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Exchange of Contract Flashcards

1
Q

What are a lender’s aims in a freehold transaction?

A

Does property have enough value to repay this loan?

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2
Q

When is a lawyer able to act for both buyer and lender?

A

Residential properties - no negotiation of mortgage

Commercial transactions - lenders will need their own solicitors are they will draft legal charge / draft certificate of title.

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3
Q

What key lending documents are there in a freehold transaction?

A

Mortgage offer

Certificate of title - document where solicitor certifies that the title to the property is satisfactory for lending purposes

Facility letter - commercial equivalent of mortgage offer

Legal charge - deed creating security, registered at Land Registry

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4
Q

What format is a standard certificate of title of commercial property? How is it structured?

A

CLLS Certificate of Title

Series of statements if property title is in perfect order - must disclose if any are incorrect

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5
Q

What formalities must a property contract satisfy?

A

Must satisfy S2 LP(MP)A
o In writing
o Signed by both parties
o Contain all expressly agreed terms

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6
Q

Why do you need a contract if it does not actually effect the transfer of land?

A

Fix completion date – parties will know when they need to have money and make practical arrangements

Tie related transactions e.g. money from another sale

Set out related obligations

Include conditions – e.g. obtaining specific planning permission

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7
Q

What do standard residential transaction property contracts refer to?

A

Standard Conditions of Sale

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8
Q

What do standard commercial transaction property contracts refer to?

A

Standard Commercial Property Conditions

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9
Q

Is it common to use tailor made contracts for commercial transactions?

A

Yes - often based on precedents and will still incorporate Standard Commercial Property Conditions but will amend them as required

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10
Q

When are the Standard Conditions of Sale obligatory?

A

If parties are adopting the Law Society Conveyancing Protocol

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11
Q

Can the Standard Conditions of Sale be used for commercial transactions?

A

Yes - simple / low value

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12
Q

Can the Standard Conditions of Sale be amended?

What restrictions might a solicitor have on amending Standard Conditions?

A

Yes - with special conditions

Some special conditions are already included

If following Law Society Conveyancing Protocol - can only add special conditions if absolutely necessary

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13
Q

What two things must a seller disclose, in an exception to the principle of caveat emptor?

A

Latent incumbrances - rights burdening the property that are not apparent on inspection

Defects in title - issues that cast doubt on the seller’s ownership of the property or rights that affect it

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14
Q

How do both sets of standard conditions (residential and commercial) amend the duty that the seller must disclose incumbrances?

A

Both sets list incumbrances which the seller does not have to disclose

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15
Q

What is the difference between the specified incumbrances that the seller NEED NOT disclose between residential and commercial?

A

Residential (SCS): Seller must disclose any incumbrances registered at the Land Registry / Land Charges Registry / CH

Commercial SCPC: Buyer is deemed to buy the property subject to any incumbrances which would be revealed by a prudent buyer’s searches and enquiries

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16
Q

What is the default position in SCS and SCPC as to title guarantee?

A

Full title guarantee

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17
Q

When would limited title guarantee be given?

A

Sellers with little knowledge of the property such as executors of a deceased’s estate

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18
Q

When would no title guarantee be given?

A

Seller does not guarantee.- buyer would have no remedy if a title issue arose after completion.

Administrator or liquidator might offer no title guarantee

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19
Q

What default provision do the SCS and SCPC have for completion date and time, if not fixed by the parties?

A

Date that is 20 working days after the date of the contract

2pm

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20
Q

When in a contract does time become of the essence?

A

When a notice to complete is served

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21
Q

If no notice to complete has been served, what happens if a party fails to complete by specified date and time?

A

Non-defaulting party can claim damages, but cannot yet walk away from the transaction

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22
Q

What rate is interest on a default to complete payable at?

A

Contract rate

23
Q

What can party who is ready to complete do to make time of the essence?

A

Serve a notice to complete

24
Q

What can the non-defaulting party do if time becomes of the essence?

A

If the contract is not performed by the specified time, can walk away and claim damages for breach

