STARTING ACONVEYANCING TRANSACTION (STAGES 1 & 2) Flashcards
(44 cards)
2
Estate Agent Markets the Property
- The frst step in a conveyancing transaction usually takes place before any solicitor is involved—in most cases, a property owner will instruct an estate agent to market the owner’s property.
- The estate agent will advertise and show the property. Once an offer has been made and accepted, and** a price **with a prospective buyer is agreed, the estate agent will send out a memorandum of sale to all parties detailing the property, the price agreed, and the solicitors being used by the parties.
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Mandatory Energy Performance Certifcate
- The seller of the property must provide the buyer with** a valid Energy Performance**
- Certificate (‘EPC’). An EPC contains information about a property’s energy use and typical energy costs, plus recommendations about how to reduce energy use and save money. It gives a property an energy effciency rating from** ‘A’ (most effcient) to ‘G’ (least effcient) **and is valid for 10 years.
- If a new EPC is needed, it should be ordered (usually by the estate agent) before the property is marketed for sale or to rent. There is an online EPC register where most EPCs can be viewed.
- An EPC is not needed for a property that is a ‘listed building’.
- It is also not necessary for a new EPC to be obtained each time a property changes hands. If a seller still has a valid (less than 10-year-old) EPC for their property, they do not need to obtain a new one.
Commercial Estate Agent Negotiates Heads of
Terms
Often, a commercial estate agent will negotiate the ‘heads of terms’ (that is, the agreed terms) between the landlord of the commercial premises and the prospective tenant. The heads of terms are the commercial equivalent of the memorandum of sale in a residential conveyancing transaction.**
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Code for Leasing Business Premises
- The Code for Leasing Business Premises (the ‘Code’) is produced by the Royal Institution of Chartered Surveyors (the professional body for surveyors) and it sets out best practice for landlords when negotiating the terms of a commercial lease with a tenant.
- It provides that landlords must make offers in writing which include clear terms regarding matters such as the rent and length of the term, any rights to break the lease, rent review arrangements, rights to assign, and repairing obligations.
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Assignment of Lease of commercial leasehold
a.Licence to Assign May Be Required
b.Landlord May Require Extra Security
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Licence to Assign May Be Required
assignment of commercial lease
- If an existing tenant is assigning their lease, the land-lord’s consent to the assignment will almost invariably be required.
- generally the landlord will need to be satisfed that the incoming tenant is of good standing and will be able to aford the rent. This means that the landlord will require the incoming tenant to provide references to demonstrate that they have the means to pay the rent and, if they have rented property before, that they have paid their rent on time and been a good tenant. The landlord will also want to take bank references or see business accounts for the last three years.
- Once the landlord is satisfied that the prospective tenant will be able to meet their commitments under the lease,** the landlord’s solicitor** will draft a licence to assign setting out the landlord’s conditions. This document will be signed by all parties (landlord, tenant, and incoming tenant) to create privity of contract between them.
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Landlord May Require Extra Security
assignment of commercial lease
- Rent Deposits
This means that the landlord will require payment of an extra sum on completion** in addition to the first rental payment**. This money will be held in a **deposit account **and can be used by the landlord in the event of default by the tenant during the term. - 3 months’ rent is a typical amount for the rent deposit and the detailed terms are often contained in a rent deposit deed.
- Guarantor
On the grant of a new lease, the guarantor could be an additional party to the lease which the landlord and tenant are entering into. On the assignment of an existing lease, the guarantor and the landlord will enter into a separate deed of guarantee. - Recall from Land Law that, as a condition of giving consent to an assignment, a landlord can require the outgoing tenant to enter into a written obligation called an** ‘Authorised Guarantee Agreement’ (‘AGA’),** in which the outgoing tenant will act as guarantor for their imme-diate successor in title.
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Seller’s Solicitor Investigates Seller’s Title
a.Obtaining Title Deeds
b.Remedying Defects in the Title
c.When Seller Has a Mortgage
d.Obtain Confrmation ofTitle Plan
e.Deducing Title
Obtaining Title Deeds
- Registered Title
If the title is registered at HMLR, the seller’s solicitor will download an official copy of the register of title, title plan, and any additional available documents mentioned on the register from the HMLR Portal. - Unregistered Title
If the title is unregistered, the seller’s solicitor must locate the title deeds. If the property is in mortgage, the lender will hold the title deeds. The seller’s solicitor will write to the lender to obtain the deeds and give an under-taking not to part with the deeds until such time as the mortgage is redeemed (that is, paid of) out of the sale proceeds on completion.
Remedying Defects in the Title
The seller’s solicitor must investigate the title to ensure that the seller is entitled to sell the property. If there are any defects in the title (for example, missing documents or name discrepancies), the Law Society Conveyancing Protocol requires the seller’s solicitor to take care of them as part of their investigation of the seller’s title (rather than waiting for the buyer’s solicitor to raise it as an enquiry).
2
When Seller Has a Mortgage
- the seller’s solicitor will ask the lender for an indicative redemption figure to ensure that the sale proceeds will be sufficient to redeem the existing mortgage on completion.
- This is because the seller’s solicitor will give an undertaking (for which the solicitor is personally liable) to redeem (that is, pay of) any mortgages out of the sale proceeds on completion.
