SQE FLK2 Property Practice - Freehold Transactions

What is conveyancing?

Process of transfer of title (ownership) to property between seller (transferor) and buyer (transferee)

What are the stages in a freehold property transaction?

1. Pre-exchange

2. Pre-completion

3. Post-completion

What is meant by exchange of contracts?

• deposit is paid (usually 10%)

• both parties become bound to complete the transaction on the agreed completion date (cannot pull out without serious financial consequences)

• buyer gains an equitable interest in the property under a constructive trust

Pre-exchange, can parties withdraw from a transaction?

Yes - it remains ‘subject to contract’

What is completion in freehold transactions?

• balance purchase price is paid

• keys handed over

• Transfer deed (TR1) completed

• Buyer becomes entitled to become registered proprietor and gain legal ownership - may need registration

When does the buyer become the legal owner in registered land?

Once registered on HMLR

When does the buyer become the legal owner in unregistered land?

On completion but will be void if not registered within 2 months of completion

When accepting instructions to act in a property matter, what conduct issues do you need to consider?

1. can you provide a competent and timely service?

2. are you authorised to act on your client’s behalf?

3. COI

4. duty of confidentiality

5. duty of disclosure

What are the duties of the seller’s solicitor during the pre-exchange stage?

• carries out an investigation of title

• undertakes a deduction of title for B’s solicitor

• provide draft contract and supporting documents

• replies to pre-contract enquiries

• respond to additional pre-contract enquiries on title

• deal with proposed amendments to draft contract

• produce clean copies for signature

• request a redemption statement from any mortgagee(s)

What are the duties of the buyer’s solicitor in the pre-exchange stage?

• carries out investigation of title under caveat emptor

• check seller has right to sell

• check, approve and amend draft contract

• review pre-contract searches and enquiries of seller and TP

• raise additional enquiries on title

• reports to buyer (and mortgagee) and arranges contract to be signed

• obtains deposit in readiness for exchange

What does investigation of title mean?

Process whereby title to property is checked/examined to ensure seller is entitled to sell and that title is good/marketable, with all necessary rights and with no materially adverse incumbrances

What does deduction of title mean?

Process whereby the seller’s solicitor provides to the buyer’s solicitor proof/evidence of seller’s title/ownership.

Consists of copy of title deeds or official copies of registers of title

What are pre-contract searches and enquiries?

Enquiries are made of the seller’s solicitor to ascertain further information about the property from the seller

Searches are made of third parties to ascertain important information about the property held by third parties

What are requisitions on title?

Additional enquiries of seller’s solicitor as part of investigation of title and results of pre-contract searches and enquiries.

Specific questions about an issue requiring a solution.

Can a buyer’s solicitor raise further requisitions on title post-exchange?

No

What does caveat emptor mean?

Onus is on the buyer to investigate the title fully and find out as much as possible about the property, so they’re aware of any problems/issues.

Seller only has a limited duty of disclosure.

What are some exceptions to the caveat emptor principle?

Misrepresentations and latent incumbrances or title defects must be disclosed by the seller, overriding "buyer beware."

How does the concept of "Caveat Emptor" apply to physical defects in the property?

The seller has no obligation to disclose physical defects, leaving the responsibility to the buyer to discover them through surveys or inspections.

What happens in the pre-completion stage in a freehold transaction?

Buyer’s Solicitor	Seller’s solicitor
Prepares draft transfer deed for approval by SS Prepares mortgage deed for execution by B	Approves draft transfer deed and requests clean copy incorporating any proposed amendments
Carries out pre-completion searches and enquiries (requisitions) of seller’s solicitor and third parties	Responds to completion information and undertakings form from BS
Submit certificate of title/report on title to lender and request mortgage advance
Requests from B balance due to complete	Request redemption statement from seller’s lender
Deals with any amendments to transfer deed requested by SS, producing a clean copy for execution	Arrange for clean copy transfer deed to be executed by seller

What happens in the post-completion stage of a freehold transaction?

Buyer’s Solicitor	Seller’s solicitor
Submits SDLT or LTT return with payment of relevant tax	Discharges existing mortgage(s) and provides BS with proof of discharge
Deals with registration at HMLR - AP1	Pays estate agent’s costs
Deals with registration of charges at CH (if applicable)	Accounts to client
	Releases keys
Complete mortgage deed

What instructions must be taken in all freehold transaction cases?

