The Contract

Question 1

What is the primary purpose of a contract in property transactions?

Answer 1

To provide an agreement to transfer the land at a later stage

A contract does not transfer the land; a deed is required for that.

Question 2

Why might parties choose to have a contract even if not legally required?

Answer 2

To fix the terms of the transaction and provide certainty

This prevents either party from changing the price or backing out without liability.

Question 3

What are the two sets of standard conditions commonly used in property transactions?

Answer 3

• The Standard Conditions of Sale (5th edition – 2018 Revision)
• The Standard Commercial Property Conditions (3rd edition – 2018 Revision)

Question 4

What type of transactions typically use the Standard Conditions of Sale?

Answer 4

All residential transactions and some simple commercial transactions

Examples include properties that are empty, with a straightforward title and a relatively low price.

Question 5

What are the three parts of a pre-printed contract?

Answer 5

• Front page with property and sale terms
• Standard conditions in the middle
• Special conditions on the back page

Question 6

What information is typically found on the front page of a pre-printed contract?

Answer 6

Information about the parties, property, and financial terms of the transaction

Question 7

What are ‘Specified incumbrances’ in a property contract?

Answer 7

Third party rights that survive the transfer of the property, such as restrictive covenants and easements

They must be specified in the contract to avoid breach of conditions.

Question 8

What does a full title guarantee imply for a seller?

Answer 8

The seller owns the entire legal and equitable title to the property and the property is sold free from incumbrances except those unknown to the seller

Question 9

What is the Contract rate?

Answer 9

The rate of interest charged if a party is late in completing the transaction

Question 10

What is the typical percentage for a deposit in property transactions?

Answer 10

10% of the purchase price

Question 11

What is the difference between a deposit held as ‘stakeholder’ and as ‘agent’?

Answer 11

‘Stakeholder’ means the deposit is held until completion; ‘agent’ means the deposit can be released to the seller immediately

Question 12

What must be included in the contract regarding the title of the property?

Answer 12

The title number and class of title for registered properties, or the root of title for unregistered properties

Question 13

True or False: The seller’s mortgage should be included in the list of incumbrances.

Answer 13

False

Question 14

What happens if a buyer fails to complete the transaction?

Answer 14

The seller may forfeit and keep the deposit

Question 15

What is a potential risk for a seller if they agree to a reduced deposit?

Answer 15

There will be less of a fund to forfeit if the buyer fails to complete

Question 16

What must the seller’s solicitor ensure regarding positive covenants?

Answer 16

That they are not included as Specified incumbrances since they do not run to a successor in title

Question 17

What is meant by ‘incumbrances’ in property law?

Answer 17

Burdens or third-party rights that affect the property

Question 18

Fill in the blank: The seller must specify all burdens on the property under the heading ‘_______’.

Answer 18

Specified incumbrances

Question 19

What is the implication of a limited title guarantee for a seller?

Answer 19

The seller has limited knowledge of the property, often applicable for executors or trustees

Question 20

What are the consequences of not specifying incumbrances in the contract?

Answer 20

The seller could be in breach of contract and the buyer may have the right to rescind the contract

Question 21

What should be checked in the title documents regarding property incumbrances?

Answer 21

The Charges register and property register for burdens affecting the property

Question 22

What interest rate is commonly used for the Contract rate?

Answer 22

The Law Society’s interest rate from time to time in force, currently 4% above the base lending rate of Barclays Bank plc

Question 23

What does SC 2.2.5 allow regarding the deposit in property transactions?

Answer 23

It allows the deposit received from the buyer to be used towards the deposit needed for a related purchase by the seller.

Question 24

What does SC 3.3.2 state about the deposit in a contract?

Answer 24

It states that the deposit is to be held by the seller’s solicitor as stakeholder and cannot be used for other purposes.

Question 25

What is an indemnity covenant in property transactions?

Answer 25

It is a covenant requiring the buyer to observe covenants affecting the title and indemnify the seller for any loss due to breaches.

Question 26

When is a special condition necessary in a property contract?

Answer 26

When the parties have agreed to something unusual that is not covered by standard conditions.

Question 27

What happens to the risk of damage to the property upon exchange of contracts?

Answer 27

The risk passes to the buyer, meaning they must complete the purchase even if the property is damaged.

Question 28

What are the seller's obligations regarding insurance under SC 5?

Answer 28

The seller is under no obligation to insure a freehold property unless required by a special condition.

Question 29

What is the VAT status in residential transactions according to SC 1.6.3?

