Freehold Transactions
Intro to Property Practice
When acting for a buyer ensure that:
- The seller has the right to sell the property
- Land and property is adequate for clients needs and the property is worth the
money being paid
- Identify all the rights that the property enjoys
- Identify any 3rd party rights that affecting the property
- The property is free from any security interest (e.g., mortgages) or will be on
completion
- The contract reflects the terms agreed b/w parties
- There are sufficient funds to finance the purchase
Lenders Aims in a Freehold transactions:
- Unless the buyer has enough cash, they will borrow money from a lender
- This lender will take a security interest over the buyers property – if the buyer does
not repay the mortgage, the lender can sell the property to cover its losses
- The lender wants to know the property is marketable – easy to sell
- And that the property’s value is sufficient to cover any losses if the buyer does not
repay the mortgage
When acting for the lender ensure that:
- the seller has the right to sell the property
- the physical condition of the land and buildings is adequate for the lender’s needs
and the property is worth enough to cover any losses if the buyer fails to repay the
mortgage
- you identify all the rights that the property enjoys
- you identify any third party rights affecting the property
- the property is free from any security interest (such as mortgages) or will be on
completion
- the contract reflects the terms agreed between the parties there are sufficient funds
to finance the purchase
- there are no discrepancies in the lender’s understanding of the transaction and the
borrower’s circumstances
- the security document (mortgage) is valid and enforceable
Seller’s aims in a freehold transaction:
- Just wants to sell property and get money asap
When acting for a seller ensure that:
- the contract reflects the terms agreed between the parties
- provide the buyer’s solicitor with what they need to proceed with the purchase
- tie the timing of the sale to any related purchase
- transfer legal ownership (and responsibility) of the property to the buyer
, - collect money from the sale, repay the mortgage and account to the seller for the
balance
Outline of the Conveyancing Process
1. Pre-exchange
2. Pre-completion
3. Post-completion
Freehold Purchase:
1. Pre-exchange:
• Buyer decides to buy property, agrees price
• Surveyor surveys property and reports on its value and condition
• Buyer’s solicitor investigates and reports on title (the complete legal picture of the
property) - most work for the solicitor is here
• Only when the buyer is satisfied with the above, will they proceed to exchange
• No consequence for pulling out at this stage – but may have incurred cost of search fees,
survey and solicitor fees
Exchange
· The seller and buyer enter into a contract to sell and buy the property on the completion
date – contractually bound to proceed with sale/purchase
· The buyer pays a deposit (usually 10% of the full price)
· From this point on, neither of them can pull out without serious financial consequences
2. Pre-completion
• Buyer’s solicitor orders mortgage funds and ensures has full money from client in time for
the completion date
• (Residential) Seller and buyer book removal vans for completion date if appropriate
• Seller ensures that has all necessary paperwork to transfer the property on completion
Completion
• the buyer’s solicitors send the purchase price to the seller’s solicitors
• the seller’s solicitors agree to send the necessary paperwork to transfer the property to
the buyer’s solicitors
• the buyer gets the keys
• the buyer and seller physically move house
3. Post-completion
• Seller’s solicitor pays off the seller’s mortgage and pays balance to seller
• Buyer’s solicitor pays Stamp Duty Land Tax (SDLT) or, in Wales, Land Transaction Tax (LTT),
and registers buyer as the new owner at the Land Registry
,Caveat Emptor - Buyer beware – important principle
A buyer can withdraw any point up until the exchange of contracts
After this exchange they cannot withdraw if they find a problem with the property
The seller is under no obligation to give the buyer all the relevant info they may require
It is the buyer’s solicitor’s job to investigate as thoroughly as possible and report to the
buyer
Finding out Info about the Property:
- Info will come from the title to the property – the Land Registry if registered or
deeds if not
- The seller’s replies to enquiries
- Searches – Requests for info from bodies such as local authority, land registry and
statutory undertakers (e.g., water and drainage companies)
- A survey of the property – surveyor will inspect property – report on its value,
defects and repairs needed. Flag potential issues such as boundary discrepancies or
rights of way that need investigating
Exceptions to the Principle of Caveat Emptor:
1. Misrepresentation = a false statement which induces the buyer to contract to buy
• Stating in written replies to enquiries that there have been no neighbour disputes and
saying that the neighbours are “good and friendly” when both are untrue
• Overstating the floor area of a building
• Stating that there have been no objections to a particular use of the property when there
have
Misrepresentation can arise from:
• Estate agents’ particulars of sale or auction particulars
• Remarks made by the seller on viewing the property
• Any communication from the seller or the seller’s solicitors to the buyer
A seller cannot hide physical defects or answer questions dishonestly
If this behaviour induced the buyer into the contract, then they have remedies in common
law for misdescription, or under the Misrepresentation Act 1967
In practice they will probs rely on the sale contract. The standard conditions of sale do not
require the buyer to prove that they were induced to rely on the conduct or statement: it is
sufficient to prove that there was an error or omission.
