Key elements and structure of freehold property transactions

Question 1

What is conveyancing?

Answer 1

the process of transfer of title (ownership) to property between the seller (transferor) and buyer (transferee)

Question 2

the parties are usually free to withdraw from a conveyancing transaction before exchange of contracts

true or false

Answer 2

true

until exchange of contracts, the parties are usually free to withdraw from a conveyancing transaction - they will not usually be liable for wasted time and costs

Question 3

completion is when the parties become committed to enter into a property transaction.

true or false

Answer 3

false

exchange of contracts is when the parties become committed to enter into a property transaction and complete on the agreed completion date

completion is when the actual legal transfer takes place

Question 4

exchange of contracts is when the purchase monies are paid over, and the buyer receives the keys to the property

true or false

Answer 4

false

exchange of contracts is when the deposit monies are usually paid, with the balance purchase monies and keys being handed over on completion

Question 5

is freehold ownership of land capable of lasting indefinitely?

Answer 5

yes - it’s the closest thing to absolute ownership of land in england and wales

Question 6

what are the two key stages in a typical property transaction?

Answer 6

1) exchange of contracts
2) completion

Question 7

when is deposit paid?

Answer 7

on exchange of contracts- usually 10% of the purchase price

Question 8

when do parties become bound to complete on the transaction on the agreed completion date?

Answer 8

through the exchange of contracts

Question 9

what kind of interest does the buyer gain in the property under a constructive trust?

Answer 9

equitable interest

Question 10

are parties usually free to withdraw from the transaction until exchange of contracts?

Answer 10

yes, as it remains ‘subject to contract’

Question 11

when are the keys handed over and transfer deed completed?

Answer 11

upon completion when the balance purchase price is paid

Question 12

what else happens on completion apart from the balance purchase price being paid, keys handed over and transfer deed completed?

Answer 12

• buyer becomes entitled to apply to become registered as the proprietor and gains legal ownership (subject to registration at LR)

Question 13

in the case of land with registered title, when does the legal transfer technically take place?

Answer 13

until it’s registered at LR

Question 14

In the case of land with unregistered title, when does the legal transfer take place?

Answer 14

on completion

Question 15

what will happen if the title for unregistered land isn’t registered within two months of completion?

Answer 15

it will become void

Question 16

PRACTICE EXAMPLE

Jasper has agreed to sell a property to Laurits. Contratcs haven’t been exchanged, but Laurits decided to withdraw from the transaction.

How would you advise Jesper?

Answer 16

Laurits should be free to withdraw from the transaction, without penalty before contracts are exchanged. Laurits will not be liable to Jesper for wasted time and costs in the conveyancing process.

once contracts are exchanged, the parties will be committed to complete, the transaction will no longer be merely subject to contract, and there will be remedies in the event of a delay or failure to complete

Question 17

what does the sellers solicitor do at the pre contract stage?

Answer 17

• carries out an investigation of title
• undertakes a deduction of title for BS
• provide a draft contract and supporting docs
• replies to standard pre contract enquiries
• respond to any additional pre-contract enquiries and requisitions on title raised by BS
• deal with any proposals to amend the draft contract, produce clean copies for sigs and request a redemption statement from any mortgagees

Question 18

what does the buyers solicitor do at the pre-contract stage?

Answer 18

• carries out investigation of title under the principle of caveat emptor
• raises pre contract searches and enquiries
• check, approve and may amend draft contract
• carry out and review results of standard pre contract searches and enquiries of seller and third parties
• raise any additional enquiries and requisitions on title
• reports to buyer (and possibly mortgagee) and arranges for contract to be signed by buyer
• obtains deposit in readiness for EOC

Question 19

PRE CONTRACT

Answer 19

both solicitors arrange for contract to be signed and BS reports to their client (and possibly mortgagee) and obtains deposit in readiness for EOC

buyer is usually advised to insure the property from EOC

Question 20

what is investigation of title?

Answer 20

the process whereby the title to the property is checked/examined to ensure the seller is entitled to sell and title is good and marketable, with all necessary rights and with no materially adverse incumbrances (eg easements/covenants burdening the property)

these could have an impact on use, value, enjoyment, marketability and the security of the property for lending purposes

the SS will complete this process in order to deduce title and pre-empt requisitions on title that may be raised by the BS

BS will also undertake the process as part of the principle of caveat emptor

Question 21

what is deduction of title?