25
What can happen if parties agree a lower deposit (e.g. less than standard 10%) but buyer doesn't complete on time and seller serves notice?
Buyer must immediately pay balance of the 10% deposit
26
How must the deposit be paid?
SCS - cheque or electronically SCPC - only electronically
27
What is the difference between seller's solicitor holding deposit as stakeholder versus agent?
Stakeholder - seller's solicitor must keep deposit safe and not pay it to seller until completion Agent - seller can demand deposit immediately after exchange
28
How do SCS and SCPC insist that seller's solicitor holds deposit?
As a stakeholder If deposit is needed for a related transaction, it can move however
29
How is VAT added to residential property?
It is not - usually exempt or zero rated No VAT payable - SCS says purchase price is inclusive of any VAT
30
How is VAT added to commercial property?
Always consider with commercial property Default position is that property will be a standard rated supply - VAT at 20% on top of purchase price
31
What exceptions are there to the general rule that commercial properties are VAT rated at 20%?
If the property is over three years old Seller has not made an option to tax If no VAT payable - amend SCPC with a special condition
32
Who bears the risk of the property after exchange? How should this be managed?
Buyer Damaged or destroyed - buyer must still complete Property should be insured from date of exchange Lender may want confirmation of this before advancing completion funds May be better for seller to keep insurance policy going - special condition if so SCS and SCPC have standard obligations on the seller regarding insurance
33
What do SCS and SCPC say about indemnity covenants?
If the chain of covenants is unbroken, SCS and SCPC make it an obligation of the contract to give covenants If parties want to agree wording themselves - special condition needed
34
What are the common pre-written special conditions in a residential property?
Tie the contract to the SCS Allow the parties to amend the title guarantee from full to limited by changing the front page Allow parties to specify included and excluded contents on attached list Vacant possession / leases / tenancies Parties can agree different completion time Seller has protection against misrepresentation by limiting liability to written statements - If seller is fraudulent or reckless even if it is something they say, buyer may still have a cause of action Occupier’s consent o Any adults over 18 who live in the property other than the seller should be identified o Occupiers must sign the form – seller should obtain this signature, and occupier must seek independent legal advice
35
What key differences are there in the special conditions between residential and commercial property contracts?
Tick box for limited title guarantee is rarely used in commercial transactions Parties can specify that deposit and balance of purchase price will come from an account other than the buyer’s solicitor’s client account Any specific terms of the transfer / draft transfer can be included; relevant for a sale of a part where seller wishes to reserve rights Options to tick for VAT treatment, capital allowances, rights of residential tenants in a property e.g. long leases
36
When is VAT charged?
On a taxable supply by a taxable person in the course of business
37
How do businesses function as tax collectors on behalf of HMRC?
When a VAT registered business supplies certain goods or services, can charge VAT on sale price - pays this every 3 months to HMRC
38
How can a business reduce the amount of VAT it has to pay?
The amount of money it has to pay on its own sale (output tax) can be reduced by the amount of VAT it has paid for goods and services (input tax)
39
What kind of businesses are taxable persons?
Any business with a VAT taxable turnover of over £85,000 each year If turnover is lower, you can register voluntarily
40
What kinds of property are exempt supplies?
Residential property, unless it is newly constructed Commercial property over 3 years old, where owner has not opted to tax
41
What kind of property is a zero-rated supply?
Newly constructed residential property Even though no VAT is payable, seller can recover input tax from HMRC as it is theoretically taxable
42
What kind of property is a standard-rated supply?
Newly constructed commercial property - less than three years old Older commercial property, if the seller has opted to tax
43
What is an option to tax?
Subsequent sale of that property is standard rated Any tenants would also have to pay VAT on rent
44
When do you need to check if an option to tax has been made?
Older commercial buildings Check via the CPSE enquiries
45
How does the SCPC approach VAT?
By default, property is standard rated Various tick boxes then can customise this e.g. properties exempt from VAT
46
What is a transfer of a going concern?
Transaction where seller uses property for the business of letting to produce a rental income and buyer will do the same - not a taxable supply for VAT purposes
47
When exchanging, who prepares the contract, and who checks it?
Seller's solicitor drafts - if LSCP adopted, contract should be in standard form Buyer's solicitor checks it
48
What must a buyer check before exchange?
All replies to search results / enquiries have been logged Check that buyer has received survey and is happy with it Check buyer has insurance Check cleared funds have arrived Ensure lender's solicitor has approved draft certificate of title (commercial only) Get buyer's signature Completion date Authority of buyer to exchange contracts
49
What must seller do before exchange?
Obtain a redemption figure Reply to any final enquiries Prepare final versions of the contract (engrossments) and send one copy to seller for signature and one to buyer Get seller's authority to exchange
50
How do lawyers exchange?
Law Society Formula B
51
What undertakings does Law Society Formula B impose on solicitors?
Hold contract to other solicitor's order Post contract to other solicitor by 1st class post or DX or by hand delivery Buyer: send deposit in form of payment
52
How is the exchange of related properties managed?
Related sales and purchases must be tied together – risk second exchange will fall through if not Solicitor will release the contract to the solicitor who is dealing with a related transaction – if solicitor manages to exchange by an agreed time, first contract is treated as exchanged; if not, exchange is cancelled
53
What must be remembered post exchange?
Prepare memorandum of exchange with key contract terms on file Risk passes to buyer - insurance should be in place Arrangements for completion Maybe land contract protected?

Property Law and Practice (6 decks)

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