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FLK 2: Property Practice > Topic 5 - The Contract and Exchange > Flashcards

Topic 5 - The Contract and Exchange Flashcards

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1
Q

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

A

The lender’s interest is whether the property has sufficient value and marketability to repay their loan.

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2
Q

How does a lender’s acceptance of risk differ from that of a buyer?

A

A buyer may accept certain title risks, while a lender generally gives little leeway in accepting risk.

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3
Q

Is it a conflict of interest for the same solicitor to act for both buyer and lender?

A

It can be a conflict unless the clients have a substantially common interest.

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4
Q

What defines a substantially common interest according to the SRA glossary?

A

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

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5
Q

Why can a solicitor usually act for both a buyer and the buyer’s lender in residential transactions?

A

Because both parties want a property that is worth what the buyer has paid and suitable for its purpose.

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6
Q

What is a significant reason for low conflict risk in residential lender transactions?

A

High street lenders have standard non-negotiable mortgage terms and conditions.

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7
Q

In commercial transactions, why do most lenders instruct their own solicitors?

A

There is much more potential for conflict in commercial transactions.

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8
Q

What is the purpose of a mortgage offer?

A

It is a formal offer by the lender to lend, subject to satisfaction with the transaction and security.

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9
Q

What does a certificate of title certify?

A

It certifies that the title to the property is satisfactory for lending purposes.

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10
Q

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

A

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

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11
Q

What is the legal charge or mortgage deed?

A

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

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12
Q

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

A

It is an industry standard for certifying the title of commercial property.

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13
Q

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

A
  • Must be in writing
  • Incorporate all agreed terms
  • Signed by each party
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14
Q

What can a contract for property achieve?

A
  • Fix a completion date
  • Tie related transactions
  • Set out related obligations
  • Include conditions like planning permission
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15
Q

What is a standard form residential contract?

A

It refers to the Standard Conditions of Sale and is commonly used in residential transactions.

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16
Q

What are tailor-made contracts typically used for?

A

They are commonly used in commercial transactions and may incorporate and amend standard conditions.

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17
Q

What is the difference between Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC)?

A

SCS are for residential transactions, while SCPC are for commercial transactions and cover more detail.

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18
Q

What is the significance of special conditions in contracts?

A

They can amend, exclude, or supplement the Standard Conditions of Sale.

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19
Q

What must a seller disclose regarding latent incumbrances?

A

Latent incumbrances are rights burdening the property that are not apparent on inspection.

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20
Q

What types of title guarantees can a seller offer?

A
  • Limited title guarantee
  • Full title guarantee
  • No title guarantee
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21
Q

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

A

The contract must be performed by the specified time, allowing the non-defaulting party to walk away if not.

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22
Q

What is the standard deposit percentage required upon exchange of contracts?

A

10%, but it can be varied by special condition.

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23
Q

What is the role of a stakeholder in the context of a deposit?

A

The stakeholder holds the deposit safe and does not pay it to the seller until completion.

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24
Q

What is the role of an agent concerning the deposit?

A

The agent can pay the deposit to the seller immediately after exchange.

