses on assets during the tax year, they may offset that against gains
made. A taxpayer is also entitled to annual exemption (currently £6,000). Akeyo in the same tax year as selling the restaurant, separately sells a painting that was hanging in the restaurant. The painting was bought for £20,000 but the artist has fallen out of fashion, and the painting is now worth only £17,000. Akeyo can offset his loss of £3,000 against his gains, to reduce them from £30,000 to £27,000.
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8.3 Capital losses and the annual exemption
The first £6,000 is tax-free as it comes within Akeyo’s annual exemption, so it is the remaining
£21,000 that is taxed. The actual tax that is paid will depend on the taxpayer’s income tax status. For detail on this refer to the Business Law & Practice module.
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8.4 Private Residence Relief
Private Residence Relief applies so that a person does not pay Capital Gains Tax if they sell or
dispose of their home, provided the following conditions are met:
* it has been the person’s main home for all the time that they lived in it
* they have not let it out (other than taking a lodger)
* it has not been used for business purposes (using a room as a temporary office is ok)
* the grounds including all buildings are less than 5,000 square metres
* it was not bought just to make a gain
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8.4 Private Residence Relief
If any of these conditions are not met, then Private Residence Relief may be reduced or not
available at all. Married couples and civil partners can only treat one property as their main home between them (they can’t have one each).
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8.5 Summary
* Capital Gains Tax (CGT) arises when there is a chargeable disposal of a chargeable asset by
a chargeable person incurring a chargeable gain
* Individuals pay CGT, companies do not
* The chargeable gain is the sale or disposal value less the acquisition cost
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