Property Practice – Course Summary
TOPIC 1: KEY ELEMENTS AND STRUCTURE OF A PROPERTY TRANSACTION
Conveyancing: process of transferring the ownership of a property. Two components:
1. Exchange of contracts: Not compulsory - the contract records the agreed terms and can be relied upon
if anything goes wrong in the period between exchange of contracts and completion.
2. Completion: the bulk of the purchase money is paid to the seller and the transfer deed is completed to
transfer the property to the buyer.
Exchange and completion can take place simultaneously.
Parties not bound to the transaction until contracts are exchanged.
‘Caveat emptor’: seller is not obliged to disclose information about the property, other than about limited
matters of title, and would not be liable for any defects in the property which later come to light.
** does not entitle the seller to give misleading answers (= misrepresentation).
Three stages in a transaction:
Pre-contract Solicitors on both sides take instructions from clients: establish consensus & identify issues/conflicts of
stage interest.
Seller’s S:
Investigate title and produce evidence of title (ie deduce title)
Reply to buyer’s pre-contract enquiries
Draft and submit a pre-contract package of documents to the buyer’s S – draft contract +
evidence of title.
o Contract usually includes ‘requisitions’: provisions prohibiting buyer from raising further
queries on the title, after exchange.
Buyer’s S:
Investigate title
Raise pre-contract searches and enquiries
checks the documents of title for: (i) seller entitled to sell, (ii) any encumbrances.
Approve draft contract.
Pre-contract searches also on:
Boundaries, access, disputes, outgoings and previous works carried out at the property.
Searches on statutory, public and private bodies to help the buyer obtain information about the
property.
Once buyer satisfied —> exchange of Cs. On exchange: buyer pays deposit, ie 10% of price.
Pre- Contracts exchanged: parties are bound to complete. —> Transfer deed: prepared and executed.
completion Pre-completion searches: ensure info obtained during pre-contract remains valid.
stage Buyer S:
o raise pre-completion searches & enquiries
o Support certificate of title to lender & request mortgage (if appropriate)
Seller S: reply to buyer’s pre-completion enquiries + undertaking to discharge mortgage.
On completion: buyer pays the balance and seller hands over keys.
Post- Finalize the administrative matters:
completion Seller S ensures mortgage paid off and removed from title (usually undertaking by S)
stage Buyer S ensures SDLT (or LTT) is paid on transfer.
Buyer S must register their client as the new owner + any new mortgage.
Law Society Conveyancing Protocol (the ‘Protocol’): applies to residential conveyancing only.
set of instructions to conveyancers as to how to carry out a residential sale and purchase
series of standard documents issued under the ‘TransAction’ brand.
—> All firms that undertake residential conveyancing and want to be members of The Law Society’s
Conveyancing Quality Scheme (‘CQS’) are required to comply with the Protocol.
—> Membership of the CQS is essential for any firm wanting to be on the panels of solicitors approved by
the residential mortgage lenders to act for lenders where the buyer is taking out a mortgage.
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, Professional conduct issues in a property transaction: Paragraph 6 SRA Code of Conduct for Solicitors
First q: ‘Can we act on behalf of this client?’ and then ‘Can we carry out the client’s instructions?’
Acting for seller Para 6.2: a solicitor cannot act for both parties if there is a conflict of interest or a significant risk of such
and buyer a conflict. – high risk: unequal bargaining power or ongoing negotiation on price.
Exceptions where there is a conflict of interests:
Para 6.2(a): a solicitor can act if the clients have a substantially common interest in relation to
the matter – subject to conditions:
o Both pp give informed written consent + safeguards in place to protect confidential
information + S satisfied it is reasonable to act for both pp.
o Exception does not apply to a property purchase.
Para 6.2(b): a solicitor can act if the clients are competing for the same objective (subject to
same conditions as above) - Exception will not apply in a buyer and seller situation.
