Property Practice - Fundamentals

Question 1

Freehold stages

What are the stages of a conveyancing transaction?

When are the parties bound to the transaction?

Answer 1

• Pre-contract
• Exchange of contracts
• Pre-completion
• Completion
• Post-completion

When contracts are exchanged.

Useful to note: Gap between exchange and completion is typically a week.

Question 2

Freehold stages

Exchange of contracts is not compulsory, but why is it useful?

Answer 2

• It fixes the completion date.
• It gives the buyer time to make final preparations.
• It records the agreed terms and can be relied upon if anything goes wrong.

The buyer should not enter the contract until they have carried out searches, enquiries and a survey of the property.

Question 3

Freehold: Pre-contract

At the pre-contract stage, what does the seller’s solicitor submit to the buyer, and what does this include?

Upon receiving this, what must the buyer’s solicitor then do?

Pre-contract stage

Answer 3

The pre-contract package.

1. A draft contract
2. Evidence of the seller’s title.

Buyer’s solicitor checks:
1. seller is entitled to sell the property.
2. that there are no encumbrances

Encumbrances inlcude: restrictive covenants preventing the buyer from using the property as intended.

Question 4

Freehold: Pre-contract

Why is it important that the buyer’s solicitor is satisfied with the seller’s title before exchange of contracts?

Answer 4

The contract will usually include a “requisitions” provision, preventing the buyer from raising further queries about title after exchange.

Question 5

Freehold: post-completion

In the post-completion stage, what must the seller’s solicitor ensure?

What are the buyer’s solicitor’s most important post-completion steps?

Post-completion

Answer 5

Seller’s solicitor: Any mortgage is paid off and removed from the title.

Buyer’s solicitor
- SDLT is paid
- Client is registered as proprietor.
- Any mortgage is registered.

Land Transaction Tax (Wales) is the equivalent of SDLT.

Question 6

Professional Conduct issues

The SRA’s Code of Conduct (para 6.2) states that, subject to certain exceptions, a solicitor cannot act for both parties if…

What are the two exceptions?

In which situations do these exceptions never apply?

Acting for seller and buyer

Answer 6

There is a conflict of interest or significant risk of such conflict.

6.2(a) The parties have a “substantially common interest”
6.2(b) The clients are competing for the same objective.

Buyer and seller situations.

Question 7

Professional Conduct issues

Acting for a lender and borrower is possible unless there is a significant risk of conflict of interest. When is the risk of conflict is high?

Provide an example.

2 bullets

Answer 7

• The mortgage is not a standard mortgage.
• It is a standard mortgage but you do not have the approved certificate of title.

Example: large commercial transactions in which documents are subject to negotiation and will not be on standard terms. The buyer and lender should have different solicitors

Question 8

Professional Conduct issues

The paragraph 6.2(a) (substantial common interest) exception applies to lender/buyer situations if the following conditions are met:

3 conditions.

Answer 8

1. Both clients have given their informed written consent.
2. Effective safeguards have been put in place to protect client confidential information.
3. The solicitor is satisfied that it is reasonable for them to act for both clients.

Question 9

Professional Conduct issues

In what circumstances do the “Etridge guidelines” apply?

Answer 9

Where a matrimonial home is jointly owned by a married couple and one of them agrees to mortgage it as security for a business loan.

Applies to civil partners, cohabitees, parent and child, any other situation in which the property is being charged in return for a loan that is not being made to all property owners.

Question 10

Professional Conduct issues

What are the Etridge Guidelines?

Suppose “husband” means the party needing the loan, and “wife” means the other spouse.

Answer 10

The lender must, with the husband’s consent, provide the wife’s solicitor with the following information:

(a) the purpose, amount and terms of the loan
(b) the current amount of husband’s indebtedness.
(c) amount of current overdraft facility
(d) a copy of any written application made by the husband for the loan.

