Property Practice Revision
UNIT 1: Due Diligence
CHAPTER 1: THE KEY ELEMENTS AND STRUCTURE OF A FREEHOLD PROPERTY
TRANSACTION
🔑 Conveyancing Basics
Definition: Legal process of transferring ownership of property.
Jurisdiction: England and Wales.
🏡 Freehold Transactions: Milestones
1. Exchange of Contracts
o Not mandatory, but secures deal.
o Sets completion date.
o Makes terms binding.
2. Completion
o Final transfer.
o Buyer pays, ownership changes.
📋 Transaction Stages
1. Pre-Contract
o Title checks, surveys, negotiations.
o No legal commitment yet.
2. Pre-Completion
o Financing arranged, conditions met.
3. Post-Completion
o Registration, admin, SDLT/LTT.
⚠️
Caveat Emptor (Buyer Beware)
Seller not obliged to disclose defects.
Buyer must do thorough due diligence.
⏱️
Timing of Exchange
Avoid early exchange—risk of defects.
But timely exchange prevents gazumping (seller accepting a higher offer)
❗ Risk Without Exchange
Seller can withdraw.
No binding contract.
📝 Pre-Contract Stage Details
Solicitors take instructions from clients.
Focus: boundaries, disputes, disputes, outgoings, prior works on the property
etc.
Seller not obligated to answer enquiries but incorrect answers can lead to
misrepresentation
Buyer solicitor does searches with statutory, public and private bodies(LR,
planning, environment)- decide most important, as it can incur fees
Pre-contract package (draft contract + evidence of seller’s title) submitted by
seller’s solicitor reviewed by buyer’s solicitor and may be amended
o Further enquiries usually prohibited after exchange
Deposit (usually 10%) paid at exchange.
🛠️
Pre-Completion Tasks
Transfer deed drafted and signed.
,Property Practice Revision
Final searches done.
On Completion Day: money paid, keys handed over.
🏢 Post-Completion
Mortgage redeemed by seller’s solicitor (make sure mortgage paid off and
removed off the title)
SDLT/LTT paid by buyer’s solicitor.
Buyer’s solicitor updates title and any new mortgage with Land Registry
📘 Law Society Conveyancing Protocol
Standardised process for conveyancers
2019 version.
Must follow for CQS (Conveyancing Quality Scheme) membership.
Includes forms like TA06.
👩⚖️
Professional Conduct
Clear client instructions essential
o Can we act for this client? Can we carry out the client’s instructions?
Governed by SRA Code of Conduct.
Must act with integrity and client interest.
⚖️
Acting for Buyer & Seller
Generally not allowed due to conflict.
SRA Rule 6.2: No dual acting if interests differ.
Exception: Substantial common interest—but not in property purchases due to
differing interest
o Competing for the same objective- does not apply in buyer-seller
situations
🤝 Joint Buyers
Permissible if no conflict.
Must advise on legal ownership structure (e.g., joint tenants vs tenants in
common).
🏦 Acting for Borrower & Lender
Often allowed in residential sales.
Conditions:
o Informed written consent.
o Safeguards.
o No conflict of interest.
Risk if mortgage is non-standard or lacks approved title certificate
Can act provided the parties have a substantially common interest
👥 Joint Borrowers
Allowed unless undue influence risk.
Must advise non-borrowing spouse thoroughly (in case where a spouse may
agree to mortgage a shared property as security for a business loan)
Etridge Case:
o Face-to-face advice, no borrower present.
o Ensure true understanding.
o Applies to spouses, partners, parents, etc.
Lender must provide the advising solicitor with:
o Purpose of the loans
,Property Practice Revision
o Current indebtness amount
o Current overdraft facility
o Amount and terms of the new loan
o A copy of the loan application
🏁 Contract Races
Seller sends contracts to multiple buyers.
First to exchange wins.
Disclosure is key—must inform all buyers.
If seller refuses, solicitor must stop acting.
🔐 Undertakings
Binding promise by solicitor.
Must be fulfilled timely.
Breach = misconduct.
Only give if conditionally certain (e.g., deposit receipt).
