Freehold transactions

Question 1

Which of the following statements best describes why the parties to a property transaction will often appoint a solicitor?

(a) To identify any potential issues and offer practical solutions

(b) 
There will be rights, obligations and restrictions on the property that will need advising on.

(c) 
To investigate the physical condition of the land and any buildings on it

(d) 
To ensure there are sufficient funds to finance the transaction.

Answer 1

(b) 
There will be rights, obligations and restrictions on the property that will need advising on.


Question 2

Which of the following correctly describes the buyer’s aims in a property transaction?

(a) 
Identify the rights that the property enjoys.

(b) 
Realise funds from the sale transaction and repay any mortgage on the property.

(c) 
Ensure that the buyer has the right to buy the property.

(d) 
Effect a legal transfer of the property to the buyer

Answer 2

(a) 
Identify the rights that the property enjoys.


Question 3

Which of the following correctly describes the seller’s aims in a property transaction?

(a) 
Identify any third party rights (b) 
Ensure the seller has the right to sell the property

(c) 
Ensure the property transaction is tied in with any related transaction and meets their business requirements.

(d) Ensure there are sufficient funds to finance the purchase

(e) 
Identify any third party rights affecting the property

Answer 3

(c) 
Ensure the property transaction is tied in with any related transaction and meets their business requirements.


Question 4

True or false: quick and cheap freehold transactions result in a happy client.

Answer 4

False - to some extent this is true, until something goes wrong.

Question 5

True or false: in commercial freehold transactions, the lender and the borrower are often represented by the same solicitor.

Answer 5

False - in commercial freehold transactions, the lender and the borrower usually have different solicitors because this sort of transaction will normally involve negotiation over security documents and so may give rise to a conflict of interest.

Remember that in residential freehold transactions, it is usual for both the lender and the borrower to have the same solicitor because there are standard documents and typically no room for negotiation.

Question 6

In which of the following stages in a conveyancing transaction does most of the work take place?


(a) Post-completion

(b) Pre-contract to exchange 

(c) Pre-completion to completion

Answer 6

(b) Pre-contract to exchange

The most work is pre-contract when the buyer is trying to find out as much as possible about the property before becoming contractually bound
.

Question 7

At what point in a property transaction do the parties become contractually committed to the deal?

(a) 
When Heads of Terms are agreed

(b) Completion

(c) 
Registration of the transfer deed at the Land Registry

(d) 
Exchange of contracts
(e) 
When the TR1 is executed

Answer 7

(d) 
Exchange of contracts

At exchange of contracts, the buyer will pay a deposit (usually 10% of the purchase price), and a legally binding contract comes into existence.


Question 8

At what stage in a property transaction is the buyer recognised as the new legal owner?

(a) Completion

(b) When the TR1 is executed

(c) 
When Heads of Terms are agreed

(d) 
Registration of the buyer at the Land Registry
(e) 
Exchange of contracts

Answer 8

(d) 
Registration of the buyer at the Land Registry

Legal title to the property will not pass until the transfer deed is registered at the Land Registry
.

Question 9

At which stage in the property transaction is SDLT paid?

(a) 
Pre-contract to exchange

(b) 
Post completion

(c) 
Pre-completion to completion

Answer 9

(b) 
Post completion


Question 10

At which stage in a property transaction does the buyer’s solicitor request mortgage funds from the buyer’s mortgage lender?

(a) 
Pre-contract to exchange

(b) 
Pre-completion to completion

(c) 
Post completion

Answer 10

(b) 
Pre-completion to completion

Prior to completion the buyer’s solicitor will request mortgage funds from the lender so that it has the balance of the purchase price (less the deposit paid at exchange) in its account prior to completion taking place, the point at which the balance is transferred to the seller’s solicitor.


Question 11

To which party is the principle of caveat emptor most relevant?

(a) 
The seller

(b) 
The buyer
(c) 
It is equally relevant to both parties

Answer 11

(b) 
The buyer

The principle means that a buyer takes the property as it finds it. It cannot turn around after exchange of contracts to the seller and try pull out of the deal because there is something wrong with the property. The principle is therefore most relevant for the buyer.


Question 12

Which of the following options is not a source of information about the property for the buyer?