1. Full details of buyer and seller

2. Estate agent’s details

3. Solicitor’s details on other side

4. Property address and tenure

5. Agreed purchase price and deposit

6. Details of any fixtures to be removed/included

7. Anticipated/proposed completion date

8. Details of any related sale/purchase, where synchronisation is needed

9. Position regarding EPC

10. Details of who’s in occupation

11. Details of existing use and past alterations/additions

12. Consider conduct issues

13. Verify client’s ID

14. Advise on costs, funds needed on account, anticipated disbursements, HMLR fees

15. Produce formal engagement letter

16. For non-resi = VAT position

17. Details of any other terms agreed between parties

What instructions must be taken if acting for the seller?

1. Details of all agreed estate agent’s commission/costs

2. Details of any existing mortgage(s), balance due, account number, location of title deeds (unreg)

3. Ask client to complete standard PIF

4. Co-ownership - ascertain where equitable interest is held as JT/TIC

5. Advise on liability of CGT (or Corp Tax)

What instructions must be taken if acting for the buyer?

1. Details of any proposed mortgage and generic advice on options

2. Position concerning property age, survey and advice on survey types

3. Details of proposed use, alterations and additions

4. Situation of property - industrial, open land, watercourse?

5. Advise on co-ownership and holding of equitable interest - may require express declaration of trust or making a will

6. Advise on potential future liability for CGT?

What are the solicitor’s duties when acting for the Lender?

1. Seller has right to sell

2. Physical condition is adequate for lender’s need and worth enough to cover loss if buyer defaults on mortgage repayment

3. Identify all property rights enjoyed

4. Identify any third party rights affecting property

5. Identify if property is free from security interest or will be on completion

6. Contract reflects agreed terms and sufficient funds for purchase

7. No discrepancies in lender’s understand of transaction and borrower’s circumstances

8. Security document is valid and enforceable

What are the solicitor’s duties when acting for the buyer?

1. Seller has right to sell

2. Physical condition is adequate for buyer’s need and worth money being paid

3. Identify all property rights enjoyed

4. Identify any third party rights affecting property

5. Identify if property is free from security interest or will be on completion

6. Contract reflects agreed terms and sufficient funds for purchase

7. Sufficient funds to finance purchase

What are the solicitor’s duties when acting for the seller?

1. Contract reflects terms agreed between parties

2. Provide BS with what they need to proceed with purchase

3. Tie the timing of sale to any related purchase

4. Transfer legal ownership to B

5. Collect money from sale, repay mortgage and account to seller for balance

What is synchronisation?

Imperative where client has a related sale and purchase

Make sure contract on sale are exchange at same time as contracts on purchase to ensure client has nowhere to live or without someone committed to purchase.

What is an EPC (Energy Performance Certificate)?

Certificate produced by accredited energy assessor detailing property’s energy use, costs and efficiency.

A = most efficient / G = least efficient

Usually made available to by seller (free), within 7 days or marketing or within 28 days. No requirement for listed properties.

If acting for the buyer, what is the first thing you should advise them to do?

Carry out a physical inspection of the property to determine whether there are any structural defects/problems which might affect value

What are the 3 requirements for a solicitor to represent their buyer and lender?

(1) lender is an institutional lender (commercial banks etc)
(2) standard certificate of title is provided
(3) confidentiality as to both parties is maintained

What is required for the buyer's solicitor to disclose information to the lender, and what must happen if this does not occur?

Buyer's consent is required

If buyer wishes for solicitor to keep something from the lender, the solicitor must cease acting for both parties.

After what 2 steps can the clients agree for one to take the lead?

After initial instructions and ID requirements satisfied

What advice can be given regarding mortgages by a solicitor?

Only generic advice

What is a repayment mortgage?

1. monthly payments of interest and capital

2. interest rate may be variable/fixed/tracked

3. full amount repaid by end of mortgage term

What is a tracked interest rate?

Follows/tracks a nominated base rate

What is an interest only mortgage?

1. usually monthly payments in interest only

2. interest may be variable/fixed/tracked

3. full amount will not be repaid at the end, capital remains outstanding

What is a survey?

Professionally produced report following an inspection of the property

What should a buyer be advised regarding property surveys?

A buyer should always instruct a surveyor to conduct a physical survey to detect structural defects and other issues, potentially renegotiating the price if necessary.

What types of surveys are available for property purchases?

1. basic valuation

2. homebuyer report

3. full structural survey

each offers varying levels of detail regarding the property’s condition

What is a basic valuation survey?

Most basic survey, doesn’t assess physical state/condition of property in any detail.

Commissioned by lender as minimum requirement to ascertain market value and value for secured lending purposes

Assures lender that property is worth sufficiently more than its security.

