Topic 4 Flashcards
Principles of mortgage and property law (97 cards)
1
Q
What does the term “conveyance” refer to in property law?
A
The transfer of rights in property.
2
Q
In mortgage terminology, who is the mortgagor and who is the mortgagee?
A
The mortgagor is the borrower; the mortgagee is the lender.
3
Q
What legal right do modern borrowers now have that they didn’t in the past?
A
The right to repay a mortgage loan early.
4
Q
What year is significant in the development of modern property law?
A
1925.
5
Q
What are the three key Acts passed in 1925 affecting property and mortgage law?
A
Law of Property Act 1925
Land Charges Act 1925
Land Registration Act 1925
6
Q
What are the two main forms of land ownership defined by the 1925 Acts?
A
Freehold (estate in fee simple absolute in possession)
Leasehold (estate for a term of years absolute)
7
Q
What does “fee simple” mean?
A
The right for the property to be inherited on death.
8
Q
What does “absolute” mean in the context of ownership?
A
Ownership without limitations.
9
Q
What does “in possession” mean regarding land ownership?
A
Immediate right to occupy the land—no prior claims by others.
10
Q
What does “term of years absolute” refer to?
A
A fixed-term leasehold estate.
11
Q
Are there any limits to the landowner’s airspace rights?
A
Yes, rights are limited to what is reasonable for the use and enjoyment of the land (e.g., cannot claim trespass from planes 30,000 feet above).
12
Q
What key change did the 1925 Acts make regarding property registration?
A
They introduced a system of land registration for all property.
13
Q
Can minors hold an interest in land?
A
No, a person under 18 cannot hold an interest in land.
14
Q
How is the priority of multiple secured loans on a property determined?
A
By the date of registration of each loan.
15
Q
Can a borrower let out a mortgaged property by default?
A
Yes, unless the mortgage deed states otherwise (which it typically does).
16
Q
Is the lender liable for loss on the sale of a repossessed property?
A
No, the lender is not liable for such loss.
17
Q
Who decides how insurance claim proceeds related to a mortgaged property are used?
A
The lender.
18
Q
What is the only practical legal method of creating a mortgage today under the Law of Property Act 1925?
A
Mortgage by way of legal charge.
19
Q
Who owns the property in a mortgage by way of legal charge?
A
The borrower owns the property from the outset.
20
Q
When is the legal charge cancelled?
A
When the mortgage is fully repaid.
21
Q
What is a second mortgage (or second charge)?
A
Additional borrowing secured against a property that already has a first charge mortgage, usually from a different lender.
22
Q
Why are second charges usually with a different lender?
A
Because first-charge lenders often include a clause allowing further advances under the first charge.
23
Q
How is the priority of charges determined on registered land?
A
By the date order of registration, assuming proper procedures were followed.
24
Q
Who receives the sale proceeds first if a borrower defaults?
A
The first mortgagee, followed by subsequent mortgagees in order of registration.
25
What happens if the property sale does not cover the first mortgage?
Subsequent mortgagees receive nothing.
26
How is priority determined on unregistered land?
The lender holding the title deeds is the first-charge holder; subsequent charges are ranked by date in the Land Charges Registry.
27
Why do second mortgages have higher interest rates or fees?
Because they carry higher risk for the lender due to their lower priority.
28
What happens when a property is owned jointly?
A trust of land is automatically created, with legal owners acting as trustees.
29
What are legal owners in joint ownership?
The individuals registered as proprietors or listed in the latest conveyance; they hold and manage the property on trust.
30
What is a joint tenancy?
A form of ownership where each joint owner owns 100% of the property, and it automatically passes to surviving owners upon death.
31
Can a joint tenant leave their share to someone in a will?
No, it passes automatically to the surviving joint tenant(s).
32
What is the maximum number of legal owners that can be registered?
Four.
33
What is tenancy in common?
A form of ownership where each owner has a defined beneficial share of the property that can be left in a will.
34
What happens when a tenant in common dies?
The surviving legal owner holds the deceased's share on trust for the beneficiaries until a new trustee is appointed.
35
Can the sole surviving legal owner sell the property immediately?