Question 11

Professional Conduct issues

Upon receiving this information, the wife’s solicitor should explain to her two things:

Etridge Guidelines

Answer 11

(i) why he is involved; and
(ii) that the lender will rely on the solicitor’s involvement to counter any suggestion of undue influence .

He will then obtain confirmation from the wife that she wishes the solicitor to act for her and to advise her on the legal and practical implications.

Question 12

Professional Conduct issues

The solicitor’s discussion with the wife should be:

In confirming that the wife wishes to proceed, what should the solicitor ask the wife?

3 bullets

Etridge Guidelines

Answer 12

1. Face-to-face
2. In the absence of the husband
3. Given in non-technical language.

If she wants the solicitor to write to the lender confirming that matters have been explained to her.

The solicitor must not write to the lender unless they received relevant documents from the lender and have express instructions from the wife.

Question 13

Professional Conduct issues

1. If the solicitor believes the transaction isn’t in the wife’s best interest, what should they do?
2. If it is “glaringly obvious” that the wife is being “grievously wronged”, what should the solicitor do?

Answer 13

1. Give reasoned advice to that effect.
2. Decline to act.

Question 14

Professional Conduct issues

What is a contract race?

What are the relevant professional conduct considerations?

Answer 14

A pre-contract package is sent to multiple prospective buyers who compete to be ready to exchange contracts first.

If the seller refuses to disclose to prospective buyers that they are engaging in a contract race, the solicitor must decline to act.

Question 15

Sources of finance

If the solicitor is carrying out a ____ in relation to a ____, then they must be authorised to so under the Financial Services and Markets Act 2000.

Answer 15

Regulated activity
Regulated Mortgage Contract

Question 16

Sources of finance

What is a regulated mortgage contract?

Answer 16

A mortgage contract in which:

1. The borrower is an individual
2. The lender takes a first legal charge over UK property.
3. At least 40% of the property is intended for occupation by the borrower or immediate family.

Question 17

Sources of finance

In relation to mortgages, what is a regulated activity? What is not regulated activity?

Answer 17

1. Arranging or advising on a regulated mortgage contract is a regulated activity.
2. Giving generic advice is not.

Question 18

Sources of finance

If a regulated activity is involved and the firm isn’t authorised by the FCA to carry out such activities (most firms will not be), what exemption can the solicitor rely upon to carry it out?

Answer 18

The s.327 exemption (FSMA 2000) for professional firms. This allows the solicitor to carry out regulated activities that are incidental to the provision of professional services that are regulated by the SRA.

Question 19

Sources of finance

The s.327 exemption is subject to the solicitor compying with the SRA Financial Services (Scope) Rules and SRA Financial Services (Conduct of Business) rules. How are these relevant to regulated mortgage contracts?

Answer 19

The solicitor cannot recommend a regulated mortgage contract, but can endorse a recommendation made to the client by an authorised person.

Question 20

Property Taxation

For residential properties, what tax does the buyer pay?

Answer 20

Stamp Duty Land Tax (SDLT) or Land Transaction Tax in Wales.

Question 21

Property Taxation

A buyer of commercial property pays tax on:

Answer 21

• SDLT
• VAT

Question 22

Property Taxation

Who can claim relief from SDLT? What is their SDLT rate?

Answer 22

First time buyers of residential property of £500,000 or less.

Rate
£0 - £300,000 = 0%
£300-001 - £500,000 = 5%

Question 23

Property Taxation

What is the SDLT rate for residential buyers who are not first-time buyers?

Answer 23

£0 - £125,000 = 0%
£125,001 - £250,000= 2%
£250,001 - £925,000 = 5%
£925,001 - 1,500,000 = 10%
The remainder = 12%

Question 24

Property Taxation

What is the SDLT payable on a £275,000 for a second-home buyer?

Answer 24

£3750 (0% on 125,000, 2% on £125,000, 5% on £25,000).

Question 25

# Property Taxation Priya's price is £575,000 but asks you to apportion £10,250 to the carpets and curtains (chattels are not subject to SDLT). What do you need to ensure?

