Completion Flashcards
When does completion commonly take place in relation to exchange and what are the key pre-completion stage steps to be taken?
1) Completion is commonly two weeks after exchange of contracts and sometimes simultaneous
2) Core tasks in pre-completion stage are:
- Preparation of the transfer deed
- Pre-completion searches
- Making practical arrangements for completion
- Ensuring the finances are ready for completion
For a valid transfer of a legal estate in land, the transfer must be made by deed. What are the requirements for a valid deed?
Valid deed must:
- Make it clear it’s a deed
- Be signed by the parties
- Be delivered - Presumed to be delivered on execution, subject to contrary intention
- Where executed by a private individual, signature must be witnessed by an independent witness
How can companies execute a deed?
Companies can execute a deal by (1) using the company seal, (2) having it signed by director + secretary or two directors or (3) by having it signed by one director in the presence of a witness who attest this signature as too
Which party needs to execute the transfer deed? Buyer or seller?
Seller always executes the transfer deed
Generally drafted by B’s solicitor and sent to S’ solicitor for agreement immediately after exchange
Buyer may also execute the deed if they are giving an indemnity covenant or are buying the house as **beneficial joint tenants **
Is the type of title guarantee given by the seller decided by the TR1?
No - it is fixed by the contract, so TR1 must match that
What is the purpose of a pre-completion search of title and how does this work for registered land?
1) Aims to check that the title position has not changed since title investigation last took place (ie no easement granted, covenants entered, new mortgages etc)
2) For registered land, a LR search is made against the title number, using form OS1 or OS2 to check for new entries from when official copies were produced (‘search from’ date)
- Search result of Form OS1R (whole property sold) or Form OS2R (part of property sold) will reveal any new entries from ‘search from’ date and give the applicant a ‘priority period’ of 30 working days from the date of this search result
- This period provides protection to the applicant against any subsequent entries between the search and when buyer is registered as proprietor
- Buyer takes free of any such entries, if they submit their registration application by 12 noon on the last day of the priority period
3) Where buyer intends to have a mortgage, the application for LR search should be in lender’s name to protect the lender and buyer
- Search made on buyer’s behalf will not protect the lender
How does a pre-completion search work for unregistered land?
1) For unregistered land, a land charges search is made on Form K15 (results on K18) and gives a priority period of 15 working days, where searcher takes free of entries added between search and completion, if completion takes place in the 15 working day period
- Only need to search against current seller’s name again, not previous estate owners, since they couldn’t register new entries after parting with the property
How is the buyer’s solvency checked on behalf of the lender, at the pre-completion stage?
1) If title is registered, solicitor applies for a land charges search against B’s name
- Special LC search known as a ‘Bankruptcy only’ search, using Form K16
2) If title unregistered, solicitor would search against seller and buyer’s name on Form K15 (above)
How does a company search work when there is a company seller?
- Buyer’s solicitor should carry out a further company search prior to completion, where B is purchasing from a company
- This will reveal whether the seller is still in existence, whether it is solvent and whether it has created any fixed/floating charges
- Has no priority period, so needs to be carried out as close as possible to the day of completion
- A company search may also be carried out against a buyer, where they are buying with the aid of a mortgage, so as to protect the lender
How is a bankruptcy search against an individual seller carried out, at the pre-completion stage?
- For registered land, solicitors won’t do a bankruptcy check on an individual seller, as where no notice/restriction appears 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
- For unregistered land, a Form K15 search against the seller as estate owner, will reveal any entries relating to bankruptcy
- They have no priority period, so should be done close to completion date
What is a ‘completion information form’ or ‘completion statement’ and how does it aid the practical arrangements for completion?
1) Buyer’s solicitor sends it to seller’s solicitor for them to confirm:
- The 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
- They will include the price of any furniture to be paid, as this is separate from the purchase price of the property
2) Form also contains the undertaking for seller’s solicitor to undertake to discharge any outstanding mortgage and to send evidence of discharge to BS as soon as it is received from the lender
- Replying ‘Yes’ to the relevant section of the Form TA13 (most common completion information form for residential properties) is treated as an undertaking
What will a lender want to see before releasing a mortgage loan to a buyer?
- A certificate of title to confirm that the property is adequate security for the loan being advanced
- A solvency search against the borrowers
- A clear OS1R (pre-completion search) in the name of the lender
- An executed but not completed mortgage deed
What other financial arrangements will the buyer’s solicitor need to check/perform before completion?
1) BS will send B a financial statement, showing them: the funds needed to complete (purchase price, SDLT due, registration fee, solicitors’ fees etc)
2) Once BS has mortgage advance from lender and balance of purchase price, they send the balance of the purchase price to SS in the bank account specified in the Completion Information form
- Once money received, completion takes place
Completion can occur in person or by post, with post being more common. What does this involve?
There is a Law Society Code for completion by post, which relies on undertakings
- SS acts as agent for BS – BS gives instructions in writing to ask SS to do what they would have, if they attended completion in person
- SS gives an implied undertaking to BS that they will carry out their instructions
- At completion, BS sends the balance of purchase price and releases deposit paid on exchange to S – completion money usually paid electronically
- On receiving completion money, SS carries out instructions and completes the transaction. This will involve dating the transfer deed, which completes the transaction.
