Property Practice
Due Diligence
The structure of a property transaction
Exchange of contracts: fixes a completion date and gives the buyer time between exchange and completion
in order to make final preparations. The buyer will usually pay a deposit, typically 10%. The contract will
usually include a provision prohibiting the buyer from raising further queries on the title, known as a
‘requisitions’, after exchange. Not compulsory to exchange.
Parties are not bound to the transaction until contracts are exchanged.
Completion: when the bulk of the purchase money is paid to the seller and the transfer deed is completed
to transfer the property to the buyer.
The principle of ‘let the buyer beware’. Means that the seller is not obliged to disclose information about
the property other than about limited matters of title. The onus is placed on the buyer to discover as much
about the property before exchanging contracts and committing to the purchase. A seller would not be
liable for any defects in the property which later came to light (but not an excuse to give misleading
answers to a buyer’s enquiries).
1. The pre-contract stage
Investigation of title and pre-contract searches and enquiries
Seller: produce evidence of title (the right to sell the property). Reply to buyer’s pre-contract
enquiries. Draft the contract.
Buyer: investigate title (for third party rights). Carry out searches and enquiries regarding
boundaries, access, disputes, etc. Approve the draft contract. Pay deposit upon exchange.
2. The pre-completion stage
Drafting the transfer deed, ensuring correct documentation and completion money will be
available on completion date, pre-completion enquiries by the buyer
3. The post-completion stage
Administrative tasks (seller pays off mortgage, buyer pays Stamp Duty)
The form of standard pre-contract enquiries to the seller is called a Property Information Form.
Professional conduct issues in a property transaction
,Paragraph 6 of the SRA’s Code of Conduct is key for conveyancing solicitors.
6.2: “subject to certain exceptions, a solicitor cannot act for both parties if there is a conflict of interest or
a significant risk of such conflict”
Acting for both a buyer and a seller is almost always unacceptable due to the high risk of conflict of
interest.
Acting for joint buyers is usually acceptable.
Acting for a borrower and a lender
Only acceptable if there is not a conflict of interest or no significant risk of one.
The risk of a conflict of interest is high if:
o the mortgage is not a standard mortgage (no negotiation)
o the mortgage is a standard mortgage but you do not use the approved certificate of title
It is also possible to act for more than one party under the exception in paragraph 6.2(a), even if
there is a conflict of interest, where the parties have a ‘substantially common interest’ in
relation to the matter (see below conditions for this).
So, acting for a borrower and a lender is usually acceptable in a residential transaction if the
mortgage is on standard terms (i.e. not subject to negotiation).
In commercial property transactions, the lender will usually be separately represented.
However, it is common for the lender’s solicitor to ask the borrower’s solicitor to carry out the
title investigation and the searches and enquiries and to report the results to the lender and the
borrower as this avoids duplication of costs and time.
‘Substantially common interest’ exception
Exception to para 6.2, allowing a solicitor to act for two parties: where the parties have a ‘substantially
common interest’. Certain conditions must also be met:
Both clients have given their informed written consent
Effective safeguards have been put in place to protect any client confidential information
The solicitor is satisfied that it is reasonable for them to act for both clients
The Law Society have stated that the substantially common interest exception does NOT apply to a
property purchase, hence why a solicitor should not act for the seller and the buyer.
Contract races
= when a seller sends a pre-contract package to multiple buyers, who then compete to be the first to
exchange contracts. This is a legitimate strategy as long as all buyers are informed of the race.
Issues arise when the seller instructs their solicitor not to disclose this information to the buyers.
Solicitors have a duty to not mislead buyers. This requires the solicitor to inform all prospective
buyers of the contract race. If the seller refuses to allow this, the solicitor is bound by
confidentiality and cannot disclose the race. In such a case, the solicitor must immediately stop
acting for the seller.
Sources of finance for a property transaction
,Solicitors are obliged to provide the client with the best possible info about the likely cost of their matter at
the beginning and at appropriate points throughout the transaction. At the beginning, solicitors should
send out a letter of engagement setting out the costings.
Most clients will finance the transaction by borrowing the majority of the purchase price.
There are restrictions placed on solicitors when they provide financial advice regarding financing a client’s
transaction:
a) If carrying out a regulated activity in relation to a regulated mortgage contract, they must be
authorised to do so under the Financial Services and Markets Act 2000 (FSMA 2000).
Regulated mortgage contract = includes one where the borrower is an individual, the lender
takes a first legal charge over property, and at least 40% is intended for occupation by the
borrower or a member of their immediate family.
Regulated activity = arranging or advising on a regulated mortgage contract but NOT giving
generic advice such as the differences between types of mortgages.
b) If a regulated activity is involved and the firm is not authorised by the FCA to carry out regulated
activities (which most firms will not be), the solicitor can still arrange or advise on a regulated
mortgage contract by relying on the s 327 exemption for professional firms. The exemption allows
solicitors to carry out regulated activities if they are incidental to the provision by the firm of
professional services, ie services regulated by the SRA.
This is reliant upon the solicitor complying with the SRA Financial Services Rules (Scope and
Conduct of Business).