(a) 
Replies to standard pre-contract enquiries

(b) 
The draft contract

(c) 
Pre-contract search results

(d) 
Official copies from the Land Registry

(e) 
Physical survey

Answer 12

(b) 
The draft contract

Information about the property will not come from the draft contract. The contract will document the terms agreed between the parties.


Question 13

Which of the following options best describes the principle from the case of Hardy v Griffiths?

(a) 
There is an onus on the seller to disclose any physical defects in the property.

(b) 
A buyer can pull out of a deal before contracts are exchanged.

(c) 
A buyer can claim misrepresentation if the seller fails to disclose any information in the replies to enquires. It is not even necessary for the buyer to have read the replies.

(d) 
A seller does not have to disclose information about rising damp or dry rot in replies to enquiries.

(e) 
There is no onus on the seller to disclose any physical defects, it is for the buyer to discover them.


Answer 13

(e) 
There is no onus on the seller to disclose any physical defects, it is for the buyer to discover them.


The court’s main points were that:
1. There is no onus on seller to disclose physical defects in property
2. In the case there was no evidence to suggest that the buyer had even read the seller’s replies to enquiries, which means that they could not have relied on the alleged misrepresentation

Question 14

What is a latent encumbrances and how is it treated under caveat emptor?

Answer 14

A latent encumbrance is something which is not apparent or cannot be discovered when inspecting the property. It is an exception to caveat emptor and must be disclosed by the seller to the buyer, where the seller is aware of it or where they have means to know about it, acting reasonably and diligently.

Question 15

What are the two exceptions to caveat emptor?

Answer 15

1. Misrepresentation
2. Latent encumbrances and title defects

Question 16

What is a title defect and how is it treated under caveat emptor?

Answer 16

A title defect is something that brings into question the seller’s ownership of the property or rights and burdens that affect it. It typically arises as a result of missing title deeds. The seller is under a duty to disclose these to the buyer, meaning this is also an exception to caveat emptor.

Question 17

What is the principle of caveat emptor?

Answer 17

Caveat emptor is the latin term for “buyer’s beware”. It emphasises that the buyer takes the property as they find it and the onus is on them to ensure that it is up to standard. If they are unhappy with it, they can withdraw from the transaction or renegotiate up until exchange. After that, there will be legal and financial consequences if they choose to withdraw

Question 18

In which of the following situations would co-ownership issues not need to be considered?

(a) 
A man is buying a property by himself with a contribution to the purchase price from his brother

(b) 
A company is buying a property

(c) 
An individual buying a house to be held on trust for his grandchildren

(d) 
Four friends are buying a property together

(e) 
Two individuals buying a property from which they will run their business

Answer 18

(b) 
A company is buying a property


Question 19

Which of these following statements applies in respect of the equitable title (ownership)?

(a) 
You can only hold the title as joint tenants

(b) There can only be a maximum of 4 who hold the title

(c) 
You can hold the title as joint tenants or tenants in common.

(d)
You must be over 18 to hold the title

(e) 
You can only hold the title as tenants in common

Answer 19

(c) 
You can hold the title as joint tenants or tenants in common.


Question 20

Your client is buying a 1950s house that has been lived in continuously. Which of the following correctly explains the advice you should give your client about surveys?

(a) 
A structural survey should be carried out as this is the only survey that gives a valuation.

(b) 
A basic valuation need only be carried out because this is all a lender requires

(c) 
A full structural survey should be carried out because this is the most detailed survey

(d) 
A home buyer’s survey should be carried out because this is the most detailed survey

(e) 
A homebuyer report would be appropriate for this kind of property.


Answer 20

(e) 
A homebuyer report would be appropriate for this kind of property.


Question 20

Two clients are buying a property together. They are contributing in equal proportions to the purchase price but have stated they want to be able to pass their share in the property under a will should they die during the ownership of the property. Which of the following correctly explains the best advice you should give your clients?