Answer 21

the process where the SS provides to the BS proof/evidence of the sellers title/ownership

consists of either copy title deeds (for unregistered land) or official copies of registers of title (for registered land)

Question 22

what are pre-contract searches and enquiries?

Answer 22

standard pre contract enquiries are made of the SS to ascertain further info about the property that should be known by the seller

pre contract searches are made of third parties (eg LA and local water authority) to ascertain important info about the property that’s held by third parties

Question 23

what are requisitions on title?

Answer 23

additional enquiries of the SS as part of investigation of title and results of pre-contract searches and enquiries

specific qs about an issue that require a solution

buyer is generally not entitled to raise further requisitions on title after contracts have been exchanged

Question 24

EXAM WARNING

Answer 24

pre contract requisitions on title must be distinguished from completion info and undertakings, which form part of pre-completion rather than pre-contract procedure

candidates often confuse or conflate the two, probably because the former used to be known as completion information and requisitions on title

Question 25

What does caveat emptor mean?

Answer 25

'let the buyer beware' the onus is on the buyer to investigate title fully and find out as much as possible about the property, so they're aware of any problems and issues seller only has a limited duty of disclosure as part of the conveyancing process

Question 26

what is the next main stage after exchange of contracts?

Answer 26

pre completion

Question 27

what does the BS do at the pre completion stage?

Answer 27

- prepares draft transfer deed for approval by the SS - prepare mortgage deed for execution by buyer - carry out pre-completion searches and enquiries of SS and third parties - submit certificate of title/report on title to lender and request mortgage advance - request balance due from client in order to complete - deal with any amendments to transfer deed requested by SS, producing a clean copy for execution

Question 28

what does the SS do at the pre completion stage?

Answer 28

- approves transfer deed and requests clean copy incorporating any proposed amendments - respond to buyers completion info and undertakings form (includes an undertaking to discharge any pre-existing mortgages) - arranges for clean copy transfer deed to be executed by seller

Question 29

what's the next main stage following completion?

Answer 29

post completion

Question 30

What does the SS do at the post-completion stage?

Answer 30

- discharges any existing mortgages - provides BS with proof of discharge - pay EA costs (if authorised by seller) & account to their client

Question 31

What does BS do at post-completion stage?

Answer 31

- deals with SDLT or LTT submission return and payment - deal with registration at HMLR & sometimes CH

Question 32

taking instructions - what's required in all cases?

Answer 32

- full details of buyer and seller - EA details - details for sol acting for other side - property address and tenure (freehold/leasehold) - agreed purchase price and deposit - details of any fixtures to be removed, or fittings to be included - anticipated/proposed completion date - details of any related sale/purchase, where synchronisation will be required - position as regards the EPC - details of who's in occupation - details of existing use and past alterations and additions - consider conduct issues for a full consideration of key conduct and ethical issues in property practice - verify clients id - advice on costs, funds required on acc and anticipated disbursements (bank transfer fees, search fees, sdlt) HMLR fees - produce formal engagement letter - non residential properties: ascertain VAT position - details of any other terms agreed between the parties

Question 33

do fixtures and fittings pass on completion?

Answer 33

only fixtures pass on completion, fittings don't so it's important to contract out of the general rules by specifying any fixtures that are to be removed (with damage made good) and any fittings that are to remain

Question 34

taking instructions - for the seller

Answer 34

- details of agreed EA commission/costs - details of any existing mortgages including approx balance due, account number and location of any title deeds (for unregistered land) - ask client to complete standard property info forms - for co owned property, ascertain whether equitable interest is JT or TIC - advise on liability for CGT or corporation tax on capital gains for companies

Question 35

taking instructions - for the buyer

Answer 35

- details of any proposed mortgage and if required, generic advice on the options - position concerning the age of the property, property survey and advice on types of survey - details of proposed use and proposed alterations and additions - situation of the property.. is it near to industrial premises, open land or a watercourse? - advise on co ownership and the holding of the equitable interest, depending on circumstances, an express declaration of trust and the making of wills should be advised - advice on potential future liability for CGT or corporation tax on capital gains for companies

Question 36

what is meant by synchronisation?