Sources of Finance for Property
💼 Solicitor’s Duty: Must explain total costs—legal fees, SDLT, Land Registry,
searches, provide clients with best possible information on costs at the start and
throughout
📄 Letter of Engagement: Issued at the start detailing expected costs.
💰 Finance Sources: Loans (banks/building societies), trust funds, family loans,
government schemes (e.g. Help to Buy).
🏦 Mortgages: Common security method for lenders.
🚫 No Financial Advice: Unless solicitor is FSMA 2000 authorized.
📘 Regulated Mortgage Contract: Applies if 40%+ of property is for
borrower’s use.
⚖️ s327 Exemption: Solicitors can give incidental advice under SRA rules
but can’t recommend specific products unless endorsed by an authorised
person
Types of Mortgages
🏠 Repayment Mortgage: Monthly payments cover principal + interest.
💸 Interest-Only Mortgage: Monthly payments cover interest only; principal
due at term, lenders often require proof for how principal will be repaid
📊 Interest Types:
o SVR (Standard Variable Rate)- Borrower pays interest at lender’s SVR
o Fixed Rate- interest rate fixed for a specific period
o Tracker Rate (linked to BoE base rate)- set at certain percentage above
the UK base rate
🕌 Sharia-Compliant Mortgages (clients
o Scheme 1: Bank buys property → Resell to buyer at higher price → Buyer
repays difference to bank in instalments
o Scheme 2: Bank buys property leases property to buyer → Buyer pays
rent and at end of lease, bank transfers ownership to the buyer
Property Taxation
🏡 Residential Buyer: Buyer pays SDLT (England) or LTT (Wales).
🧾 Residential Seller: Exempt from CGT if it’s their main residence.
🏢 Commercial Buyer: Pays SDLT or LTT + possibly VAT.
🏢 Corporate Ownership: Pays Corporation Tax on rent/sales.
, Property Practice Revision
SDLT vs LTT
💷 SDLT (England):
o FTB: 0% ≤ £425K, 5% on next £200K.
o Others: Tiered up to 12%.
🏴 LTT (Wales):
o 0% ≤ £225K, up to 12% > £1.5M.
o No FTB relief.
🧾 Non-Residential Rates:
o SDLT: 0–5%; LTT: 0–6%.
🕒 Filing Deadlines: SDLT = 14 days; LTT = 30 days.
🧵 Chattels (curtains, carpets): Not taxable—deduct from consideration to
reduce tax.
Capital Gains Tax (CGT) & PRR
📈 CGT: Charged on property sale gains (Sale price-Purchase Price =Gain (or
1982 base value if purchased earlier)
🏠 PRR (Private Residential Relief): Exempts gain on main residence.
o Periods of absence may be excluded from the charge
❗ Limitations:
o Only up to 0.5 hectares of garden exempt.
o Business use = no relief for that part.
📍 Example: Priya’s £272K gain may be exempt if it was her only/main home
and no disqualifying factors apply.
VAT in Property
💰 VAT Basics:
o Standard rate = 20%
o Reduced rate- 5% for items like domestic fuel supplies or certain
construction and renovation services
o Zero-rated = 0% (e.g. new homes)
o Exempt = No VAT (e.g. residential resales)
🧾 Registration Threshold: £85,000 turnover.
🔁 VAT Returns: Quarterly to HMRC.
📤 Output Tax = Charged to customers.
📥 Input Tax = Paid on purchases; only recoverable if linked to taxable output.
VAT in Property (continued)
🏡 Residential Sales: Usually exempt from VAT.
🏢 Commercial Sales:
o New (<3yrs) = VAT compulsory within three years of completion
o Old = VAT only if Option to Tax exercised.
🧠 Option to Tax:
o Makes an exempt sale taxable.
o Helps recover input VAT.
o May deter buyers in VAT-exempt sectors (banks etc).
o If buyer cannot recover input VAT, the purchase rice increases, making the
property less attractive
💡 Effect on SDLT/LTT: VAT added to price = higher transaction tax.
Taking Instructions
📋 Solicitors: Must get clear instructions from buyer/seller early on.
⚡ EPC (Energy Performance Certificate):
o Seller must provide free of charge.
