the contract and exchange

Question 1

What is the primary interest of a lender in a property transaction?

Answer 1

The property must have sufficient value and marketability to repay their loan.

Question 2

What is a potential conflict of interest when a solicitor acts for both the buyer and lender?

Answer 2

The same solicitor cannot act for two parties where there will be a client conflict or a significant risk of one unless the clients have a substantially common interest.

Question 3

Define ‘substantially common interest’ according to the SRA glossary.

Answer 3

A situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved.

Question 4

What are the common interests of a buyer and lender in a property transaction?

Answer 4

Both want a property that is:
* worth what the buyer has paid
* suitable for its purpose
* easy to sell if needed.

Question 5

Why do lenders in commercial transactions typically instruct their own solicitors?

Answer 5

There is much more potential for conflict in commercial transactions.

Question 6

What is a mortgage offer?

Answer 6

A formal offer by the lender to lend, subject to satisfaction with the transaction and security.

Question 7

What does a certificate of title certify?

Answer 7

That the title to the property is satisfactory for lending purposes.

Question 8

What is the difference between a residential and commercial certificate of title?

Answer 8

A residential certificate is usually a one-page form, while a commercial certificate is much more complex.

Question 9

What is the purpose of the legal charge (or mortgage deed)?

Answer 9

It creates the security interest and is registered at the Land Registry.

Question 10

What is the City of London Law Society (CLLS) Certificate of Title?

Answer 10

An industry standard for certifying property title, following a prescriptive format.

Question 11

What are the requirements for a contract for land under the Law of Property (Miscellaneous Provisions) Act 1989?

Answer 11

Must be in writing, incorporate all agreed terms, and be signed by or on behalf of each party.

Question 12

Why might a property contract not be necessary?

Answer 12

Examples include a gift of property between family members or land of low value.

Question 13

What is the Standard Conditions of Sale (SCS)?

Answer 13

Conditions incorporated into residential contracts, obligatory under the Law Society Conveyancing Protocol.

Question 14

What are special conditions in a property contract?

Answer 14

Conditions that amend, exclude, or supplement standard conditions.

Question 15

What is the completion date in a property contract?

Answer 15

Usually fixed by the parties, defaulting to 20 working days after the contract date if not specified.

Question 16

What does ‘time is of the essence’ mean in a contract?

Answer 16

The contract must be performed by the specified time; failure allows the non-defaulting party to walk away and claim damages.

Question 17

What are specified incumbrances?

Answer 17

Rights burdening the property that are not apparent on inspection, such as covenants and easements.

Question 18

What is the difference between limited and full title guarantee?

Answer 18

Limited title guarantee is for sellers with little knowledge, while full title guarantee is the default, confirming the property is free of undisclosed incumbrances.

Question 19

What is the purpose of a deposit in a property transaction?

Answer 19

Typically a percentage of the purchase price paid on exchange to secure the contract.

Question 20

Fill in the blank: A _______ is a formal offer by a lender to lend.

Answer 20

mortgage offer

Question 21

True or False: A seller must disclose all latent incumbrances and defects in title.

Answer 21

True

Question 22

What is an indemnity covenant in a property contract?

Answer 22

A promise by one party to compensate the other for certain losses or damages.

Question 23

What does ‘time is of the essence’ mean in a contract?

Answer 23

It means that the contract must be performed by the specified time, and if not, the non-defaulting party can walk away from the contract and claim damages for the breach.

Question 24

What is the standard deposit percentage required on exchange of contracts under SCS and SCPC?

Answer 24

10% deposit

This can be varied by special condition.

Question 25

What happens if the buyer agrees to a lower deposit and does not complete on time?

Answer 25

The buyer must immediately pay the balance of the 10% deposit unless amended by special condition.

Question 26

How can the deposit be paid under SCS?

Answer 26

By cheque from the buyer's solicitor’s client account or electronically.

Question 27

How must the deposit be paid under SCPC?

Answer 27

The deposit must be paid electronically.

Question 28

What is the difference between a stakeholder and an agent in relation to the deposit?

Answer 28

A stakeholder keeps the deposit safe until completion, while an agent may pay the deposit to the seller immediately after exchange.

Question 29

What is the default VAT treatment for residential property?

Answer 29

Residential property is usually an exempt supply or a zero-rated supply.

Question 30

What is the default VAT position under SCPC for commercial property?

Answer 30

The property is a standard rated supply, meaning VAT is payable at the normal rate on top of the purchase price.

Question 31

When does risk pass to the buyer under SCS and SCPC?

Answer 31

Once contracts are exchanged.

Question 32

What should the buyer's solicitor advise the buyer to do before exchange?

Answer 32

Obtain insurance quotes to insure the property from the date of exchange.

