Unit 3: Preparation, Exchange of Contracts, and Conveyancing Practice

Comprehensive practice flashcards covering conveyancing ethics, VAT rules, contract drafting, title guarantees, standard conditions, lender requirements, and exchange procedures.

When is the risk of conflict considered high when a solicitor acts for both the borrower and the lender?

The risk of conflict is high if the mortgage is non-standard, or if it is standard but no approved certificate of title is used.

What must a solicitor do if a seller conducting a contract race refuses to allow disclosure of the race to competing buyers?

Under paragraph 6.3, the solicitor cannot disclose due to the duty of confidentiality; because paragraph 1.4 prohibits misleading buyers, the solicitor must cease acting.

What is the turnover threshold for a taxable person under VAT rules, and how is net VAT calculated?

The turnover threshold is greater than $£85,000$. Net VAT payable to HMRC quarterly is calculated as output tax (charged to customers) minus input tax (paid by the business).

How does VAT treatment differ between a new commercial freehold building and an old commercial freehold building?

A new freehold building ($\le 3\text{ years}$ old) sale is compulsory standard rated at $20\%$, whereas an old freehold building ($> 3\text{ years}$ old) sale is exempt, subject to an option to tax.

What is an option to tax, and what is its primary commercial downside for a buyer unable to recover input VAT?

It allows a seller of an old building to charge VAT to recover input tax on costs (e.g., refurbishment). The downside is that it increases the effective purchase price for VAT-sensitive buyers and creates a "tax on tax" by increasing the chargeable consideration for SDLT/LTT.

What types of transactions are governed by the Standard Conditions of Sale (SC) versus the Standard Commercial Property Conditions (SCPC)?

The SC (5th ed, 2018) covers all residential and simple commercial sales, while the SCPC (3rd ed, 2018) covers high-value commercial property transactions and provides more detail on occupational leases.

Under SC 3.1.2 and SCPC 4.1.2, what incumbrances is a property sold subject to by default?

Specified incumbrances, incumbrances discoverable on inspection, those the seller does not and could not reasonably know of, and public requirements.

Why must the buyer's solicitor verify that the seller's existing mortgage is excluded from the list of specified incumbrances in the contract?

Because the seller's mortgage will be discharged on or prior to completion rather than remaining as a surviving third-party burden.

What covenants are implied by giving a limited title guarantee compared to a full title guarantee?

While a full title guarantee covenants that the seller has the right to dispose, will do all reasonable to transfer, and the property is free from incumbrances the seller does not and could not reasonably know of, a limited title guarantee only covenants that the seller has not incumbered the property and is not aware that anyone else has since the last disposition for value.

Which statute narrows the scope of a full title guarantee regarding matters disclosed or known to the buyer?

Section 6 of the Law of Property (Miscellaneous Provisions) Act 1994 (s 6 LP(MP)A 1994).

What is the default contract rate for interest on late completion under SC/SCPC 1.1.1(e)?

The Law Society rate, which is defined as $4\%$ above the Barclays Bank base rate.

What is the standard deposit amount on exchange, and what is the difference between holding it as stakeholder versus agent?

The default deposit is $10\%$. A stakeholder holds the deposit until completion, whereas holding it as agent allows the funds to be released to the seller immediately after exchange for any purpose, risking loss to the buyer if the seller becomes insolvent.

Under SC 2.2.5, when is a seller permitted to utilise the deposit prior to completion?

The seller may use the deposit as deposit money for a related residential purchase (with any excess remaining held as stakeholder).

Why is an indemnity covenant required in a contract where the seller is an original covenantor of a positive covenant?

Because the burden of positive covenants does not run with the land; the indemnity creates a chain of liability to protect the seller if the covenant is breached.

When does the risk of physical loss or damage to the property pass to the buyer under SC 5.1.1 and SCPC 8.1?

Risk passes to the buyer on exchange of contracts, requiring the buyer to complete even if the property is damaged or destroyed.

What occurs under SC 5.1.5 and SCPC 8.2.4(b) if both the seller and buyer hold insurance policies and the buyer's insurer reduces its payout?

The purchase price is reduced by an amount equal to the reduction in the buyer's insurance payout.

Under SCPC Part 2, Condition A1, what is agreed regarding the VAT status of the property?

The price is exclusive of VAT, the seller warrants they will not opt to tax, but the seller may add VAT to the purchase price if the law changes before completion.

Which statutory provision implies a power of sale into a mortgage executed by deed and registered as a first legal charge?

Section 101 of the Law of Property Act 1925 (s 101 LPA 1925).

What are the roles of Parts 1, 2, and 3 of the UK Finance Mortgage Lenders' Handbook?

Part 1 contains standard instructions applying to all lenders; Part 2 contains lender-specific requirements; Part 3 applies when a solicitor acts exclusively for the lender.

What certificate confirms to a commercial lender that the property has a good and marketable title without duplicating the investigation?

A City of London Law Society certificate of title.

What are the three statutory requirements for a valid land contract under Section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989?

The contract must be in writing, incorporate all expressly agreed terms (in one document or each identical copy), and be signed by or on behalf of each party.

What is the procedure under Law Society Formula B for exchange of contracts by telephone?

Each solicitor holds their own client's signed part of the contract, confirms the parts are identical, and undertakes to send their signed contract (and the deposit from the buyer's solicitor) to the other that same day.

How is ownership split between the seller and buyer immediately following the exchange of contracts?

The seller retains legal title until completion, while the beneficial (equitable) interest passes to the buyer, with the seller holding the property as trustee.