- Lender’s solicitor must date mortgage deed – must happen after TR1 is dated
- SS then contacts BS to inform them completion has taken place
- Documents which would be handed to BS are posted 1st class or via document exchange
What is the effect of completion for both registered and unregistered land?
Registered land – legal title only passes to B when B registered at LR as proprietor of the land
Unregistered land – legal title passes to B on completion, provided first registration is completed within 2 months, otherwise title reverts to seller
There are various post-completion steps as well. How is the seller’s mortgage discharged?
1) Once lender has received the amount required to redeem the mortgage from SS, they can either:
- (i) complete Land Registry form DS1 and send it to the seller’s solicitor for onward transmission to the buyer’s solicitor - SS sends proof of discharge to BS, who then sends it to LR
- (ii) submit an e-DS1 electronic discharge through the Land Registry portal; or
- (iii) use the Electronic Discharge (ED) system, sending an electronic message to the Land Registry which automatically removes the charge from the register
In (ii) and (iii) above, SS sends BS confirmation that notice of discharge has been given in electronic form to LR
When must SDLT or LTT be paid and why is it important that this is done in a timely manner?
1) SS sends executed TR1 to BS
2) BS arranges for SDLT to be paid within 14 days of completion; or LTT (paid to Welsh Revenue Authority within 30 days of completion)
- SDLT is paid on all purchase price, including deposit + VAT (if any) - not paid on any contents price (just value of land + buildings)
3) SDLT 5 PDF receipt from them confirms you have paid
- Fined if not done in time and Land Registry needs SDLT 5 or will reject applications
If the buyer is a company, buying with the aid of a mortgage, where does this charge need to be registered?
The lender’s solicitor will have to register the charge at Companies House within 21 days of creation (completion)
After seller’s mortgage is discharged and SDLT/LTT is paid, what Land Registry applications need to be made for registered land?
1) Once SDLT paid, BS needs to apply to have B registered as the registered proprietor of the land
2) For registered land, application must be made before expiry of 30 working day priority period (AP1)
Include:
- A certified copy of the transfer (not the original) should be submitted with the application, along with the fee, the SDLT/LTT certificate and the DS1 (if used) (proof of discharge of seller’s mortgage)
- The lender’s solicitor will also need to register the new mortgage in the priority period
3) Failing to submit in priority period will result in losing benefit of priority period (30-working days from pre-completion search)
4) Once the buyer has been registered as the new registered proprietor, the LR forward an official copy of the entries on the register, known as a Title Information Document (TID) to the BS
- Buyer keeps this as evidence that they are the new owner
After seller’s mortgage is discharged and SDLT/LTT is paid, what Land Registry applications need to be made for unregistered land?
1) For unregistered land, an application for first registration of title must be made within 2 months of completion on Form FR1, otherwise title will revert to seller
2) Registrar will investigate title to decide what class of title can be allocated, so they need all documents which formed evidence of title supplied by seller’s solicitor
3) Required documents include:
- SDLT1 to pay the correct sum for SDLT, then SDLT 5 when submitting form for first registration within 2 months of completion to LR
- Will also need the vacating receipt of prior mortgage and last conveyance + transfer deed
- New mortgage
- All land charges search results for the title to the subject property
- All other searches pre contract and pre completion and pre-contract enquiries with replies
- Original contract
- Requisitions on title with replies
- Form DL (list of all deeds and documents)
How does contractual compensation work as a remedy for delayed completion?
1) In the SCs, both the buyer and seller can be asked to pay this compensation
2) In the SCPCs, only the buyer can be required to pay compensation
3) Compensation is calculated at the Contract rate specified in the contract on the balance of the purchase price, less any deposit paid (if B in default) for the period between the contractual completion date and date of actual completion
- Compensation calculated at a daily rate
- Compensation payable on actual completion – if completion occurs after 2pm, treat it as the next working day
- When calculating how many days late it is, include day it was supposed to complete on exclude day it does happen; include all days including non-working days and bank holidays
Give an example to show how contractual compensation is worked out
The buyer will have to pay compensation on the balance of £300,000 less £30,000 deposit,
which is £270,000. That sum is multiplied by the Contract rate, which is 8.5%. This produces an annual rate of compensation of £22,950, which is turned into a daily rate by dividing it by 365. Once the daily rate is established, it can be multiplied by the number of days in default.
How do common law damages work as a remedy for delayed completion?
1) Seller can make a claim for breach of contract
2) Damages assessed under Hadley v Baxendale, with the measure being that of putting the claimant in the position it would have been in had the contract been correctly performed.
- Damages will be awarded for losses naturally flowing from the breach as well as for any reasonably foreseeable consequential loss
- This could include wasted legal costs, putting furniture into storage, the cost of renting another property, the cost of bridging finance and any rebooking removal costs.
3) Contractual compensation could also be claimed, but would be deducted from contractual damages
How does a notice to complete work as a remedy for delayed completion?
1) Where one party is willing and able to complete and the delay is not likely to be resolved quickly, they can serve a notice to complete after the contractual completion date
- Notice to complete makes time of the essence and gives the other party **10 working days to complete **
- If they fail to, party who served the notice can rescind (not obliged to)
2) If rescinded and defaulting party was B, **buyer will forfeit the deposit **
3) If rescinded and defaulting party was S, **seller must repay deposit to B **
4) Non-defaulting party can also claim damages for any losses they suffer because of other party’s default