Answer 25

That this is a **fair reflection** of the value of those chattels, otherwise it could be treated as fraud.

Question 26

# Property Taxation What is the SDLT rate for non-residential/mixed use freehold properties?

Answer 26

£0 - 150,000 = 0% £150,001 - £250,000 = 2% <£250,000 = 5%

Question 27

# Property Taxation How is SDLT paid? What is the consequence of not paying SDLT on time?

Answer 27

Paid **to HMRC** within **14 days of completion**, accompanied by form **SDLT1**. The buyer will **not be registered** until it is paid, and penalties/**interest** will apply.

Question 28

# Property Taxation: CGT CGT is charged on... This includes: | 4 bullets

Answer 28

...gains made on "chargeable assets". This includes: - Real property (freehold and leasehold) - Interests of joint owners. - Gifts

Question 29

# Property Taxation: CGT - Private Residential Relief For residential properties, what are the conditions for the seller to claim Private Residential Relief from paying CGT? What are the permitted absences?

Answer 29

**Conditions** - **Dwelling house** - **occupied** as.only or **main residence throughout** the period of **ownership** **Permitted absences** - **Employed abroad** - Up to **four years** total of absence by reason of **working elsewhere**, whether in the UK or abroad. - Any period up to **three years** total. - **Last 9 months**. ## Footnote If an individual has more than one residence, they can choose which of their residences will qualify for PRR by making an election to HMRC. PRR may be lost on any part of the house used exclusively for business use.

Question 30

# Property Taxation: CGT - Private Residential Relief If the seller has a garden of more than 0.5 hectares, will this benefit from PRR?

Answer 30

Only if the seller can demonstrate to HMRC that it was **necessary for the reasonable enjoyment** of the house.

Question 31

# Property Taxation: VAT What is VAT taxed on? Who is a taxable person?

Answer 31

Taxable supplies by a taxable person. Any **person registered for VAT**. If a person's last 12 months' turnover exceeds the registration limit (currently £85,000) they *must* register.

Question 32

# Property Taxation: VAT What is the difference between input and output tax?

Answer 32

**Input** VAT: **paid by a business** on its purchases **Output** VAT: **charged by a business** on the sale of goods and services..

Question 33

# Property Taxation: VAT When can a business recover their input tax?

Answer 33

If it is **attributable to the output supply**. There must be an immediate and direct link.

Question 34

# Property Taxation: VAT VAT is charged at different rates depending on the supply. What are the three different rates?

Answer 34

1. **Standard rate** (currently 20%) 2. Zero-rated = taxable but charged at zero. 3. **Exempt** = not taxable, unless the supplier of land has the option to tax.

Question 35

# Property Taxation: VAT What is a "new commercial property?" and what is the significance of this?

Answer 35

Commercial property which is less than three years old. Significance: sale of a new freehold property is a **standard-rated supply**. | In other words, it is compulsory to tax. ## Footnote Other standard rated supplies are given in the book, but I see no reason why they were mentioned. These are: construction services and professional services.

Question 36

# Property Taxation: VAT While commercial land is generally exempt, what commercial supplies give the seller the option to tax?

Answer 36

- **sale of an old freehold** building. - grant of a **lease.** ## Footnote Also includes "sale of a greenfield site" (undeveloped land in a rural area) which is hardly as relevant.

Question 37

You act for Bankridge Estates Limited, a renovations developer. In 2018, Bankridge purchased a 1930s warehouse. Bankridge has completed its planned works to renovate the warehouse and has decided to sell the freehold to raise capital for other projects. It has found a buyer, an insurance company. Bankridge wants to ensure that it recoups as much of the cost of the renovation works as possible. What are the VAT implications of this scenario?

Answer 37

Sale of old freehold = **exempt, subject to the option to tax**. **Bankridge may opt to tax** to recover any VAT paid on the costs of refurbishment. However, the **buyer** cannot recover the VAT as insurance companies **do not make taxable supplies** so they are unlikely to agree to this.