Answer 36

synchronisation is imperative where a client has a related sale and purchase

Question 37

what does synchronisation involve?

Answer 37

making sure the contracts on the sale are exchanged at the same time as contracts on the purchase, with the same completion date in the residential context, it ensures the client doesn't end up without somewhere to live, or being committed to buy another property without someone being committed to purchase their existing property

Question 38

is synchronisation easier or more difficult for new build properties?

Answer 38

difficult

Question 39

What is an EPC?

Answer 39

Energy Performance Certificate a certificate produced by an accredited energy assessor, which details the property's energy use, costs and efficiency, based on an official rating from A (most efficient) to G (least efficient) provides recommendations to improve the energy efficiency rating

Question 40

how long is an EPC valid for?

Answer 40

for a period of 10 years

Question 41

who must the EPC be made available by?

Answer 41

usually the seller, without charge, before or within 7 days of marketing and, in any event, within 28 days

Question 42

are listed properties excepted from the requirement for an EPC?

Answer 42

yes for newbuild properties, a predicted energy assessment must usually be produced, with a full EPC, following construction

Question 43

sources of finance - what will the lender usually require?

Answer 43

the loan to be secured by a first legal mortgage over the property.

Question 44

is it common to act for the buyer/borrower and lender in most straightforward residential property transactions?

Answer 44

yes

Question 45

NOTE

Answer 45

when acting for both parties, a sol will have two clients and the needs of both of them will need to be satisfied eg both parties will be keen to ensure that adverse matters don't affect the value of the property, its use, enjoyment, marketability and value for secured lending purposes

Question 46

you may only give generic advice concerning the main types of mortgege. true or false?

Answer 46

true under the financial services and markets act 2000

Question 47

what are the two main typeof mortgage

Answer 47

- repayment mortgage - interest only mortgage

Question 48

what is a repayment mortgage?

Answer 48

- usually monthly payments of interest & capital - interest rate may be variable, fixed or tracked - as interest and capital are repaid, the full amount will be repaid by the end of the mortgage term

Question 49

what is the key advantage of a repayment mortgage?

Answer 49

although monthly repayments will be higher, the buyer will be mortgage free at the end of the term

Question 50

what is an interest only mortgage?

Answer 50

usually monthly payments of interest only - interest may be variable, fixed or tracked

Question 51

interest only mortgage - will the full amount be repaid by the end of the mortgage term?

Answer 51

no - as only interest is repaid , the capital will remain outstanding

Question 52

what is the key advantage of interest only mortgage?

Answer 52

monthly repayments will be lower, however, if the buyer wishes to keep the property, they will need to find another way to repay the capital (eg from savings or an investment)

Question 53

should a buyer be advised on whether to commission a survey of the property before exchange of contracts?

Answer 53

yes

Question 54

what is a survey?

Answer 54

a professionally produced report following an inspection of the property

Question 55

what are the three main types of survey?

Answer 55

1) basic valuation 2) full structural survey 3) homebuyers valuation and report/survey

Question 56

note

Answer 56

for sqe1 you should be able to advise on which type of survey would be most appropriate in given circumstances

Question 57

what will the need for a survey of the property by a qualifies surveyor depend on?

Answer 57

- its age (eg property is more than 100 years old) - value - whether it's been extended/altered in the past - whether buyer has plans for extensions/structural alterations - whether it's of non standard construction - whether it's in a former mining area or one that's affected by subsidence

Question 58

note

Answer 58

the structural condition of the property can have an impact on its stability, value, use, enjoyment, marketability and its value for secured lending purposes

Question 59

if defects are discovered, can a buyer choose to withdraw from the transaction, require completion of works, or seek a reduction in the purchase price?

Answer 59

yes

Question 60

do adverse matters and any reduction in the purchase price need to be reported to the buyers mortgagee?