(a) 
The legal title should be held by them as tenants in common because the right of survivorship will not then apply

(b) The legal title should be held by them as joints tenants because the right of survivorship will apply

(c) 
The equitable title should be held by them as joints tenants because the right of survivorship will apply

(d) 
The equitable title should be held by them as joints tenants because they are contributing equal proportions to the purchase price

(e) 
The equitable title should be held by them as tenants in common because the right of survivorship will not then apply

Answer 20

(e) 
The equitable title should be held by them as tenants in common because the right of survivorship will not then apply

The clients have advised us they do not want the right of survivorship to apply, they wish to be able to leave their share of the property under a will. Therefore, they should hold the equitable title as tenants in common, which means they are seen as owning their own share in the property.

Question 21

You are acting for the seller of a property. Which of the following types of tax do you need to consider may be payable by your client depending upon the circumstances?

(a) 
SDLT and VAT

(b) 
Capital Gains Tax and VAT
(c) 
SDLT only

(d) 
VAT only

(e) 
Capital Gains Tax and SDLT

Answer 21

(b) 
Capital Gains Tax and VAT

Capital Gains Tax (CGT) is a tax on the profit when you sell of an asset. It may therefore be payable depending upon the circumstances. VAT (value added tax) is a tax where a business charges VAT on its sales and recovers VAT on its purchases. It may be payable, you would need more information from the client.


Question 22

What are the three different types of survey?

Answer 22

1. Basic valuation
2. Homebuyer’s report
3. Full structural survey

Question 23

True or false: right of survivorship applies to both tenants in common and joint tenants.

Answer 23

False - it only applies to tenants in common.

Question 24

Which of the following would be classed as a disbursement for a buyer in a property transaction? (a) 
Legal Fees
 (b) 
SDLT
 (c) 
The purchase price
 (d) 
Proceeds from any related sale
 (e) 
A mortgage loan

Answer 24

(b) 
SDLT SDLT would be classed as a disbursement, along with search fees and Land Registry fees. A buyer must have sufficient funds to pay for these in addition to the costs of the transaction.


Question 25

Which of the following statements is correct in respect of interest rates? (a) A low risk borrower is likely to be charged a higher interest rate
 (b) 
The higher the interest rate the lower the monthly payments that a borrower will make
 (c) 
The interest rate is the cost of debt for the lender
 (d) 
A high risk borrower is likely to be charged a higher interest rate (e) A high risk borrower is likely to be charged a lower interest rate

Answer 25

(d) 
A high risk borrower is likely to be charged a higher interest rate When the borrower is consider a high risk, the interest rate they will be charged will be higher. This means the cost of the debt for the borrower is higher. This reflects the risk the lender is taking by loaning to the borrower.


Question 26

A borrower is repaying monthly sums on their mortgage loan. At the end of the term they will have repaid all sums owed through these repayments. Which of the following types of mortgage loan will the borrower have? (a) 
A capital repayment mortgage (b) 
A sharia-compliant mortgage
 (c) 
An endowment mortgage
 (d) 
A pension mortgage
 (e) 
An interest only mortgage

Answer 26

(a) 
A capital repayment mortgage A Capital Repayment mortgage is the basic way of repaying all mortgages. With repayment mortgages, each month you repay some of the interest you owe plus some of the money (capital) borrowed. At the end of the period the borrower will have paid back everything they owe and will own their home outright.


Question 27

What are the three types of mortgages for residential properties?

Answer 27

1. Capital repayment mortgage 2. Interest only mortgage 3. Endowment mortgage

Question 28

How can a client cover funding for residential properties?

Answer 28

1. Client's own resources 2. Mortgage loan 3. Proceeds of any related sale

Question 29

True or false: in commercial transactions of high value properties, money may be raised by a syndicate to raise money and limit their risk exposure.

Answer 29

True - a syndicate is a group of lenders.

Question 30

In which of the following situations can you accept instructions from the person identified? (a) 
A branch manager of a shop on behalf of a nationwide retail company in buying premises neighbouring the branch.
 (b) From a woman on behalf of her brother in the sale of his flat as he is travelling overseas.
 (c) 
A majority shareholder instructing you to sell the company's headquarters.
 (d) 
From a woman on behalf of her and her civil partner. You met them both initially in which they confirmed that you can accept instructions from either of them on behalf of the other.
 (e) 
From a man on behalf of his elderly mother in selling her home to pay for care fees. His mother has lost mental capacity and so is unable to instruct you.

