Notes on Property Law

The pre-contract stage

• Instructions from the client will be collected at the beginning of the transaction and typically confirmed in writing, along with information about costs
• The seller’s lawyer will obtain a copy of the title deeds from the seller or, if the property is unregistered and there is a mortgage on it, from the mortgage holder
• The lawyer will then check the title (in a different way depending on whether the property is registered or not) and create a draft contract for the sale of the property, sending a copy to the buyer’s lawyer for review
• If the property is registered, the seller’s lawyer will request official copies of the title from the Land Registry using Form OC1 and the seller will complete a Property Information Form, which will be checked by the lawyer and sent to the buyer’s lawyer
• Before exchanging contracts, the buyer’s lawyer will gather all relevant information about the property and thoroughly check the title, including conducting pre-contract searches and enquiries to identify any defects in the title that the seller has limited responsibility to disclose (these will vary depending on whether the property is registered or not)
• If the buyer is getting a mortgage, the lawyer must ensure that the mortgage arrangements are in order and a mortgage offer has been received
• The buyer’s lawyer will review the draft contract, make any necessary changes, and send the amended version back to the seller’s lawyer
• If the amended contract is agreed upon and everything else is in order, both parties will sign their respective parts of the contract in preparation for the exchange

Exchange of contracts

• Exchange of contracts follows a set formula between two firms of solicitors
• Once contracts are exchanged, a legally binding contract is created and neither party can withdraw without facing legal consequences
• Before exchange, either party is free to change their mind or withdraw from the transaction
• The buyer typically pays a 10% deposit at the time of exchange
• Parties agree on a completion date for the transaction, which is inserted into the contract on exchange

Pre-completion

• The buyer’s solicitor will ask additional questions about the details of the property sale, such as mortgage discharge and the amount needed from the buyer at completion.
• The seller’s solicitor will confirm the amount needed to pay off any mortgages on the property.
• The buyer’s solicitor will conduct pre-completion searches to make sure there are no hidden issues with the property that could affect the buyer.
• The buyer’s solicitor will create a draft purchase deed for approval by the seller’s solicitor, which must match the terms of the contract.
• If necessary, the buyer’s solicitor will prepare a mortgage deed and verify that the legal title is in order, as well as conduct a bankruptcy search on the buyer.
• The buyer’s solicitor will request the remaining purchase price and transaction costs from the buyer before completion.

Completion

• On the day of completion, the buyer’s solicitor will send the balance of the purchase price to the seller’s solicitor.
• In exchange, the seller’s solicitor will provide the deeds and keys to the property to the buyer’s solicitor.
• Both solicitors will inform their respective clients about the completion.

Post-completion

• The seller’s solicitor must pay off the seller’s mortgage and the mortgage will be discharged either electronically or manually through a form of discharge.
• The seller’s solicitor must also give the seller the sale proceeds.
• The buyer’s solicitor must handle stamp duty land tax and pay it to HM Revenue & Customs.
• The buyer’s solicitor will then submit the transfer, the buyer’s mortgage (if applicable), and the appropriate fee to the Land Registry.
• The buyer’s solicitor may also need to handle other post-completion formalities such as serving notice of an assignment of a lease and/or a charge if the property is leasehold.

What is a good root of title in the context of unregistered freehold land?

A good root of title refers to the starting point of the seller’s title in unregistered freehold land. The safest document to use as the root of title is a conveyance of sale, which should meet certain criteria. When the seller purchased the land, their solicitors would have investigated the title going back at least 15 years. This means that the buyer’s solicitors, in order to ensure double investigation/protection, would also investigate the title going back at least 15 years, resulting in a minimum of 30 years being investigated. The root of title must cover both the legal and equitable ownership of the property and should contain an adequate description of the property, including a detailed plan and a postal description. It should also not raise any doubts about the title.

What is the general rule regarding the disclosure of pre-root documents from the seller’s solicitor to the buyer’s solicitor?