No, a second legal owner (trustee) must be appointed before a sale can occur.
36
What legal step is needed to convert joint tenancy into tenancy in common?
A notice of severance and a Form A restriction registered with the Land Registry.
37
Who can force a sale in a tenancy in common?
No one can unilaterally force a sale; both legal owners must agree, and beneficiaries can't force a sale.
38
What is the main advantage of tenancy in common for estate planning?
It allows an owner to leave their share to someone other than the co-owner, which can be useful for inheritance tax planning.
39
What is the IHT trap in joint tenancy for unmarried couples?
Although the surviving partner gets full legal ownership, HMRC treats the deceased's 50% share as part of their estate for IHT purposes.
40
How does the nil-rate band apply to tenancy in common?
The deceased’s share may fall within the nil-rate band, potentially reducing IHT liability.
41
What happens to the mortgage if a joint owner dies?
The surviving owner becomes responsible for the entire mortgage under joint and several liability.
42
Why might someone use tenancy in common in a second marriage?
To ensure children from a previous marriage inherit part of the property.
43
What is the highest form of land ownership in England and Wales?
Freehold estate.
44
Name three factors that can affect the rights of a freeholder.
Local authority conditions, planning legislation, covenants or easements.
45
Why might a freehold not be suitable as mortgage security?
It may have defective title or features that lower value, such as being a freehold flat with unclear responsibility for shared areas.
46
What is a flying freehold?
A part of a freehold property that extends over or under another’s land but is not connected to the ground.
47
Give an example of a flying freehold.
A bedroom in one house built above a passage owned by a neighbouring property.
48
What do lenders usually require before lending on a flying freehold?
Enforceable rights of support, shelter, repair, and access.
49
What is a leasehold estate?
A legal estate giving temporary rights over land for a specified period, such as 99 or 999 years.
50
What is ground rent?
A payment by the leaseholder to the freeholder, typically £50–£200 annually.
51
What is a sub-lease?
A lease created by a leaseholder to another person, which must be shorter than the original lease.
52
Why have some leasehold houses been criticised in recent years?
Due to clauses that double ground rent and obstacles to buying the freehold.
53
List two common leaseholder restrictions.
Limits on alterations and requirements to maintain common areas.
54
What happens when a lease expires?
The land and property revert fully to the freeholder.
55
What is the typical minimum lease term lenders require beyond the mortgage term?
30–40 years.
56
Why are short leases risky for lenders?
They reduce the property's value and resale potential.
57
What is forfeiture in a leasehold context?
The termination of the lease if the leaseholder breaches its conditions.
58
What protection do lenders have if a leaseholder breaches lease terms?
They can fulfil the lease conditions themselves and add costs to the mortgage.
59
Why might a short lease property appear cheap at auction?
Because it has low remaining lease years, reducing its value and appeal.
60
Can a buyer extend a lease immediately after purchase?
No, they must wait two years to gain the legal right to extend.
61
Why might a seller extend a lease before selling?
To increase the property's value and make it more appealing to buyers.
62
What might happen if a lease is forfeited and the lender isn't aware?
The lender could lose their security interest in the property.
63
What is commonhold?
A type of tenure introduced by the Commonhold and Leasehold Reform Act 2002, allowing unit owners in multi-unit properties (e.g., flats) to own their units on a freehold basis and collectively manage the common areas via a commonhold association.
64
What is the role of the commonhold association?
It owns and manages the common parts of the building, sets charges for maintenance, and is owned by the unit holders who are shareholders.
65
How are shares in the commonhold association typically allocated?
Based on unit size; e.g., a two-bedroom flat may get two shares, a one-bedroom flat one share, and a studio half a share.
66
What documents must the commonhold association have?
Memorandum of association, articles of association, and a commonhold community statement.
67
What is a commonhold assessment?
An annual charge paid by unit holders to cover expenses of running the commonhold association and maintaining common areas.
68
When can property be registered as commonhold?
Only after the commonhold association is formed and the land/property is registered with the Land Registry.
69
What is required to convert an existing leasehold estate to commonhold?
Agreement from all leaseholders, their lenders, and the freeholder.
70
Why is commonhold rarely used in existing properties?