Answer 29

VAT is not normally chargeable.

Question 30

What are the three possibilities regarding VAT in commercial property purchases?

Answer 30

* The purchase price is exclusive of VAT and VAT will be added on top. * The purchase price is inclusive of VAT. * The purchase price is exclusive of VAT, but the seller is contractually obliged not to opt to tax.

Question 31

What does SCPC 2 specify regarding VAT in commercial property sales?

Answer 31

It states that the purchase price is exclusive of VAT and VAT will be added on top.

Question 32

What is required from a lender in a property transaction?

Answer 32

A mortgage offer outlining terms, loan amount, interest rate, and any conditions.

Question 33

What is the significance of a first legal mortgage for a lender?

Answer 33

It ensures the lender is paid first from any proceeds of sale if the borrower cannot repay the loan.

Question 34

What does the solicitor need to explain to the borrower regarding the mortgage deed?

Answer 34

Their obligations under the mortgage deed and consequences of defaulting on payments.

Question 35

True or False: A solicitor can act for both a lender and a borrower in a property transaction.

Answer 35

True.

Question 36

Fill in the blank: The seller must maintain the insurance policy until _______.

Answer 36

[completion].

Question 37

What should the contract specify if the seller has not opted to tax the property?

Answer 37

The contract should state that the buyer will not be liable to pay VAT in addition to the purchase price unless the VAT status changes.

Question 38

What is a mortgage offer?

Answer 38

A document issued by the lender detailing loan terms and conditions.

Question 39

What is the possibility of a solicitor acting for both lender and borrower in a property transaction?

Answer 39

A solicitor can act for both if there is a substantial common interest and all safeguards in para 6.2(i)–(iii) are in place.

Question 40

In residential conveyancing, how likely is a mortgage to be on standard terms?

Answer 40

It is likely to be on standard terms.

Question 41

What is more complex, a residential mortgage or a commercial mortgage?

Answer 41

A commercial mortgage is more complex due to the need for negotiations on terms.

Question 42

What does the buyer's solicitor typically report to the lender?

Answer 42

The results of the title investigation and pre-contract searches.

Question 43

What is the purpose of the lender knowing that the borrower has good title to the property?

Answer 43

To ensure they can sell the property in the future if they need to enforce security.

Question 44

What is the primary function of a certificate of title?

Answer 44

To confirm to the lender that the property has 'good and marketable' title.

Question 45

What is usually required from the solicitor in residential transactions regarding the certificate of title?

Answer 45

A certificate in the form approved by the Law Society and UK Finance.

Question 46

What does a commercial lender typically require in a certificate of title?

Answer 46

A more detailed certificate, often produced by the City of London Law Society.

Question 47

What does a certificate of title save for the borrower and lender?

Answer 47

Time and expense by reducing paperwork and avoiding duplication.

Question 48

What happens if the information in the certificate of title is incorrect?

Answer 48

The lender can sue the firm that provided the certificate.

Question 49

What should the buyer's solicitor include in the pre-contract report to the buyer?

Answer 49

Results of pre-contract searches, investigation of title, terms of the contract, and mortgage offer.

Question 50

What must be ensured regarding deposit funds before exchanging contracts?

Answer 50

Deposit funds should be available in cleared funds.

Question 51

What is required from both solicitors before exchanging contracts?

Answer 51

Authority from their respective clients.

Question 52

What are the main requirements for creating a binding contract for the sale of land?

Answer 52

Must be in writing, incorporate all agreed terms, contained in one document, and signed by the parties.

Question 53

How can contracts be exchanged?

Answer 53

In person, by post, or over the telephone.

Question 54

What is Law Society Formula A used for?

Answer 54

When one solicitor holds both parts of the contract.

Question 55

What is Law Society Formula B used for?

Answer 55

When each solicitor holds their own client’s signed part of the contract.

Question 56

What is the main aim of Law Society Formula C?

Answer 56

To synchronize exchanges in a chain transaction.

Question 57

What are the consequences of exchanging contracts?

Answer 57

A binding contract exists, and neither party may withdraw without incurring liability for breach.

Question 58

Who retains legal title in the property after exchange?

Answer 58

The seller retains legal title until completion.

Question 59

What must the seller pay until completion?

Answer 59

Outgoings such as community charge or business rates.

Question 60

Who bears the risk of loss or damage to the property after exchange?

Answer 60

The buyer bears the risk.

Question 61

What should solicitors do immediately after exchange?

Answer 61

Inform their respective clients and the estate agent.