PP 4 - Exchange of contracts Flashcards
Why can a buyer’s solicitor usually act for the lender in residential transactions without a conflict of interest?
- Lender uses standard, non-negotiable documents
- CML Handbook provides strict instructions
- Property’s value is lender’s primary concern
Why do commercial lenders typically instruct their own solicitors?
- Documentation is complex and negotiable
- Lenders may want site control if borrower defaults
- Higher risk of conflict of interest
What is the purpose of a Certificate of Title?
It confirms the property’s title is suitable as security for the loan. The lender relies on it and can sue for material errors.
What’s the difference between residential and commercial Certificates of Title?
- Residential: Simple, one-page form
- Commercial: Complex, follows CLLS format, prescriptive and detailed
What are the legal requirements for a valid property contract under LPMPA 1989?
- In writing
- Includes all agreed terms
- Signed by both parties
What are the purposes of a property contract?
- Fix completion date
- Link related transactions
- Set out obligations & conditions
When is a contract not required for a land transaction?
- Gifts between family
- Small-value transfers (e.g., part of garden)
What are the types of property contracts?
- Standard form (SCS or SCPC)
- Tailor-made (customized contracts using precedents)
What are specified incumbrances and how do SCS & SCPC differ?
General rule is caveat emptor but seller must disclose latent encumbrances (hidden property burdens like restrictive covenants) and defects in titles.
- SCS: Seller must disclose all incumberances that are registered at land registry
- SCPC: Buyer accepts incumbrances discoverable by prudent searches
What are the types of title guarantee?
- Full – default, unless reason not to
- Limited – sellers with little knowledge - used by executors
- None – buyer has no remedy if title issue arises after completion - no buyer protection
What is the standard completion date & time under SCS/SCPC?
20 working days after contract
2pm on the completion day
When does ‘time become of the essence’ in property contracts?
Only after a notice to complete is served.
What is the contract rate?
Interest payable by the defaulting party for late completion
What are rules around the deposit in SCS/SCPC?
- 10% standard
- SCS allows solicitor’s cheque/electronic
- SCPC requires electronic
- Held as stakeholder (default) or agent (risky for buyer)
Who bears risk of property post-exchange?
Buyer — they must insure from exchange
What is an indemnity covenant?
Buyer promises to uphold existing obligations (e.g., positive covenants) through chain of indemnity
What’s a special condition in a property contract?
Custom clause added to amend, exclude, or supplement standard terms
What is the VAT registration threshold for businesses?
£85,000 taxable turnover per year
What types of property transactions are standard-rated (20%)?
- Newly built commercial properties
- Older ones if seller opts to tax
What property transactions are zero-rated or exempt?
- Zero-rated: New residential buildings
- Exempt: Residential property (unless new), commercial property >3 yrs without option to tax
What is a Transfer of a Going Concern (TOGC)?
TOGC is not subject to VAT if: seller rents out the property and buyer intends to do the same and certain HMRC requirements are met.
What is the Option to Tax in VAT terms?
If a seller opts to tax, they must charge VAT on the sale of a commercial property over 3 years old.
The option is personal → A buyer must make a new option to tax if they later sell.
What is included in the buyer’s pre-exchange checklist?
- All searches/replies in
- Buyer satisfied with survey
- Insurance arranged
- Deposit funds cleared
- Report on title sent
- Contract signed
- Authority to exchange received
What is included in the seller’s pre-exchange checklist?
- Redemption figure obtained
- Contract engrossed
- Enquiries answered
- Authority to exchange received