It’s difficult to get unanimous agreement from all involved parties and the conversion process can be costly.
71
What did the Commonhold and Leasehold Reform Act 2002 aim to improve?
It aimed to make it easier for leaseholders to collectively buy the freehold of their flats or extend their leases.
72
Who qualifies to buy the freehold of a flat?
Leaseholders with an original lease term over 21 years (qualifying tenants).
73
What conditions must a building meet for leaseholders to collectively buy the freehold?
It must have 2+ flats, ⅔ of flats must have long leases, no more than 25% of floor area non-residential, and at least 50% of leaseholders must agree to buy.
74
Name one situation where a leaseholder cannot be a qualifying tenant.
If the leaseholder owns more than two qualifying leases in the building.
75
What is enfranchisement in this context?
The right of leaseholders to collectively purchase the freehold of the building.
76
What is a ‘resident landlord’?
A person who owned the freehold before conversion of the property to flats and has lived there (or a close family member has) for 12 months.
77
What is the right to extend a lease under the 2002 Act?
A qualifying tenant can extend their lease by 90 years beyond the current term.
78
What is the payment made for lease extension called and what does it include?
A premium, covering the landlord’s financial loss, increased property value, and lost ground rent.
79
What happens to ground rent after lease extension?
It is replaced by a nominal ‘peppercorn rent’ (effectively zero).
80
Can the right to extend a lease be transferred to a buyer?
Yes, the seller can start the process and assign the right to the buyer, who then pays the premium.
81
What is a voluntary lease extension?
An agreement with the landlord when the leaseholder doesn’t qualify under legislation, but the landlord can set terms and is not obliged to agree.
82
What is the Right to Manage (RTM)?
A legal right for qualifying leaseholders to take over building management from the freeholder by forming an RTM company.
83
What are the qualifying conditions for the Right to Manage?
2+ flats in the building, ⅔ held on long leases, <25% non-residential area, and 50% leaseholder agreement.
84
What is the RTM claim process?
Form RTM company → Invite non-members → Serve claim to freeholder → Freeholder can counter within 1 month → RTM takes over in 4 months if unchallenged.
85
What management powers does an RTM company have?
Full building management, but must consult freeholder on alterations and cannot use forfeiture procedures.
86
What does the Leasehold Reform (Ground Rent) Act 2022 state about ground rent on new long leases?
Ground rent on new long residential leases (21+ years) created from 30 June 2022 cannot exceed one peppercorn per year, meaning no monetary ground rent can be charged.
87
What is the purpose of a "peppercorn rent"?
It symbolises a minimal or zero-value rent to legally validate a lease; historically used to show consideration in contracts.
88
Does the 2022 Act apply to statutory lease extensions?
No, because statutory lease extensions under the 1993 Act are already set at peppercorn rent.
89
What happens to ground rent in voluntary lease extensions under the 2022 Act?
Ground rent remains payable until the original lease ends and the new extended lease begins.
90
What is a key proposal of the Leasehold and Freehold Reform Bill (2023)?
To increase standard lease extension terms to 990 years for both flats and houses with a peppercorn ground rent after a premium is paid.
91
What is “marriage value” and what does the Bill propose about it?
Marriage value is the added value from combining lease and freehold; the Bill proposes removing it to make lease extensions cheaper.
92
How does the Bill change the two-year ownership rule?
It removes the requirement to own a property for two years before extending the lease.
93
What change does the Bill propose for mixed-use buildings?
Increases the non-residential limit from 25% to 50%, allowing more leaseholders to buy the freehold or manage the building.
94
What does the Bill say about new leasehold houses?
It proposes to ban the sale of new leasehold houses (not flats) in England and Wales, with some exceptions.
95
What should a mortgage adviser understand about property tenure?
How freehold, leasehold, or commonhold tenure affects saleability and value, and how to explain these simply to clients.
96
What legal knowledge is expected of a mortgage adviser?
Basic understanding of ownership types, lender/borrower obligations, and potential issues with leasehold/freehold properties.
97
Should mortgage advisers give detailed legal advice on property law?
No, they should refer clients to solicitors for complex legal matters.