What is a full structural survey?

1. Most comprehensive form of survey

2. Contains detailed assessment of physical state and condition

3. Most expensive

4. Worth it if property is old, valuable or has past/proposed alterations

5. Can be used to renegotiate price, must be reported to lender

What is a homebuyer’s valuation and report/survey?

1. between a basic and full

2. refers to need for repairs/maintenance

3. but only based on exposed and accessible areas

What survey should be used for newbuilds?

Basic valuation and developer should provide structural defects insurance policy

What is a structural defects insurance policy?

Covers defects in design and construction for 10 years

1st 2 years builder is responsible to remedy defects

Final 8 years NHBC covers the rest

What is the NHBC?

National House Building Council

What is the Law Society Conveyancing Protocol?

Standardises residential conveyancing process for transparency, efficiency and improvement.

Standard steps to follow for freehold/leasehold transactions and standard forms of conveyance

What is the Law Society’s Conveyancing Quality Scheme?

Accredited members follow a recognised quality standard for residential conveyancing practices.

It sets a recognized quality standard for residential conveyancers, promoting transparency, efficiency, and fraud prevention in property transactions.

What is the purpose of a Report on Title?

Summary of the findings on title investigation, searches, enquiries, prepared before the contract stage, outlining material facts, issues, and available solutions.

What actions does the buyer need to take during pre-exchange?

1. investigate title

2. make enquiries of the seller

3. undertake pre-contract searches

4. surveys

What happens if there is something wrong with the property pre-exchange?

Buyer can walk away without legal liability or request the seller to address the issue pre-completion

What is the significance of misrepresentation in property sales?

Misrepresentation occurs when a false statement induces a buyer to contract.

If misled, the buyer may seek remedies under common law or the Misrepresentation Act.

What is a misrepresentation in a property sale?

A misrepresentation is a false statement that induces the buyer to enter the contract, which can lead to legal remedies if the buyer is misled.

What are latent incumbrances?

Burdens or rights attached to the property not apparent upon inspection, and seller must disclose them if known

What should a buyer consider regarding tax implications in a property purchase?

1. SDLT or LTT

2. CGT

3. VAT (if applicable)

What are the key elements of funding a property purchase?

The buyer needs funds for the deposit, the balance of the price, agreed extras, solicitor fees, and taxes such as SDLT or LTT.

What types of mortgage financing are available for high-value commercial properties?

Financing is often raised through equity (selling shares) or via a syndicate of lenders to spread risk exposure for development projects.

How can a buyer fund a residential property purchase?

Through personal resources, proceeds of a related sale, or a mortgage loan.

What is a latent defect in title?

Defect in title is a flaw that challenges the seller’s ownership of the property or the rights and burdens attached to it

How does a seller transfer ownership to the buyer in a freehold transaction?

The seller transfers legal ownership to the buyer by ensuring the contract reflects the agreed terms, resolving any legal obligations, and completing the sale.

What are the key elements of the contract of sale in a property transaction?

The contract must reflect the agreed terms, identify any rights or third-party interests affecting the property, and ensure sufficient funds are in place.

What tax is typically not payable on most residential property sales?

Capital Gains Tax (CGT) is generally not payable if the sale qualifies for Private Residence Relief (PRR).

When can a buyer withdraw from a property purchase without penalty?

The buyer can withdraw from the purchase without any legal liability before the contracts are exchanged.

In what situations must a solicitor be aware of their duty of confidentiality to their client?

Estate agent/mortgage broker: only disclose progress of a transaction with client’s authority

Lenders: solicitor is under a duty to disclose all material facts to lender, but if a buyer client instructs a solicitor to withhold information from a lender then must cease to act for lender

What is required for the buyer's solicitor to disclose information to the lender, and what must happen if this does not occur?

Buyer’s consent

What is registered title?

Where seller’s title is registered at HMLR.

Title is deduced by seller’s solicitor providing the buyer’s solicitor with official copies of registers of title, copy of title plan and official copies of any documents referred to and filed under title.

What is the process of proving ownership to a buyer in registered land?

deducing title - look at official copies of register, title plan and any referred documents

What is unregistered title?

Where seller’s title is not registered at HMLR.

Title is deduced by seller’s solicitor providing to buyer’s solicitor an epitome of title, which is comprised of copy paper title deeds and documents

What is available on HMLR?

Official copies of title and plan

Seller should supply buyer with Official Copies (not less than 6 months old)

What are the title documents in registered land?

