Exchange and completion Flashcards
Authority for exchange
- Both solicitors need to get clients authority to exchange - in writing and a note made on the file (otherwise negligent)
- Clients should be made aware of the consequences of exchange (i.e can no longer withdraw from contract
What steps should be taken in preparation for exchange of contracts?
- Buyers solicitor report to client - in writing explaining:
* Results of the title investigation and searches/inquiries
* Terms of the contract; and
* Terms of the mortgage offer - Report to lender - who will need to know the property is good security for the loan and has ‘good marketable title’
- Ensure deposit funds are available - in cleared funds, ready to send to seller’s solicitor at the exchange
- Check the mortgage offer is in place and that client has sufficient funds to complete
* Buyer has the offer and accepted it and complied with conditions attached/ be in a position to
For the contract to be binding under s2(1) Law of Property (Miscellaneous Provisions) Act 1989
- In writing
- Incorporates all the agreed terms
- Contained in either one doc/ in each copy of the contract and
- Signed by the parties
Method of exchange
- In person (one solicitor attending the other’s office and handing contract over)
- By post (each sending their clients part by post to the other’s office)
- Over the phone (following Law society formula A/B/C)
Law society formula A (one holds all)
- One solicitor holds both parts of the contract duly signed
The undertakings are: - the solicitor holding both signed parts will on the same day
- Will send signed part of contract to the other side (by post or DX or by hand)
- If buyer’s solicitor = also send a banker’s draft / client account cheque for the agreed deposit
Forumla B
- Each solicitor holds their own clients signed part of the contract
- Each undertakes to send their clients signed part to the other side by 1st class post/dx/hand duly dated
- Buyer’s solicitor undertakes - to send a bankers draft/ client account cheque for the agreed deposit (same day w/ the contract)
Formula C
Used in residential - when there is a chain transaction, when 2 or more properties being sold
Aim is to synchronise all transactions
Consequences of exchange for buyer
- Unless contract provides otherwise, buyer bears risk of any loss or damage (SO insurance needs to be in place and effective from moment of exchange)
Consequences of exchange for seller
- Retains legal title in property until completion but holds beneficial interest on buyer’s behalf
- Seller is entitled to stay in physical possession
- Seller must pay outgoings such as community charge/ business rates until completion
Immediately after exchange - steps to take by solicitors
- Must inform clients that exchange has taken place and comply with any undertakings given during telephone exchange (sending signed and dated contract w/ completion date inserted)
Main tasks at pre-completion stage
- Prepare the transfer deed
- Pre-completion searches
- Making practical arrangements (keys)
- Ensure finance are in order to complete
Form of transfer deed and formalities for execution - S52 lpa 1925 AND S 1(2) lp(mp)a
- Signed and executed as a deed
* Private individual (signature witnessed by independent witness)
* Company may execute in one of 3 ways
* Seller executes transfer deed and buyer will also if he’s enerting into an obligation/making a declaration in TR1 - e.g. indemnity covenant or declaring a beneficial interest under a trust - Delivered as a deed (document which makes it clear on its face that it is intended to be a deed)
Pre-completion searches - carried out by buyer’s solicitor - registered land
- No further incumbrances by seller: OS1 and OS2(sale of part)
* search against title number, from date on which official copies were produced - For priority period: OS1R (ORS2R)
* will reveal new entry made since the search from date
* confers priority period of 30 working days from date of the search RESULT = protection against any subsequent entries which may be placed on register after date of search but before buyer is registered as proprietor
* Buyer takes free from any later entries so long as they submit their app for registration by 12pm on the last day of the priority period
* IF THERES A MORTGAGE - search should be in name of LENDER (gives priority to both B and L)
* There is a fee
Pre completion searches of title for unregistered land
- Search against SELLER’s name
- Land charges search made on K15
- Priority period of 15 working days from date of the result
- would normally have been done during pre-exchange period but will need to be repeated unless the transaction can be completed within 15 days of pre-exchange search
Fee: for each name searched
Pre completion searches to check buyer’s solvency on behalf of lender - registered land
- When buyer is individual = Form K16 (limits search to bankruptcy register at Land Charges department)
- If buyer is company and there’s mortgage = company’s search
- Against seller = not needed unless transaction is of high value/ there’s reason to be concerned
Solvency checks for unregistered land
- Against buyer’s name and seller’s name on Form K15
- Company search/ telephone search at the registry of winding up petitions at the company court on day of completion if high value
Practical matters to sort out - completion information and requisitions (Form TA13)
- Details of whereabouts of the keys to property;
- Undertaking given by seller’s solicitor to redeem the mortgage with [bank]; and
- Confirmation of exact amount required to complete the purchase
What documents the solicitor should send to lender to ensure the transaction can complete on time (4 things)
- Cetificate of title;
- A solvency search against the buyer
- A clear OS1R in the same of the lender and
- executed but not completed mortgage deed
Steps to take on completion
1) At completion – BUYER solicitor will send the balance of the purchase price and release the deposit paid on exchange to the seller
- Buyer solicitor will usually arrange for the completion money to be sent electronically:
- 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
2) On receipt of the completion money SELLER solicitor will complete the transaction by dating the TR1
3) After TR1 has been dated the LENDER’s solicitor will need to date the mortgage deed
(Cannot be done until after the TR1 has been dated (because technically the buyer does not own the property until then and so would not be able to grant a mortgage over it)
Methods of completion
- In person
- By post - using Law Society Code for Completion by Post
(involves seller’s solicitor acting as the agent of the BUYER’s solicitor) for purpose of carrying out completion procedure
Effect of completion
- Registered land - legal title doesn’t pass to buyer until the buyer is registered at Land Registry as the proprietor of the land
- Unregistered - legal title passes on completion
Post completion steps - Registered land
- Discharge the seller’s mortgage
- Pay Stamp duty/ land tax
* Stamp duty on purchase price within 14 days of completion
* LTT within 30 days
* Failure to pay = fines/penalities/ any app to land reg. will be rejected unless SDLT5/WRA certificate comes with application - Registration
* Registered land = From AP1 register buyer as registered proprietor and lender; or DS1 to register lender as the registered proprietor of the charge (buyers solicitor must apply for mortgage to be discharged)
Post completion steps - unregistered land
Application for first reg. must be made within 2 MONTHS of completion of the transaction (form FR1)
WITH following docs to be sent to land registry:
a) evidence of titles supplied by seller’s solicitor
b) All buyer’s pre-contract searches and enquiries relating to the title w/ their replies
c) The contract
d) Requisitions on title and their replies
e) All pre-completion search certificates
f) The transfer deed
g) seller’s mortgage -duly reciepted
h) SDLT/LTT certificate
2) Registrar investigates title > decides which class of title
3) If new mortgage = original mortgage deed also needed
4)Then Land reg will process for registration and insert buyer as new registered proprietor and lender as new registered proprietor of the charge
5) Land Reg forwardS an official copy of the entries on the register = Title Information Document (TID) to BUYER solicitor
Date/time of completion under SC and SCPC
- SC 6.1.1 (SCPC 9.1.1) provide that the completion date is 20 working days after the date of exchange/ as agreed in contract
- SC and SCPC = Money due must be paid before 2pm on the day of completion (IF NOT completion is treated as taking place on the next working day)
- Both conditions = time is not of the essence (unless notice to complete has been served) - so no immediate right for the non-defaulting party to terminate or rescind on the contractual completion date