UNIT 1: Due Diligence
CHAPTER 1: THE KEY ELEMENTS AND STRUCTURE OF A FREEHOLD PROPERTY
TRANSACTION
🔑 Conveyancing Basics
Definition: Legal process of transferring ownership of property.
Jurisdiction: England and Wales.
🏡 Freehold Transactions: Milestones
1. Exchange of Contracts
o Not mandatory, but secures deal.
o Sets completion date.
o Makes terms binding.
2. Completion
o Final transfer.
o Buyer pays, ownership changes.
📋 Transaction Stages
1. Pre-Contract
o Title checks, surveys, negotiations.
o No legal commitment yet.
2. Pre-Completion
o Financing arranged, conditions met.
3. Post-Completion
o Registration, admin, SDLT/LTT.
⚠️
Caveat Emptor (Buyer Beware)
Seller not obliged to disclose defects.
Buyer must do thorough due diligence.
⏱️
Timing of Exchange
Avoid early exchange—risk of defects.
But timely exchange prevents gazumping (seller accepting a higher offer)
❗ Risk Without Exchange
Seller can withdraw.
No binding contract.
📝 Pre-Contract Stage Details
Solicitors take instructions from clients.
Focus: boundaries, disputes, disputes, outgoings, prior works on the property
etc.
Seller not obligated to answer enquiries but incorrect answers can lead to
misrepresentation
Buyer solicitor does searches with statutory, public and private bodies(LR,
planning, environment)- decide most important, as it can incur fees
Pre-contract package (draft contract + evidence of seller’s title) submitted by
seller’s solicitor reviewed by buyer’s solicitor and may be amended
o Further enquiries usually prohibited after exchange
Deposit (usually 10%) paid at exchange.
🛠️
Pre-Completion Tasks
Transfer deed drafted and signed.
,Property Practice Revision
Final searches done.
On Completion Day: money paid, keys handed over.
🏢 Post-Completion
Mortgage redeemed by seller’s solicitor (make sure mortgage paid off and
removed off the title)
SDLT/LTT paid by buyer’s solicitor.
Buyer’s solicitor updates title and any new mortgage with Land Registry
📘 Law Society Conveyancing Protocol
Standardised process for conveyancers
2019 version.
Must follow for CQS (Conveyancing Quality Scheme) membership.
Includes forms like TA06.
👩⚖️
Professional Conduct
Clear client instructions essential
o Can we act for this client? Can we carry out the client’s instructions?
Governed by SRA Code of Conduct.
Must act with integrity and client interest.
⚖️
Acting for Buyer & Seller
Generally not allowed due to conflict.
SRA Rule 6.2: No dual acting if interests differ.
Exception: Substantial common interest—but not in property purchases due to
differing interest
o Competing for the same objective- does not apply in buyer-seller
situations
🤝 Joint Buyers
Permissible if no conflict.
Must advise on legal ownership structure (e.g., joint tenants vs tenants in
common).
🏦 Acting for Borrower & Lender
Often allowed in residential sales.
Conditions:
o Informed written consent.
o Safeguards.
o No conflict of interest.
Risk if mortgage is non-standard or lacks approved title certificate
Can act provided the parties have a substantially common interest
👥 Joint Borrowers
Allowed unless undue influence risk.
Must advise non-borrowing spouse thoroughly (in case where a spouse may
agree to mortgage a shared property as security for a business loan)
Etridge Case:
o Face-to-face advice, no borrower present.
o Ensure true understanding.
o Applies to spouses, partners, parents, etc.
Lender must provide the advising solicitor with:
o Purpose of the loans
,Property Practice Revision
o Current indebtness amount
o Current overdraft facility
o Amount and terms of the new loan
o A copy of the loan application
🏁 Contract Races
Seller sends contracts to multiple buyers.
First to exchange wins.
Disclosure is key—must inform all buyers.
If seller refuses, solicitor must stop acting.
🔐 Undertakings
Binding promise by solicitor.
Must be fulfilled timely.
Breach = misconduct.
Only give if conditionally certain (e.g., deposit receipt).