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25
What happens if a buyer does not complete on time after agreeing to a lower deposit?
The buyer must immediately pay the balance of the 10% deposit.
26
What does it mean when the seller’s solicitor holds the deposit as stakeholder?
The seller’s solicitor must keep the deposit safe and not pay it to the seller until completion. ## Footnote This concept emphasizes the importance of protecting the buyer's deposit until all conditions are met.
27
What happens if the seller’s solicitor holds the deposit as agent for the seller?
The seller may demand the deposit immediately after exchange. ## Footnote Buyers typically reject this due to the risk of losing the deposit if the seller cannot complete.
28
What is the default handling of deposits under SCS and SCPC?
Both SCS and SCPC provide for the deposit to be held as stakeholder.
29
Under SCS, how can a residential seller use the deposit?
Part or all of the deposit may be used for the deposit on a related transaction.
30
Is VAT usually payable on residential property transactions?
Residential property is usually an exempt supply or a zero-rated supply.
31
What is the VAT treatment of commercial property under SCPC?
The default position is that the property is a standard rated supply, meaning VAT is payable at the normal rate.
32
What are the exceptions to VAT on commercial property?
If the property is over three years old and the seller has not made an option to tax, there will be no VAT to pay.
33
When does risk pass to the buyer in property transactions?
Once contracts are exchanged, risk passes to the buyer under both SCS and SCPC.
34
What should a buyer do regarding insurance before exchange?
The buyer’s solicitor should advise obtaining insurance quotes ready to insure the property from the date of exchange.
35
What obligation does SCS and SCPC impose regarding indemnity covenants?
Both make it an obligation of the contract for the seller to require the buyer to give an indemnity covenant if the chain is unbroken.
36
What should the transfer to the Buyer include regarding indemnity covenants?
The Transferee covenants to observe and perform the covenants and to indemnify the Transferor against any liability.
37
What is the purpose of special conditions in property contracts?
They allow for amendments, exclusions, or supplements to the Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC).
38
How many pre-written special conditions are included in the standard residential contract?
Seven pre-written special conditions.
39
What does special condition 1(a) in the residential contract state?
This contract incorporates the Standard Conditions of Sale (Fifth Edition – 2018) Revision.
40
What does special condition 2 allow parties to amend?
The title guarantee from full (default) to limited by changing the front page.
41
What does special condition 4 state about the property?
The property is sold with vacant possession or subject to specified leases or tenancies.
42
What does special condition 6 limit regarding representations?
Neither party can rely on representations unless made in writing.
43
What does special condition 7 address?
Occupier’s consent regarding adults living in the property.
44
What is an example of a tailor-made special condition?
The Seller agrees to pay the Buyer £80 for a chancel repair indemnity policy.
45
What is the VAT treatment of newly constructed residential property?
Newly constructed residential property is a zero-rated supply.
46
What is output tax in VAT?
The VAT charged by a business on sales to its customers.
47
What is input tax in VAT?
The VAT paid by a business on its purchases.
48
What is the threshold for mandatory VAT registration?
Businesses with a VAT taxable turnover of more than £90,000 each year must register.
49
What happens if a seller opts to tax an older commercial property?
The subsequent sale of that property becomes standard-rated for VAT.
50
What is a Transfer Of a Going Concern (TOGC)?
A transaction where the seller and buyer both use the property for letting to produce rental income.
51
What does SCPC condition 2 default to regarding VAT?
The property is a standard-rated supply.
52
What must the seller warrant under the A1 conditions in SCPC?
The property is not subject to VAT.
53
What is the principle behind the exchange of contracts?
A contract is only as good as the people signing it.
54
What does TOGC stand for in the context of property transactions?
Transfer of Going Concern ## Footnote TOGC refers to a specific type of transaction that involves the sale of a business as a continuing entity, including its assets.
55
What is the first step in preparing a draft contract?
The seller’s solicitor drafts the contract ## Footnote This involves referencing the heads of terms for instructions and the title.
56
What documents are included in the contract bundle?
Official copies and protocol forms ## Footnote These documents are sent to the buyer’s solicitor if the Law Society Conveyancing Protocol is adopted.
57
What must the buyer’s solicitor check against the contract?
The heads of terms and the buyer’s instructions ## Footnote This ensures that the contract aligns with the buyer's expectations.
58
What is the buyer’s deposit typically set at?
Usually 10% ## Footnote This deposit is required to secure the transaction.
59
What checklist item must a buyer ensure regarding insurance before exchange of contracts?
Insurance must be in place from exchange of contracts ## Footnote This protects the buyer in case of property damage.
60
What is a redemption figure?
The amount needed to pay off the loan in full ## Footnote This figure is essential for the seller to ensure proceeds of sale will cover it.
61
What is the purpose of the exchange of contracts?
To enter into a binding contract ## Footnote This legally obliges both parties to complete the transaction.
62
How is the exchange of contracts traditionally conducted?
By meeting and exchanging paper copies of the contract ## Footnote However, it is now more commonly conducted via telephone.
63
What is Law Society Formula B?
A prescribed set of steps and obligations for exchanging contracts ## Footnote This formula is used for the majority of transactions.
64
What undertakings do solicitors have after the exchange?
To hold the signed contract to the other solicitor’s order and send it by post ## Footnote This includes sending the deposit as specified by the contract.
65
What does Law Society Formula A apply to?
Situations where the same solicitor holds contracts signed by both seller and buyer ## Footnote This is used when the solicitor will be unavailable at the time of exchange.
66
What is the purpose of Law Society Formula C?
To manage chain transactions where money from one property is used to buy another ## Footnote This formula is rarely used due to its complexity.
67
What does it mean to 'release' a contract in related transactions?
To treat the first contract as exchanged if the related transaction is completed by an agreed time ## Footnote This method helps tie transactions together.
68
What should each solicitor prepare after the exchange?
A memorandum of exchange with key contract terms ## Footnote This is important for record-keeping and clarity.
69
When does risk pass to the buyer?
On exchange ## Footnote This emphasizes the importance of having insurance in place.
70
What equitable interest does the buyer hold after exchange?
An equitable interest in the property ## Footnote This can be protected by a notice on the register or a land charge.
71
Fill in the blank: A solicitor’s undertaking is a formal ________ in the course of acting as a solicitor.
Promise ## Footnote Breach of an undertaking can lead to disciplinary action.

FLK 2: Property Practice (10 decks)

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