Question 38

# Planning permission What are the two types of development?

Answer 38

1. Operational development 2. Material change of use

Question 39

# Planning permission: excluded from definition What is excluded from the definition of development, thus not requiring permission?

Answer 39

- Maintenance - Improvements - interior alterations. ## Footnote If it does not materially affect the external appearance, it will be excluded.

Question 40

# Planning permission: material change of use What material changes of use are excluded from development, thus not requiring permission?

Answer 40

Change of use **within the same class** of use.

Question 41

# Planning permission: material change of use What are the use classes under the Use Classes Order? Would planning permission be required for a change of use from C1 to C3?

Answer 41

B2 - Industrial B8 - Storage and distribution C1 - Hotels and Guest Houses C3 - Dwelling houses C4 - Houses in Multiple Occupation E - Commercial uses Yes, each of these are separate use classes.

Question 42

# Planning permission: material change of use In use class E, what are the four subcategories? Would a use from one subcategory to another (e.g. E(a) to E(g) require planning permission?

Answer 42

E(a) Retail **sale of goods** other than hot food. E(b) Sale of **food and drink for consumption** on premises E(c) **Financial and Professional** services E(g) **Offices, research and development**. No planning permission required between these subcategories.

Question 43

What are *sui generis* uses?

Answer 43

Uses that **may adverse affect their locality**. ## Footnote A change to and from a *sui generis* use requires planning permission Examples: entertainment establishments, pubs and bars, takeaway shops

Question 44

# Planning law Once planning permission is obtained, it exists for the benefit of... If a previous owner breached a planning permission, are they still liable if the property changes hands?

Answer 44

...the land and all persons interested in it at the time. No. The new owner is liable (if within the enforcement action time limit). ## Footnote If planning permission is obtained but the development is not completed within a reasonable time, the Local Planning Authority can serve a **completion notice**, so that the permission ceases if completion does not take place within the time given. This is rarely used.

Question 45

# Planning Law: Permitted Development When is development *automatically granted* permission under the Town and Country Planning (General Permitted Development) Order 2015 (GDPO)? | In these cases, no application is required.

Answer 45

- Developments within dwelling; - Minor exterior operations (e.g. painting) - Specified use class changes. - Changes from some *sui generis* uses

Question 46

# Planning Law What is the effect of an Article 4 Direction from the Secretary of State of Town and Country Planning or the Local Planning Authority?

Answer 46

Excludes the effect of the GDPO. ## Footnote For the avoidance of doubt, the solicitor should apply for a **Certificate of Lawfulness of Proposed Use or Development** before works are commenced.

Question 47

# Planning Law: Enforcement What are the Local Planning Authority's four powers of enforcement?

Answer 47

- Enforcement notice - Stop notice - Breach of condition notice - Injunction

Question 48

When would the Local Authority use an enforcement notice and when would it take effect?

Answer 48

- When there is a **breach of planning control**; and - it is **expedient to issue** the notice. It takes effect **28 days after service**. | A right of appeal exists against an enforcement notice.

Question 49

What is a stop notice and when would the Local Authority use a stop notice?

Answer 49

It is served alongside an enforcement notice. It prevents a breach for the 28 day period that the enforcement notice is not yet effective. ## Footnote Also useful where the recipient appeals an enforcement notice, which suspends the effect of the enforcement notice.

Question 50

Can a stop notice be served by itself?

Answer 50

No. Unless it is a temporary stop notice of 28 days, allowing for further investigation.

Question 51

Breach of condition notice is the equivalent of an enforcement notice but for breaches of condition, but in what other way do they differ?

Answer 51

No appeal against this notice.

Question 52

# Planning permission When would the Local Planning Authority be successful in their application to the court for an injunction?

Answer 52

- Injunction is **expedient, necessary and appropriate**.