Acting for joint Usually acceptable to act for joint buyers, provided that the solicitor can comply with paragraph 6.2.
buyers It may be necessary to advise residential buyers separately about how they want to hold the equitable
interest in the property, particularly if they are not married or in a civil partnership.
Acting for Possible unless, under para 6.2, there is a conflict of interest or a significant risk of such a conflict.
borrower and
lender Risk is high if:
Mortgage not a standard mortgage (ie on lender’s standard terms) but subject to negotiation
There is a standard mortgage but you do not use the approved certificate of title.
Possible to act where exception in Para 6.2(a) applies.
Duty of confidentiality (para 6.3) to one client may be in conflict with duty of disclosure to other client.
Acting for joint Usually acceptable, provided no conflict of interests exists or is likely to arise.
borrowers Case of matrimonial home - HL: ‘the Etridge guidelines’:
Lender should provide S with following info:
o (i) purpose of loan; (ii) amount of spouse indebtedness; (iii) amount of current overdraft
facility; (iv) amount & terms of new loan; (v) copy of any written app for the loan.
Solicitor should (face-to-face meeting in absence of other spouse):
o (i) explain to other spouse purpose for which S is involved; (ii) explain lender relies on S
to counter any suggestion of undue influence; (iii) obtain confirmation from spouse that
they wish S to act for them in the transaction + advise on legal and practical conseq of it.
o S should not confirm to lender matters have been explained unless expressly instructed.
Regard to client interests: “If it is ‘glaringly obvious’ that the wife is being ‘grievously wronged’, the
solicitor should decline to act.”
One solicitor can advise both borrowers, provided that the Etridge guidelines are followed and the
solicitor is satisfied that they can comply with paragraph 6.2.
** Same principles will apply to civil partners, cohabitees, parent and child and any other situation
where property is being charged in return for a loan that is not being made to all of the property owners.
Contract races Contract race = pre-contract package is sent to multiple buyers who then compete to be ready to
exchange contracts first.
—> Legitimate so long as all the prospective buyers know that they are engaged in a race.
Para 1.4: must not mislead or attempt to mislead the buyers, by acts or omissions, or by being complicit
in the acts or omissions of others.
= S should inform all buyers immediately of the seller’s intention to deal with more than one buyer.
If seller refuses to agree to such disclosure: S cannot disclose the contract race to the prospective buyers
(duty of confidentiality) —> solicitor should immediately stop acting in the matter.
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, Sources of finance for a property transaction:
S’s obligation: provide the client with the best possible information about the likely overall cost of their
matter, at the beginning and at appropriate points throughout the transaction.
S sends a letter of engagement to their client setting out the costs at the beginning of the transaction.
Costs include ie SDLT/LTT, Land Registry fees and search fees.
Most clients choose to finance the transaction by borrowing the majority of the purchase price.
Usual source of finance: bank or building society.
Other sources: relatives, private trust funds —> pp must be separately advised.
Common feature: lender’s concern to secure the loan against a valuable asset, principally the property itself.
Creation of a mortgage is dealt with by S (either acting only for lender or for both)
Restrictions on solicitors for the provision of financial advice:
S carrying out regulated activity in relation to a regulated mortgage contract must be authorised
under FSMA 2000. If not authorised —> s 327 exemption for professional firms:
o S can carry out regulated activities if they are incidental to the provision by the firm of
professional services, ie services regulated by the SRA.
‘Regulated mortgage contract’ includes: borrower is an individual, lender takes a legal charge over
property and at least 40% of property is intended for occupation by borrower/family member.
Regulated activities include arranging or advising on a regulated mortgage contract (ie a specific
mortgage product), but not giving generic advice.
S benefitting from s 327 exemption still subject to SRA Financial Services (Scope) Rules and SRA
Financial Services (Conduct of Business) Rules.
o NB. Rules do not allow S to recommend that client enters into a regulated mortgage contract.
Types of mortgages:
Repayment Borrower makes monthly payments to lender made up partly of instalments of the original amount
mortgages borrowed and partly of interest chargeable on the loan.