There is no onus on the seller to reveal any physical defects – it is for the buyer to discover
them – need to commission a surveyor.
If there is no reliance on the misrepresentation it won’t work
2. A seller must disclose Latent Encumbrances and Title Defects
, Latent incumbrances = s/t that cannot be discovered when investigating the property
Seller has a duty to disclose this if they are aware or which it has the means to know
A defect in title is a matter that brings into question the seller's ownership of the property,
or the rights and burdens that affect the property. Typically such defects are a result of
missing title deeds, for example if a deed contacting a restrictive covenant has been lost it is
unknown how the buyer's use of the property might be restricted.
Initial Advice Given to Client at the Start of Transaction
Likely timescale and costs:
• When your client instructs you, you should discuss the likely timescale and costs with your
client.
• It can be difficult to predict how long the transaction will take, as it will depend on what
issues arise, and also on how quickly the other parties’ solicitors deal with their parts of the
transaction.
• The costs may be fixed (particularly with residential matters) or on a time basis, in which
case you would need to provide an estimate (possibly a range).
Co-ownership:
Co-ownership means having two or more owners. We have to consider both legal
ownership and beneficial ownership (aka equitable ownership) from the outset of a
transaction
Need to register what the buyers are if there are two or more – joint tenancy or tenants in
common
Legal ownership
• The owner(s) registered at the Land Registry
• There is a maximum number of four legal owners
• They must be over 18
• Legal ownership can only be sole or a joint tenancy
• The legal owners hold the property on trust for the benefit of the beneficial owners.
Beneficial owners
• May or may not be the same as the legal owners
• They are not registered at the Land Registry (unless as legal owners)
• There is no maximum number of beneficial owners
• They can be any age
• Beneficial ownership can be sole, a joint tenancy (50/50) or a tenancy in common (split
into shares)
Beneficial ownership: Joint tenancy
May be suitable for a married couple, civil partnership or cohabitees in a stable relationship.
Not suitable for a co-owner who wants to pass a share of the property in their will.
Not generally suitable for business relationships.
Intro to Property Practice
When acting for a buyer ensure that:
- The seller has the right to sell the property
- Land and property is adequate for clients needs and the property is worth the
money being paid
- Identify all the rights that the property enjoys
- Identify any 3rd party rights that affecting the property
- The property is free from any security interest (e.g., mortgages) or will be on
completion
- The contract reflects the terms agreed b/w parties
- There are sufficient funds to finance the purchase
Lenders Aims in a Freehold transactions:
- Unless the buyer has enough cash, they will borrow money from a lender
- This lender will take a security interest over the buyers property – if the buyer does
not repay the mortgage, the lender can sell the property to cover its losses
- The lender wants to know the property is marketable – easy to sell
- And that the property’s value is sufficient to cover any losses if the buyer does not
repay the mortgage
When acting for the lender ensure that:
- the seller has the right to sell the property
- the physical condition of the land and buildings is adequate for the lender’s needs
and the property is worth enough to cover any losses if the buyer fails to repay the
mortgage
- you identify all the rights that the property enjoys
- you identify any third party rights affecting the property
- the property is free from any security interest (such as mortgages) or will be on
completion
- the contract reflects the terms agreed between the parties there are sufficient funds
to finance the purchase
- there are no discrepancies in the lender’s understanding of the transaction and the
borrower’s circumstances
- the security document (mortgage) is valid and enforceable
Seller’s aims in a freehold transaction:
- Just wants to sell property and get money asap
When acting for a seller ensure that:
- the contract reflects the terms agreed between the parties
- provide the buyer’s solicitor with what they need to proceed with the purchase
- tie the timing of the sale to any related purchase
- transfer legal ownership (and responsibility) of the property to the buyer
, - collect money from the sale, repay the mortgage and account to the seller for the
balance
Outline of the Conveyancing Process
1. Pre-exchange
2. Pre-completion
3. Post-completion
Freehold Purchase:
1. Pre-exchange:
• Buyer decides to buy property, agrees price
• Surveyor surveys property and reports on its value and condition
• Buyer’s solicitor investigates and reports on title (the complete legal picture of the
property) - most work for the solicitor is here
• Only when the buyer is satisfied with the above, will they proceed to exchange
• No consequence for pulling out at this stage – but may have incurred cost of search fees,
survey and solicitor fees
Exchange
· The seller and buyer enter into a contract to sell and buy the property on the completion
date – contractually bound to proceed with sale/purchase