Question 53

# Planning Law: Enforcement (1) What are the time limits for taking enforcement action by a local authority? ​ (2) When unauthorised development was deliberately concealed, what can the Local Authority do? | IMPORTANT

Answer 53

(1) Time Limits - **4 years** from the date of breach for **operational development** without planning permission. - **4 years** from the date of an unauthorised **change of use to a single private dwelling** house. - **10 years** from the date of breach **for any other breach** (i.e. other unauthorised material changes of use or breaching a condition) (2) **Apply to the Magistrate's Court** within **6 months of discovery** of the breach.

Question 54

# Building Regulation Control These controls are concerned with:

Answer 54

**Health and safety** aspect of buildings being constructed or altered. | They control the materials and construction methods used.

Question 55

# Building Regulation Control Local authorities can prosecute in the magistrates court for breach of building regulations control. What is the time limit for them to start proceedings? Alternatively, when can they issue an enforcement notice? When can they take out an injunction?

Answer 55

Prosecution: **Within two years** of the relevant **work being completed**. Enforcement notices: **within one year** of **work being completed** requiring the work to be altered or removed. Injunction is not time limited if the work is unsafe.

Question 56

# Building Regulation Control If a buyer finds that building regulation consent hasn't been granted, what can they do?

Answer 56

They can **ask the seller to obtain a regularisation certificate** from the local authority **or obtain insurance.**

Question 57

# Listed Buildings What are listed buildings and how are they addressed differently to other buildings?

Answer 57

- Buidlings of **special architectural or historic interest**. - Owner is likely to **need building consent even for internal alterations**. - Several permitted developments under **GDPO** require planning permission in respect of listed buildings.

Question 58

# Planning Law: Conservation Areas What are conservation areas? Give three examples of planning permission being more stringent in relation to conservation areas.

Answer 58

*Areas* of special architectural or historic interest. - Changes to external appearances - **some GDPO permitted developments are curtailed**. - **Demolition** will **always require planning permission.** - Any work planned to a **tree in a conservation area requires notification to the LPA** six weeks in advance.

Question 59

# Investigation of Title: Registered Land What is deduction of title? In order to deduce title, what does the seller need to supply? What do these show?

Answer 59

**Seller's obligation to prove** to the buyer their ownership of the property **Official copies** that are **less than six months old**. These show entries on three registers: (a) Property Register (b) Properietorship Register (c) Charges Register

Question 60

# Investigation of Title: Registered Land The property register contains two things: Additionally, it may show 2 other things: | Property Register

Answer 60

- Description of the land - Whether the title is freehold or leasehold. It may also show (i) easements or **rights benefiting** the land; (ii) things which are **excluded that might be expected** to come with the land.

Question 61

# Investigation of Title: Registered Land - Proprietorship Register The Proprietorship Register identifies three things:

Answer 61

- Identity of **current owners** and their address - **Class of title** - **Restrictions** on the owner's **ability to sell**. ## Footnote It may also indicate the price paid for land by the owners and whether the owners gave an indemnity covenant when they bought the land

Question 62

# Investigation of Title: Registered Land - Proprietorship Register What are the three possible classes of title for freehold land?

Answer 62

(1) Absolute Title (2) Possessory Title (3) Qualified Title ## Footnote Absolute = best title. Legal estate vests in proprietor subject only to entries on the register and overriding interests. Possessory = Proprietor lost the title deeds or claiming through adverse possession. Legal title vests subject to adverse interests existing at the date of first registration. Qualified Title = Specific identified defect.

Question 63

# Investigation of Title: Registered Land - Charges Register How are third party rights generally protected? Which third party interest is the outlier and how is it protected?

Answer 63

Notices and Restrictions in the Charges Register. **Beneficial interests** under trust are protected as a **Restriction in the Proprietorship Register.**

Question 64

# Investigation of Title: Registered Land - Charges Register Does a notice in the charges register give the person who registered it any rights in the land?

Answer 64

Not necessarily. It serves to ensure that the priority of the interest is protected against any subsequent interests. ## Footnote Whether it is valid is another question. Buyer should require seller to get it cancelled by the Land Registry before exchange of contracts. If it is a valid interest, then this will be a concern.