Borrower can choose:
lender’s standard variable rate (‘SVR’),
fix the interest rate for a set period or
agree a ‘tracker’ rate of a certain % above the UK base rate set by the Bank of England.
Interest-only Borrower makes monthly payments to the lender, but those payments will only comprise interest
mortgages chargeable on the loan.
Disadvantage: at the end of the mortgage term the borrower will still owe the lender the whole of the
original amount borrowed.
Possible to obtain a combined mortgage where part of the loan is interest only and part is repayment.
Other types of For clients who are unable to enter into mortgages which charge interest, there are finance schemes that
mortgage are Sharia compliant and avoid the payment of interest.
Property taxation:
Residential property:
Buyer: either Stamp Duty Land Tax (‘SDLT’) in England, or Land Transaction Tax (‘LTT’) in Wales,
when they purchased the property.
Seller: not have to pay Capital Gains Tax (‘CGT’) on capital gain from the sale if they have used the
property as their only or main residence.
Commercial property:
Buyer: SDLT or LTT on the purchase just like a residential buyer.
o No special concession for first-time buyers and different rates
o Main difference: buyer of a commercial property may have to pay VAT on the purchase.
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, Seller:
o If seller is a company - companies pay Corporation Tax on their income and capital profits
(rather than income tax and CGT).
o Corporation tax payable on the rent if the property is rented out and on any gain if the
property is sold for more than its purchase price.
Stamp Duty Land Tax (‘SDLT’) in England and Land Transaction Tax (‘LTT’) in Wales:
The basis of charge First-time buyers of residential property can claim relief from SDLT if
for residential they intend to occupy the property as their main residence and
freehold property the purchase price is no more than £625,000.
(SDLT): o Pay nothing on purchases up to £425,000
o Pay 5% on portion from £425,001 to £625,000.
Time limit for
payment is 14 days. SDLT rates for not first-time buyers:
Penalties apply for Does not exceed £250,000 0%
late payment.
Exceeds £250,000 but does not exceed £925,000 5%
Exceeds £925,000 but does not exceed £1,500,000 10%
The remainder 12%
Ie. SDLT payable on the purchase of a £275,000 home by a second-time buyer is £1,250 (0% on
£250,000 and 5% on £25,000).
NB. SDLT is payable on ‘land’ —> if the sale involves valuable chattels it may be possible to save
SDLT by apportioning part of the purchase price to the chattels.
Higher rates of SDLT if the buyer is buying an additional property or if the buyer is not a UK resident.
The basis of charge SDLT rates:
for non-residential Does not exceed £150,000 0%
or mixed use
freehold property Exceeds £150,000 but does not exceed £250,000 2%
(SDLT): Exceeds £250,000 5%
14 days time limit. If VAT is charged, SDLT is payable on the VAT-inclusive sum.
How SDLT is paid: SDLT is paid to HMRC, usually online by bank transfer, accompanied by a form called an SDLT1 which
provides the necessary details of the transaction.
If not paid: transfer of property not registered at Land Registry.
Failure to file and pay on time: penalties and interest.
LTT: Key differences: (i) no relief for first-time residential buyers from LTT; (ii) Rates & time limit different.
Must be submitted Rates for residential freehold property are as follows:
to the Welsh Does not exceed £225,000 0%
Revenue Authority
within 30 days of Exceeds £225,000 but does not exceed £400,000 6%
completion. Exceeds £400,000 but does not exceed £750,000 7.5%
Exceeds £750,000 but does not exceed £1,500,000 10%
The remainder 12%
Higher rates if the buyer is buying an additional property or if the buyer is not a UK resident.
Rates for non-residential or mixed use freehold properties:
Does not exceed £225,000 0%
Exceeds £225,000 but does not exceed £250,000 1%
Exceeds £250,000 but does not exceed £1m 5%
Exceeds £1 m 6%
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