Sources of Finance for Property
💼 Solicitor’s Duty: Must explain total costs—legal fees, SDLT, Land Registry,
searches, provide clients with best possible information on costs at the start and
throughout
📄 Letter of Engagement: Issued at the start detailing expected costs.
💰 Finance Sources: Loans (banks/building societies), trust funds, family loans,
government schemes (e.g. Help to Buy).
🏦 Mortgages: Common security method for lenders.
🚫 No Financial Advice: Unless solicitor is FSMA 2000 authorized.
📘 Regulated Mortgage Contract: Applies if 40%+ of property is for
borrower’s use.
⚖️ s327 Exemption: Solicitors can give incidental advice under SRA rules
but can’t recommend specific products unless endorsed by an authorised
person
Types of Mortgages
🏠 Repayment Mortgage: Monthly payments cover principal + interest.
💸 Interest-Only Mortgage: Monthly payments cover interest only; principal
due at term, lenders often require proof for how principal will be repaid
📊 Interest Types:
o SVR (Standard Variable Rate)- Borrower pays interest at lender’s SVR
o Fixed Rate- interest rate fixed for a specific period
o Tracker Rate (linked to BoE base rate)- set at certain percentage above
the UK base rate
🕌 Sharia-Compliant Mortgages (clients
o Scheme 1: Bank buys property → Resell to buyer at higher price → Buyer
repays difference to bank in instalments
o Scheme 2: Bank buys property leases property to buyer → Buyer pays
rent and at end of lease, bank transfers ownership to the buyer
Property Taxation
🏡 Residential Buyer: Buyer pays SDLT (England) or LTT (Wales).
🧾 Residential Seller: Exempt from CGT if it’s their main residence.
🏢 Commercial Buyer: Pays SDLT or LTT + possibly VAT.
🏢 Corporate Ownership: Pays Corporation Tax on rent/sales.
, Property Practice Revision
SDLT vs LTT
💷 SDLT (England):
o FTB: 0% ≤ £425K, 5% on next £200K.
o Others: Tiered up to 12%.
🏴 LTT (Wales):
o 0% ≤ £225K, up to 12% > £1.5M.
o No FTB relief.
🧾 Non-Residential Rates:
o SDLT: 0–5%; LTT: 0–6%.
🕒 Filing Deadlines: SDLT = 14 days; LTT = 30 days.
🧵 Chattels (curtains, carpets): Not taxable—deduct from consideration to
reduce tax.
Capital Gains Tax (CGT) & PRR
📈 CGT: Charged on property sale gains (Sale price-Purchase Price =Gain (or
1982 base value if purchased earlier)
🏠 PRR (Private Residential Relief): Exempts gain on main residence.
o Periods of absence may be excluded from the charge
❗ Limitations:
o Only up to 0.5 hectares of garden exempt.
o Business use = no relief for that part.
📍 Example: Priya’s £272K gain may be exempt if it was her only/main home
and no disqualifying factors apply.
VAT in Property
💰 VAT Basics:
o Standard rate = 20%
o Reduced rate- 5% for items like domestic fuel supplies or certain
construction and renovation services
o Zero-rated = 0% (e.g. new homes)
o Exempt = No VAT (e.g. residential resales)
🧾 Registration Threshold: £85,000 turnover.
🔁 VAT Returns: Quarterly to HMRC.
📤 Output Tax = Charged to customers.
📥 Input Tax = Paid on purchases; only recoverable if linked to taxable output.
VAT in Property (continued)
🏡 Residential Sales: Usually exempt from VAT.
🏢 Commercial Sales:
o New (<3yrs) = VAT compulsory within three years of completion
o Old = VAT only if Option to Tax exercised.
🧠 Option to Tax:
o Makes an exempt sale taxable.
o Helps recover input VAT.
o May deter buyers in VAT-exempt sectors (banks etc).
o If buyer cannot recover input VAT, the purchase rice increases, making the
property less attractive
💡 Effect on SDLT/LTT: VAT added to price = higher transaction tax.
Taking Instructions
📋 Solicitors: Must get clear instructions from buyer/seller early on.
⚡ EPC (Energy Performance Certificate):
o Seller must provide free of charge.