Question 65

# Investigation of Title: Registered Land - Charges Register What are the five encumbrances which might be revealed in the Charges Register?

Answer 65

i. Covenants (Restrictive or Positive) ii. Easements affecting the land. iii. Mortgages iv. Leases v. Notices

Question 66

# Investigation of Title: Unregistered Land What is the process of deduction of title in unregistered land?

Answer 66

(1) The seller obtains the **title deeds from the client**. (2) He then finds the document representing the "**root of title**". (3) He then prepares an '**epitome of title**', a schedule of all documents from the root until the present day. ## Footnote Title deeds: Seller gives copies of the title deeds to the buyer typically before exchange. If selling the whole property, the Seller gives the original title deeds to the buyer on completion. If selling part of the property, the Seller hands over certified copies only. Root of title = Document from which to begin the title investigation. Attached to the epitome are copies (not originals) of each of these documents.

Question 67

What represents a good root of title according to section 44 of the LPA 1925?

Answer 67

A document that: - deals with/shows **ownership of the whole legal and equitable interest** in the land. - contains a **recognisable description** of the land. - Does **nothing to cast doubt on the seller's title**. - Is at least **15 years old.** ## Footnote The two most acceptable roots of title are conveyances of sale and mortgages because for each of these, the buyer/lender would have held similar investigations.

Question 68

# Investigation of Title: Unregistered Land Once the root of title is identified, older documents can be ignored. What is the exception?

Answer 68

Where the root document **refers back to a third party right** created in an earlier conveyance: the buyer will be entitled to call for that earlier conveyance.

Question 69

# Investigation of Title: Unregistered Land Once the root of title is identified, the solicitor carefully investigates the root and all the subsequent title deeds. What matters does the solicitor focus on? | 6 matters

Answer 69

- **Unbroken chain** of ownership - **Description** of the land - **Stamp duties** - **Incumbrances** - **Execution** - **Land charges** searches

Question 70

# Investigation of Title: Unregistered Land Some incumbrances such as restrictive covenants only bind unregistered land if they are correctly registered as a land charge at the Land Charges Department. It is important that it is registered against... | Land Charges Search

Answer 70

...the name of the estate owner at the time.

Question 71

# Investigation of Title: Unregistered Land What are the four most important land charges?

Answer 71

C(i) - Puisne Mortgage C(iv) - Estate contract D(ii) - Restrictive Covenant D(iii) Equitable easement F - Home right

Question 72

# Investigation of title: co-ownership How is the equitable interest of a jointly held estate assumed to be held?

Answer 72

As a joint tenancy, unless a restriction appears in the Proprietorship register. ## Footnote Note: in unregistered land, easements are usually granted/reserved in the first paragraph. RESTRICTION: *No Disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court* In unregistered land, the conveyance will state whether equitable interest is held as joint tenancy or tenancy in common.

Question 73

# Investigation of title: co-ownership Suppose an unregistered estate is co-owned but one owner dies. If the surviving owner sells the property, can the buyer assume that the joint tenancy was not severed at any point (therefore the whole property passed to the survivor)?

Answer 73

Yes, provided that: 1. There is **no record of severance** on the conveyance. 2. **No bankruptcy proceedings against either** joint tenant. 3. Transfer contained a **statement that the survivor is solely and beneficially entitled** to the land.

Question 74

# Investigation of Title: General issues In registered land, what are the effects of the following entry: "The transfer to the proprietor contains a covenant to observe and perform the covenants referred to in the Charges Register and of indemnity in respect thereof"?

Answer 74

This is an indemnity covenant. If it is in the contract, the buyer will be bound to both restrictive covenants *and* positive covenants by virtue of indemnity. ## Footnote (without the indemnity the positive covenant would not have run with the land)

Question 75

# Investigation of Title: General issues There is a lease with more than seven years to run affecting the freehold estate, but it is not registered. The buyer of the freehold estate wants to know whether they will be bound?

Answer 75

No, unless the tenant is in occupation, in which case an overriding interest may have arisen.