· The buyer pays a deposit (usually 10% of the full price)
· From this point on, neither of them can pull out without serious financial consequences
2. Pre-completion
• Buyer’s solicitor orders mortgage funds and ensures has full money from client in time for
the completion date
• (Residential) Seller and buyer book removal vans for completion date if appropriate
• Seller ensures that has all necessary paperwork to transfer the property on completion
Completion
• the buyer’s solicitors send the purchase price to the seller’s solicitors
• the seller’s solicitors agree to send the necessary paperwork to transfer the property to
the buyer’s solicitors
• the buyer gets the keys
• the buyer and seller physically move house
3. Post-completion
• Seller’s solicitor pays off the seller’s mortgage and pays balance to seller
• Buyer’s solicitor pays Stamp Duty Land Tax (SDLT) or, in Wales, Land Transaction Tax (LTT),
and registers buyer as the new owner at the Land Registry
,Caveat Emptor - Buyer beware – important principle
A buyer can withdraw any point up until the exchange of contracts
After this exchange they cannot withdraw if they find a problem with the property
The seller is under no obligation to give the buyer all the relevant info they may require
It is the buyer’s solicitor’s job to investigate as thoroughly as possible and report to the
buyer
Finding out Info about the Property:
- Info will come from the title to the property – the Land Registry if registered or
deeds if not
- The seller’s replies to enquiries
- Searches – Requests for info from bodies such as local authority, land registry and
statutory undertakers (e.g., water and drainage companies)
- A survey of the property – surveyor will inspect property – report on its value,
defects and repairs needed. Flag potential issues such as boundary discrepancies or
rights of way that need investigating
Exceptions to the Principle of Caveat Emptor:
1. Misrepresentation = a false statement which induces the buyer to contract to buy
• Stating in written replies to enquiries that there have been no neighbour disputes and
saying that the neighbours are “good and friendly” when both are untrue
• Overstating the floor area of a building
• Stating that there have been no objections to a particular use of the property when there
have
Misrepresentation can arise from:
• Estate agents’ particulars of sale or auction particulars
• Remarks made by the seller on viewing the property
• Any communication from the seller or the seller’s solicitors to the buyer
A seller cannot hide physical defects or answer questions dishonestly
If this behaviour induced the buyer into the contract, then they have remedies in common
law for misdescription, or under the Misrepresentation Act 1967
In practice they will probs rely on the sale contract. The standard conditions of sale do not
require the buyer to prove that they were induced to rely on the conduct or statement: it is
sufficient to prove that there was an error or omission.
There is no onus on the seller to reveal any physical defects – it is for the buyer to discover
them – need to commission a surveyor.
If there is no reliance on the misrepresentation it won’t work
2. A seller must disclose Latent Encumbrances and Title Defects
, Latent incumbrances = s/t that cannot be discovered when investigating the property
Seller has a duty to disclose this if they are aware or which it has the means to know
A defect in title is a matter that brings into question the seller's ownership of the property,
or the rights and burdens that affect the property. Typically such defects are a result of
missing title deeds, for example if a deed contacting a restrictive covenant has been lost it is
unknown how the buyer's use of the property might be restricted.
Initial Advice Given to Client at the Start of Transaction
Likely timescale and costs:
• When your client instructs you, you should discuss the likely timescale and costs with your
client.
• It can be difficult to predict how long the transaction will take, as it will depend on what
issues arise, and also on how quickly the other parties’ solicitors deal with their parts of the
transaction.
• The costs may be fixed (particularly with residential matters) or on a time basis, in which
case you would need to provide an estimate (possibly a range).
Co-ownership:
Co-ownership means having two or more owners. We have to consider both legal
ownership and beneficial ownership (aka equitable ownership) from the outset of a
transaction
Need to register what the buyers are if there are two or more – joint tenancy or tenants in
common
Legal ownership
• The owner(s) registered at the Land Registry
• There is a maximum number of four legal owners
• They must be over 18
• Legal ownership can only be sole or a joint tenancy
• The legal owners hold the property on trust for the benefit of the beneficial owners.
Beneficial owners
• May or may not be the same as the legal owners
• They are not registered at the Land Registry (unless as legal owners)
• There is no maximum number of beneficial owners
• They can be any age
• Beneficial ownership can be sole, a joint tenancy (50/50) or a tenancy in common (split
into shares)
Beneficial ownership: Joint tenancy
May be suitable for a married couple, civil partnership or cohabitees in a stable relationship.
Not suitable for a co-owner who wants to pass a share of the property in their will.
Not generally suitable for business relationships.