Answer 30

(d) 
From a woman on behalf of her and her civil partner. You met them both initially in which they confirmed that you can accept instructions from either of them on behalf of the other.


Question 31

You are acting for a landlord that is granting a lease to a company. You have drafted the lease and sent a copy of the lease directly to the company as it had not yet instructed solicitors. One of the directors of the company calls you and asks you to act for the company as well as the landlord to save costs. The director says that the rent is agreed. Which one of the following statements is correct? (a) 
GCL and NWL are competing for the same objective as they both have the same objective of wanting the lease to be granted so you, personally, could act for them both by relying on CCS 6.2(b) so long as you could show you had satisfied all the elements of CCS 6.2 (i) to (iii).
 (b) 
The landlord and the company have a substantially common interest as all the key terms in the lease have been agreed so you, personally would be able to act for both of them by relying on CCS 6.2(a) so long as you could show you had satisfied all the elements of CCS 6.2 (i) to (iii).
 (c) 
As this transaction falls within CCS 6.1 you personally would not be able to act for both the landlord and the tenant
 (d) 
If you, personally, were to act for both the landlord and the company, there is a risk you would breach CCS 6.2

Answer 31

(d) 
If you, personally, were to act for both the landlord and the company, there is a risk you would breach CCS 6.2 In negotiating the lease you will not be able to act in both the landlord’s and the company’s best interests leading to a conflict of interests under CCS 6.2. There are more clauses in the lease to be agreed than just the rent.

Question 32

You are acting for a couple purchasing a house. You are also acting for their lender, a high street bank. The couple do not want you to tell the lender that they intend to let out the property as they know the lender would then insist that the mortgage interest rate would increase from the mortgage rate they have been offered on the basis of the house being lived in by the couple as their main residence. What is the professional conduct issue here? (a) 
Your duty of confidentiality to the couple overrides your duty to disclose. You must inform the lender that you cannot now act for professional reasons.
 (b) 
You have a duty to immediately report to the relevant authority that the clients are committing mortgage fraud.
 (c) 
You advise the clients to proceed as it is unlikely that the lender will ever discover that the property is let.
 (d) 
You have a duty to report the couple’s plans to the lender.

Answer 32

(a) 
Your duty of confidentiality to the couple overrides your duty to disclose. You must inform the lender that you cannot now act for professional reasons.


Question 33

As a solicitor, which of the following would NOT be a breach of client confidentiality? (a) 
Advertising on your website that you act for a famous client without disclosing the precise nature of your instructions.
 (b) 
Notifying your client's lender (who is also your client) that the price of the property your client is buying is lower than the lender was told.
 (c) 
Sending details of your client's financial circumstances to solicitors acting for the client's buyer.
 (d) 
Sending details of your client's property to solicitors acting for the client's buyer. (e) 
Updating your parents on the work you are doing for your sibling.


Answer 33

(d) 
Sending details of your client's property to solicitors acting for the client's buyer. You are likely to have either express (in your client care letter) or implied consent to provide this information which is necessary to progress the sale.


Question 34

What are the exceptions to acting if there is a conflict of interest (not an own conflict of interest)?

Answer 34

CCS 6.2: You do not act in relation to a matter or a particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it unless: (a) Clients have substantially common interest in relation to matter or aspect of it, as appropriate, or (b) The clients are competing for the same objective and: (i) All clients have given informed consent, given or evidenced in writing, to you acting; and (ii) Where appropriate, you put in place effective safeguards to protect your clients’ confidential info; and (eg allowing certain staff to access clients’ files) (iii) You are satisfied it is reasonable for you to act for all clients (eg if one client is ore vulnerable than other, it would not be reasonable to act for both)

Question 35

True or false: sellers and buyers always have a substantially common interest.

Answer 35

False - they may both have the common purpose of the property being sold, however they will have a different consensus as to how to reach that common purpose.

Question 36

Are there any exceptions to the rule which states that you cannot act in a situation where you have an own interest conflict?

Answer 36

No.

Question 37

What is an own interest conflict?

Answer 37

A situation where your duty to act in the best interests of any client in relation to matter conflicts, or there is a significant risk that it may conflict with own interests in relation to that or related matter eg a financial interest of yours or someone close to you.