Obtain Confrmation ofTitle Plan
The seller’s solicitor should send the title plan to the seller.
The title plan is a map showing the location of the property
being sold and a red outline of the land included in the title.
The seller should confrm that the property outlined on the
plan represents the full extent of the land being sold.
Deducing Title
The seller’s solicitor will send a copy of the title to the buyer’s solicitor—this is known as ‘deducing title’.
Buyer’s Investigation ofTitle
It is important for the buyer’s solicitor to check the title to ensure that the seller is entitled to sell the property—this
process is also known as ‘investigating title’
Seller’s Duty of Disclosure
In the contract, the seller must discloselatent defects and latent burdens on the land (known as encumbrances) but need not disclose patent defects or encumbrances.
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Latent vs Patent Defects and Encumbrances
- Latent defects and encumbrances are things that **would not be apparent **from an inspection of the property, for example, an underground easement for a pipeline or a restrictive covenant.
- Patent defects or encumbrances are things which would be revealed by an inspection, such as a visible right-of-way over the land (for example, one from a road to the property behind the property being sold).
Consequences of Non-Disclosure
If the seller breaches their duty of disclosure, the buyer may have the right to withdraw from the contract after exchange and claim damages for losses.
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Limitation for Physical Defects—Caveat Emptor
duty to disclosure
- The duty to disclose latent defects in the contract does not extend to physical defects in the property (for example, rotted timbers within walls) due to the doctrine of ‘caveat emptor,’ which means ‘buyer beware.’ It is the buyer’s responsibili-ty to inspect the property for physical defects.
- While the seller has no duty to disclose patent defects, look out for situations on the exam where the seller tries to** cover up** a patent defect, for example, by painting over cracks in the wall. This amounts to** wilful deceit**, and the seller could be sued by the buyer in tort.
Compare Seller’s Duty of Disclosure to Other
Disclosure Obligations
- the seller’s duty to disclose with respect to the contract is fairly limited. The seller has a much greater obligation to disclose when flling out the** Property Information Form** and in their responses to the buyer’s pre-contract enquiries.
- If the seller makes any misrepresentation on the form or in their responses, they may be sued by the buyer for misrepresentation.
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Seller’s Solicitor Sends Contract Package
to Buyer’s Solicitor
The seller’s solicitor drafts the contract and sends the con-tract package to the buyer’s solicitor. The contract package will comprise:
*The draft contract in duplicate (the seller will sign one copy and the buyer the other);
*The Property Information Form (‘PIF’) and Fittings and Contents Form (‘F&C’) both completed by the seller;
*A copy of the title, any relevant documents, and title plan; and
*Any guarantees or copy planning permissions.
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The Lease and
Contract Package
Grant of a New Lease
- Parties Seek to Agree Form of Lease
The seller (landlord) and the buyer (frst tenant) will seek to agree the form of lease and contract. Often, a devel-oper will be the seller - Seller (Landlord)’s Deduction ofTitle
If the new lease is for a term of over seven years and reg-istrable, the landlord must deduce title which will enable the tenant to register the lease with title absolute. - The Contract Package
*The draft contract with the draft lease annexed to it;
*The seller’s freehold title;
*The Property Information Form;
*Replies to standard pre-contract enquiries (dealing with such issues as boundaries, disputes, services supplied to the fat);
*If a newly built block, a copy of the planning permis-sion and building regulations consent;
*If the building is less than 10 years old, a new build warranty;
*If a new build development, a service charge budget; and
*If applicable, details of any management company
that has the responsibility for maintaining the com-
mon parts of the development.
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The Lease and
Contract Package
Assignment of Existing Lease
- The seller’s solicitor will check the terms of the existing lease to see whether the landlord’s consent is required to an assignment. Recall from Land Law that such consent is not to be unreasonably withheld. If consent is required, the seller/assignor must apply for consent at their expense and use all reasonable endeavours to obtain this consent.
- The contract package will include:
*A copy of the outgoing tenant’s leasehold register of title;
*A copy of the existing lease;
*A Property Information Form and Leasehold Information Form;
*Copies of the last three years’ service charge accounts (if any);
*A copy of the landlord’s freehold register of title; and
*If the property is less than 10 years old, a copy of any new build warranty, planning permissions, and building regulations consent.
Exam Tip
Remember from the Land Law Outline that good lease-hold title is the situation where the landlord’s freehold title was not produced to HMLR upon frst registration of an unregistered leasehold title. If the incoming buyer is buying with a mortgage, this is unlikely to be accept-able to the buyer’s lender as title absolute is generally required. The buyer’s solicitor should therefore insist on requiring the landlord to produce a copy of the freehold title so that prior to the exchange the outgoing seller’s solicitor can apply to HMLR to upgrade the good lease-hold title to absolute leasehold title.
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Form of Contract and Terms
The form of contract typically used in residential conveyancing transactions—whether a freehold or leasehold transaction—and the one that is testable on the SQE, is produced by the Law Society and is called the Contract Incorporating the Standard Conditions of Sale. That contract is divided into three parts (dis-cussed in detail below):
*The particulars of sale;
*The standard conditions of sale; and
*The special conditions of sale.