1. HMLR official copies of register

2. Title copies of any docs referred to, not already extracted in official copies of register

What are official copies?

Have a title number (unique) - 2/3 letters relating to admin area, followed by a number, an edition date, search from date.

It provides an up-to-date record of the property’s ownership and any legal restrictions or charges against the property.

What is the search from date (registered land)?

Specific date and time on which the official copies were issued by HMLR.

Buyer generally not permitted to raise requisitions on title post-exchange other than in respect of matters appearing after this date

What is the edition date on official copies?

When the title was last updated (e.g. following the last sale)

What are the registers on HMLR official copies?

1. Property Register

2. Proprietorship Register

3. Charges Register

What information does the Property Register provide?

1. description of the property, with reference to title plan

2. whether it is a freehold or leasehold

3. exclusions or limitations on title

4. rights benefitting the property

5. property address

6. declarations as to light and air

7. if any land has been removed from title, and reflects the contract

8. title number to check against contract

The right benefiting the property will be set out in the property register and may be extracted. If so, do you need to refer to the document itself?

No

The right benefiting the property will be set out in the Property Register and may refer to a bundle of rights containing a document which is filed. If so what should the seller do?

The solicitors should provide a copy of any file documents either from the pre-registration deeds or from the land registry)

What information does the proprietorship register provide?

1. Identifies the current owners

2. address for service

3. the class of title

4. Any restrictions

5. Whether an indemnity covenant was given by the owner on the purchase

6. For dispositions registered after the 1st of April 2000 the price paid by the current owner

Why is the title plan important for the buyer’s solicitor?

It confirms the size and location of the property

It should be sent to the buyer to ensure it matches their understanding

Where can you look to check the seller is the registered proprietor?

The Proprietorship Register

What is checked during the investigation of right benefiting the property?

1. Right of way

2. Right to run services

3. Excluded rights like mineral rights

Reporting any concerns to the buyer

What classes are titled that can appear on the proprietorship register?

1. Absolute freehold title

2. Qualified title

3. Possessory title

4. Good leasehold title

5. Absolute leasehold

What is absolute title?

• The best and most widespread class

• Guarantees title

• Legal estate plus all benefiting interests

What is possessory title?

Usually given where title deeds are lost prior to 1st registration or the owners title is based on adverse possession

Owner is subject to any adverse matters at the date of first registration

what is qualified title?

Given whether there’s a specific defect in title referred to in the registers of title meaning absolute title cannot be given

What is good leasehold title?

Given where HMLR approves the leasehold title but not the landlords title

What is the best class of title and what does it indicate?

ABSOLUTE TITLE - It indicates the proprietor is the true and proper owner with no issues regarding the title

How does co-ownership impact the investigation of title?

It may require a restriction on the proprietorship register indicating tenants in common

Solicitor must confirm whether all co-owners or trustees can transfer property

What are restrictions?

Restrict or prevent dealings with the title

Most common is Form A (co-ownership) and mortgage interests

What does the Charges Register reveal?

Contains adverse matters affecting the property (BURDENS)

• mortgages and charges

• Restrictive & positive covenants

• Easements over the property

• Leases

• Notices

What should the buyer’s solicitor do regarding mortgages listed on the Charges Register?

Ensure the seller redeems any mortgage at completion obtaining an undertaking from the solicitor to do so

Why do you check the charges register when reviewing official copy entries?

To check if there are any encumbrances and that they’ll be removed or discharged on completion

What is encumbrance?

A claim against a property made by a party who’s not the property owner

What two interests are absolute freehold subject to?

1. Interest on the register after registration (charges/notices/restrictions)

2. Overriding interest at registration

How can a good leasehold be upgraded to absolute freehold?

If the landlord’s freehold title is produced

How can a possessory title be upgraded to an absolute freehold title?

If possessory title is not challenged for 12 years since it was granted

What is an indemnity covenant and where is it found?

Given by the buyer to the seller to observe positive covenants often found on the proprietorship register

What steps should be taken if a property is current/future use breaches a covenant?

1. Obtain indemnity insurance (Usually at the seller’s expense) against potential claims

2. approach the person with the benefit (PWB) For consent to discharge the covenant

3. If consent is not given can apply to upper tribunal (costly/time consuming)

In the proprietorship register, how do you know if property is held as tenants and common?

There will be a restriction saying:

“ No disposition by a sole proprietor of the registered (Except a trust corporation) Under which money arises is to be registered unless authorised by an Order of the court”

What is the title plan?

A map showing the location of the property being sold and a red outline of the land included in the title