These rules do not allow a solicitor to recommend that a client enters into a regulated
mortgage contract, except where the advice is an endorsement of a recommendation made
to the client by an authorised person.
If the solicitor does not have the requisite knowledge to provide generic advice, or the client requires
advice on a specific mortgage product, the solicitor should refer them to a person authorised by the FCA to
provide that advice.
Types of mortgages
Repayment
= The borrower makes monthly payments to the lender made up partly of instalments of the original
amount borrowed and partly of interest chargeable on the loan.
Interest rate can be at the lender’s standard variable rate (SVR), it can be fixed, or the parties can
agree a ‘tracker’ rate of a certain % above the UK base rate.
With a fixed or tracker rate, the interest reverts to the SVR at the end of the agreed period
Advantage = at the end of the term, the borrower has paid off everything they owe.
Interest-only
= monthly payments only comprise interest chargeable on the loan.
Advantage = lower monthly payments
Disadvantage = at the end of the term the borrower still owes the lender the whole of the original
amount borrowed
Investigation of Title
, = the process of establishing who owns the property and whether there are any rights or rules which would
affect the owner’s use and enjoyment of it.
How to investigate title to freehold REGISTERED land
A seller’s solicitors must obtain the ‘official copies’ (which make up the register of title) and a copy of the
Land Registry plan for the property (the ‘title plan’). The Official Copies of title and plan are available from
HM Land Registry (HMLR).
Deduction of title tends to occur before exchange of contracts and the buyer is usually then prevented from
raising any objections to that title after exchange.
The official copies
Seller should supply to the buyer, at their own expense, official copies that are less than 6 months
old.
Comprises:
1. The Property register
2. The Proprietorship register
3. The Charges register
Property Proprietorship Charges
A description of the land by Identifies the current owners and Identifies the incumbrances, such
reference to the postal address their address. as:
and the title plan. Will also Covenants
indicate whether the title is Identifies the class of title. Easements
freehold or leasehold. 1. Absolute Mortgages
2. Possessory Leases
May indicate easements (if they 3. Qualified Notices registered by 3rd
benefit the property) parties claiming an
May indicate the price paid for interest in the property
the land and will also show if the
owners gave an indemnity
covenant when they bought the
land (evidence of a chain of
indemnity covenants).
Any restrictions on the owners’
ability to sell in the form of
restrictions: indication that the
proprietor’s ability to deal with
the property is limited or that a
prior condition must be satisfied
in order for a disposition to be
registered.
How to investigate title to freehold UNREGISTERED land
Due Diligence
The structure of a property transaction
Exchange of contracts: fixes a completion date and gives the buyer time between exchange and completion
in order to make final preparations. The buyer will usually pay a deposit, typically 10%. The contract will
usually include a provision prohibiting the buyer from raising further queries on the title, known as a
‘requisitions’, after exchange. Not compulsory to exchange.
Parties are not bound to the transaction until contracts are exchanged.
Completion: when the bulk of the purchase money is paid to the seller and the transfer deed is completed
to transfer the property to the buyer.
The principle of ‘let the buyer beware’. Means that the seller is not obliged to disclose information about
the property other than about limited matters of title. The onus is placed on the buyer to discover as much
about the property before exchanging contracts and committing to the purchase. A seller would not be
liable for any defects in the property which later came to light (but not an excuse to give misleading
answers to a buyer’s enquiries).
1. The pre-contract stage
Investigation of title and pre-contract searches and enquiries
Seller: produce evidence of title (the right to sell the property). Reply to buyer’s pre-contract
enquiries. Draft the contract.
Buyer: investigate title (for third party rights). Carry out searches and enquiries regarding
boundaries, access, disputes, etc. Approve the draft contract. Pay deposit upon exchange.
2. The pre-completion stage
Drafting the transfer deed, ensuring correct documentation and completion money will be
available on completion date, pre-completion enquiries by the buyer
3. The post-completion stage
Administrative tasks (seller pays off mortgage, buyer pays Stamp Duty)
The form of standard pre-contract enquiries to the seller is called a Property Information Form.
Professional conduct issues in a property transaction
,Paragraph 6 of the SRA’s Code of Conduct is key for conveyancing solicitors.
6.2: “subject to certain exceptions, a solicitor cannot act for both parties if there is a conflict of interest or
a significant risk of such conflict”
Acting for both a buyer and a seller is almost always unacceptable due to the high risk of conflict of
interest.
Acting for joint buyers is usually acceptable.
Acting for a borrower and a lender
Only acceptable if there is not a conflict of interest or no significant risk of one.
The risk of a conflict of interest is high if:
o the mortgage is not a standard mortgage (no negotiation)
o the mortgage is a standard mortgage but you do not use the approved certificate of title
It is also possible to act for more than one party under the exception in paragraph 6.2(a), even if
there is a conflict of interest, where the parties have a ‘substantially common interest’ in
relation to the matter (see below conditions for this).
So, acting for a borrower and a lender is usually acceptable in a residential transaction if the
mortgage is on standard terms (i.e. not subject to negotiation).