Answer 60

yes - in all circumstances, adverse matters and any reduction in the purchase price must be reported to the buyers mortgagee, who may withdraw, be willing to offer less, or make a retention from the advance ie retain part of the money until works are carried out

Question 61

what is a basic valuation survey

Answer 61

- most basic form of survey - doesn't assess the physical state and condition of the property in any detail - commissioned by a lender as a min requirement to ascertain the market value of the property and its value for secured lending purposese

Question 62

what is the basic purpose of the basic valuation survey?

Answer 62

to assure the lender that the property will be worth sufficiently more than its security so that the lender will get its money back in the event of the exercise of its power of sale simple and cheap but of limited value to a buyer

Question 63

what is a full structural survey?

Answer 63

- most comprehensive form of survey - contains a detailed assessment of the physical state and condition of the property

Question 64

which is the most expensive type of survey?

Answer 64

full structural survey (although its important to be aware of any limitations within the report)

Question 65

full structural survey

Answer 65

the reassurance of a full structural survey may be worth the expense, especially if the property is old, particularly valuable, or there have been past or proposed alterations it may be used to re-negotiate the purchase price if adverse matters are revealed and the results and any reduction in purchase price must also be reported to the lender

Question 66

what is a homebuyers valuation and report/survey?

Answer 66

the detail of a homebuyers valuation and report/survey lies somewhere between a basic valuation and a full structural survey it will refer to the need for repairs/maintenance, but it's important to appreciate the very real limitations attached to this type of survey example - physical inspection may have been limited to exposed and accessible areas...although it's a compromise, its value to a buyer may be affected depending on these limitations

Question 67

PRACTICE EXAMPLE Lill is buying a victorian terraced house with the aid of a mortgage. which type of survey would you recommend in these circumstances?

Answer 67

mortgagee will probably insist on a basic valuation lill should be informed of the limitations of this and that its general purpose will be to give the mortgagee assurance as to the value of the property as security. lill should be advised to commission a more comprehensive survey and given the age of the property (more than 100 years), a full structural survey should be recommended lill should also be warned of the limitations of a homebuyers valuation and report

Question 68

REVISION TIP

Answer 68

for new build or newly converted properties, a lender will usually undertake a basic valuation and a further survey will not usually be appropriate (particularly when property has yet to be constructed) instead, the developer should provide a structural defects insurance policy

Question 69

What is a structural defects insurance policy?

Answer 69

typically covers defects in design and construction for a period of ten years - national house building control, through its 'buildmark' scheme provides the most common type of policy, although other products are available

Question 70

structural defects insurance policy who is responsible for remedying defects for the first two years?

Answer 70

(initial liability period) the builder is responsible for remedying defects

Question 71

structural defects insurance policy who is responsible for structural defects in the final eight years?

Answer 71

structural liability period the national house building control is responsible for remedying defects

Question 72

structural defects insurance policy

Answer 72

the cover includes resolution processes as well as protection in the event of the developers insolvency and for environmental liability

Question 73

note

Answer 73

for the purposes of sqe1 you need to be aware of the basic nature of the cover and that having it in place, for properties under ten years old, is a requirement of most lenders

Question 74

what does the law society conveyancing protocol set out to do?

Answer 74

sets out to standardise the residential conveyancing process, making it more transparent and efficient and improving the experience for all involved

Question 75

what does the law society conveyancing protocol provide?

Answer 75

provides a standard set of steps/instructions to follow when acting in the sale and/or purchase of a freehold or leasehold residential property as a home for an owner/occupier also provides standard forms to be used as part of the conveyancing process (eg property information form and completion information and undertakings form

Question 76

are the protocol forms used often even if the protocol isn't expressly adopted?

Answer 76

yes

Question 77

does the law society conveyancing protocol usually apply on the sale of newbuild properties?

Answer 77

no

Question 78

what is the most recent version of the law society conveyancing protocol?

Answer 78

2019

Question 79

is it compulsory for all law firms for to adopt the protocol?

Answer 79

no, it's recommended for all but only compulsory for those that are part of the law societys conveyancing quality scheme

Question 80

Law Society's Conveyancing Quality Scheme

Answer 80

provides for members that are accredited as part of the scheme, a recognised quality standard for residential conveyancing practices - aims to improve consumer confidence by including a client service charter and mandatory training and enforcement procedures - membership is often a prerequisite to act for major lenders