Question 33

What is the obligation regarding indemnity covenants under SCS and SCPC?

Answer 33

The seller can require the buyer to give an indemnity covenant if the chain of indemnity covenants is unbroken.

Question 34

What does special condition 1(a) in the standard residential contract incorporate?

Answer 34

The Standard Conditions of Sale (Fifth Edition – 2018) Revision.

Question 35

What does special condition 4 allow regarding property sale?

Answer 35

It allows the property to be sold with vacant possession or subject to leases or tenancies.

Question 36

What does special condition 6 protect against?

Answer 36

It limits liability for misrepresentation to written statements, excluding liability for fraud or recklessness.

Question 37

What is the purpose of the occupier’s consent special condition?

Answer 37

To ensure that occupiers agree to vacate the property and release any rights they may have.

Question 38

What is the definition of output tax?

Answer 38

The VAT charged by a business on its sales.

Question 39

What is input tax?

Answer 39

The VAT paid by a business on its purchases.

Question 40

What is the VAT registration threshold for businesses?

Answer 40

£85,000 taxable turnover per year.

Question 41

What is the VAT treatment of newly constructed residential property?

Answer 41

It is a zero-rated supply.

Question 42

What happens if a seller opts to tax property that is over 3 years old?

Answer 42

The subsequent sale of that property is standard-rated.

Question 43

What is the option to tax in relation to VAT?

Answer 43

A seller's choice to charge VAT on a property sale, which can affect whether the property is standard-rated or exempt.

Question 44

True or False: The buyer can rely on the seller's option to tax for VAT purposes.

Answer 44

False.

Question 45

Fill in the blank: The balance of the purchase price payable on completion is the purchase price less the _______.

Answer 45

deposit.

Question 46

What is the VAT rate applicable to property transactions?

Answer 46

20% ## Footnote VAT is a value-added tax that may be payable on property transactions.

Question 47

Who cannot rely on the seller’s option to tax?

Answer 47

The buyer ## Footnote The option to tax is personal to the seller.

Question 48

What must an investor do if they wish to charge VAT on rent?

Answer 48

Make its own option to tax ## Footnote This applies to properties like office blocks rented out to different companies.

Question 49

What does Condition 2 of the SCPC state by default?

Answer 49

The property is standard-rated ## Footnote This refers to the VAT treatment of the property.

Question 50

What do tickbox A1 and tickbox A2 in the SCPC pertain to?

Answer 50

A1: Exempt supply, A2: Transfer Of a Going Concern (TOGC) ## Footnote These tickboxes modify the default Condition 2 regarding VAT treatment.

Question 51

What is a Transfer Of a Going Concern (TOGC)?

Answer 51

A transaction where the seller and buyer both intend to use the property for business letting to produce rental income ## Footnote TOGC transactions are not considered taxable supplies for VAT.

Question 52

What does a seller warrant under standard condition 2?

Answer 52

The property is a standard-rated supply ## Footnote This condition requires the buyer to pay VAT over the purchase price.

Question 53

What is the buyer’s checklist before exchange of contracts? List any three items.

Answer 53

* Receive all search results and replies to enquiries * Ensure insurance is in place from exchange * Check cleared funds for the deposit ## Footnote These steps help ensure readiness for the exchange.

Question 54

What does the exchange of contracts signify?

Answer 54

The parties enter into a binding contract ## Footnote This is a critical milestone in the property transaction process.

Question 55

What is Law Society Formula B used for?

Answer 55

Exchange of contracts by telephone ## Footnote This formula outlines the steps and obligations for solicitors during the exchange.

Question 56

What is an undertaking in the context of a solicitor's role?

Answer 56

A formal promise to take action ## Footnote Breaching an undertaking can lead to disciplinary action against a solicitor.

Question 57

What is the purpose of the buyer’s solicitor checking the contract?

Answer 57

To ensure it aligns with the heads of terms and buyer’s instructions ## Footnote This process might involve amendments to protect the buyer's interests.

Question 58

What happens to the risk of the property after exchange of contracts?

Answer 58

Risk passes to the buyer ## Footnote The buyer should have insurance in place to cover potential damages.

Question 59

What should each party's solicitor prepare after the exchange?

Answer 59

A memorandum of exchange with key contract terms ## Footnote Keeping a copy of the signed contract is also advisable.

Question 60

What is the significance of the completion date in the exchange process?

Answer 60

It marks the deadline for finalizing the transaction ## Footnote Both parties need to agree on this date during the exchange.

Question 61

What does Law Society Formula C apply to?

Answer 61

Chain transactions involving multiple properties ## Footnote This formula is rarely used due to its complexity.

Question 62

What should a solicitor do if related transactions are involved?

Answer 62

Tie them together and manage exchanges carefully ## Footnote This prevents issues if one of the exchanges fails.