In commercial property transactions, the lender will usually be separately represented.
However, it is common for the lender’s solicitor to ask the borrower’s solicitor to carry out the
title investigation and the searches and enquiries and to report the results to the lender and the
borrower as this avoids duplication of costs and time.
‘Substantially common interest’ exception
Exception to para 6.2, allowing a solicitor to act for two parties: where the parties have a ‘substantially
common interest’. Certain conditions must also be met:
Both clients have given their informed written consent
Effective safeguards have been put in place to protect any client confidential information
The solicitor is satisfied that it is reasonable for them to act for both clients
The Law Society have stated that the substantially common interest exception does NOT apply to a
property purchase, hence why a solicitor should not act for the seller and the buyer.
Contract races
= when a seller sends a pre-contract package to multiple buyers, who then compete to be the first to
exchange contracts. This is a legitimate strategy as long as all buyers are informed of the race.
Issues arise when the seller instructs their solicitor not to disclose this information to the buyers.
Solicitors have a duty to not mislead buyers. This requires the solicitor to inform all prospective
buyers of the contract race. If the seller refuses to allow this, the solicitor is bound by
confidentiality and cannot disclose the race. In such a case, the solicitor must immediately stop
acting for the seller.
Sources of finance for a property transaction
,Solicitors are obliged to provide the client with the best possible info about the likely cost of their matter at
the beginning and at appropriate points throughout the transaction. At the beginning, solicitors should
send out a letter of engagement setting out the costings.
Most clients will finance the transaction by borrowing the majority of the purchase price.
There are restrictions placed on solicitors when they provide financial advice regarding financing a client’s
transaction:
a) If carrying out a regulated activity in relation to a regulated mortgage contract, they must be
authorised to do so under the Financial Services and Markets Act 2000 (FSMA 2000).
Regulated mortgage contract = includes one where the borrower is an individual, the lender
takes a first legal charge over property, and at least 40% is intended for occupation by the
borrower or a member of their immediate family.
Regulated activity = arranging or advising on a regulated mortgage contract but NOT giving
generic advice such as the differences between types of mortgages.
b) If a regulated activity is involved and the firm is not authorised by the FCA to carry out regulated
activities (which most firms will not be), the solicitor can still arrange or advise on a regulated
mortgage contract by relying on the s 327 exemption for professional firms. The exemption allows
solicitors to carry out regulated activities if they are incidental to the provision by the firm of
professional services, ie services regulated by the SRA.
This is reliant upon the solicitor complying with the SRA Financial Services Rules (Scope and
Conduct of Business).
These rules do not allow a solicitor to recommend that a client enters into a regulated
mortgage contract, except where the advice is an endorsement of a recommendation made
to the client by an authorised person.
If the solicitor does not have the requisite knowledge to provide generic advice, or the client requires
advice on a specific mortgage product, the solicitor should refer them to a person authorised by the FCA to
provide that advice.
Types of mortgages
Repayment
= The borrower makes monthly payments to the lender made up partly of instalments of the original
amount borrowed and partly of interest chargeable on the loan.
Interest rate can be at the lender’s standard variable rate (SVR), it can be fixed, or the parties can
agree a ‘tracker’ rate of a certain % above the UK base rate.
With a fixed or tracker rate, the interest reverts to the SVR at the end of the agreed period
Advantage = at the end of the term, the borrower has paid off everything they owe.
Interest-only
= monthly payments only comprise interest chargeable on the loan.
Advantage = lower monthly payments
Disadvantage = at the end of the term the borrower still owes the lender the whole of the original
amount borrowed
Investigation of Title
, = the process of establishing who owns the property and whether there are any rights or rules which would
affect the owner’s use and enjoyment of it.
How to investigate title to freehold REGISTERED land
A seller’s solicitors must obtain the ‘official copies’ (which make up the register of title) and a copy of the
Land Registry plan for the property (the ‘title plan’). The Official Copies of title and plan are available from
HM Land Registry (HMLR).
Deduction of title tends to occur before exchange of contracts and the buyer is usually then prevented from
raising any objections to that title after exchange.
The official copies
Seller should supply to the buyer, at their own expense, official copies that are less than 6 months
old.
Comprises:
1. The Property register
2. The Proprietorship register
3. The Charges register
Property Proprietorship Charges
A description of the land by Identifies the current owners and Identifies the incumbrances, such
reference to the postal address their address. as:
and the title plan. Will also Covenants
indicate whether the title is Identifies the class of title. Easements
freehold or leasehold. 1. Absolute Mortgages
2. Possessory Leases
May indicate easements (if they 3. Qualified Notices registered by 3rd
benefit the property) parties claiming an
May indicate the price paid for interest in the property
the land and will also show if the
owners gave an indemnity
covenant when they bought the
land (evidence of a chain of
indemnity covenants).
Any restrictions on the owners’
ability to sell in the form of
restrictions: indication that the
proprietor’s ability to deal with
the property is limited or that a
prior condition must be satisfied
in order for a disposition to be
registered.
How to investigate title to freehold UNREGISTERED land