The general rule is that a seller’s solicitor is not required to provide pre-root documents (deeds and documents from before the root date) to the buyer’s solicitor. Section 45(1) of the LPA 1925 prohibits the buyer from requesting the disclosure of such documents.

What are the exceptions to the general rule of not disclosing pre-root documents?

There are three exceptions to the general rule:

1. A power of attorney under which any deed was executed, even if it predates the root, must be disclosed. The buyer’s solicitors need to investigate the power of attorney to ensure that it properly granted the power to the attorney to dispose of the property.
2. If the property is sold subject to any matter created or contained in a pre-root document, such as covenants or easements, it must be disclosed. Additionally, if the root does not adequately describe the property but refers to an earlier conveyance that contains a plan, that earlier conveyance will need to be disclosed.
3. Any document that creates a limitation or trust by which any part of the property is disposed of must also be disclosed.

What happens when a minor is given ownership of land?

If a minor is given ownership of land, it is considered a trust. The seller holds the legal estate on behalf of the minor until they turn 18, as specified in section 19(1) of the Law of Property Act 1925.

What happens when a property is transferred to both a minor and an adult?

In the case of a property being transferred to both a minor and an adult, the adult holds the legal estate in trust for both themselves and the minor until the minor reaches 18. This is outlined in section 19(2) of the Law of Property Act 1925.

What is required when someone who owns or previously owned property changes their name?

When someone who owns or previously owned property changes their name, proof of the name change must be provided. This is necessary to confirm their identity and establish that they are the same person who originally purchased the property.

What should be considered when dealing with a property owned by only one spouse or civil partner?

• When dealing with a property owned by only one spouse or civil partner, caution should be exercised.
• A non-owning spouse or civil partner has the right to register a Family Law Act 1996 right against the matrimonial home, regardless of their interest in the property.
• This right can be registered at any time before the sale is completed and cannot be removed by overreaching.
• In transactions involving a non-owning spouse, the buyer’s lawyer should ensure that the spouse/partner signs a special condition (SCS 7 or equivalent) before exchanging contracts. This condition confirms their agreement to vacate the property upon completion, consent to the sale, and release the property from any registered interest.

What must the respective parties’ solicitors ensure after the exchange of contracts?

The solicitors must record the exchange as file notes, diarise the completion date, and comply with their undertakings by sending their client’s signed part contract by first class post or DX. The buyer’s solicitor must also ensure that the deposit is paid and sent to the seller’s solicitor. Both solicitors will notify their clients of the exchange and confirm the completion date.

What should the seller’s solicitor do with the deposit received?

The seller’s solicitor must deposit the received deposit into the client account and hold it as a stakeholder until completion, unless it is being held as an agent.

What consideration should the buyer’s solicitor give regarding the contract?

The buyer’s solicitor should consider whether the contract should be registered as an estate contract.

What duties does the seller have after the exchange of contracts?

The seller is responsible for maintaining the property until it is fully transferred to the buyer. They are held to a standard of care and may be liable for damages or destruction caused by intentional actions or negligence. However, if the buyer occupies the property before the sale is finalized, the seller’s duty of care ends.

Why is it recommended to register the estate contract immediately following the exchange?

A5: It is best practice to register the estate contract immediately following the exchange because failure to do so could result in the contract becoming void against a subsequent purchaser. This could happen if there is a substantial delay between exchange and completion or if something goes wrong in the transaction, such as the death or bankruptcy of the seller.

How is an estate contract registered in unregistered land?

A6: In unregistered land, an estate contract can be registered as a Class C(iv) Central Land Charge (CLC) on the Central Land Charges Register under the Land Charges Act 1972 (LCA). Failure to register the estate contract as a Class C(iv) would render it void against a purchaser of a legal estate for money or money’s worth.

How is an estate contract registered in registered land?

In registered land, an estate contract can be registered as either an agreed or unilateral notice on the register of title under the Land Registration Act 2002 (LRA). An agreed notice is preferable as the owner cannot have it removed without the buyer’s consent. The buyer is entitled to register an agreed notice under Section 34 of the LRA, and it provides validity to the buyer’s right to register the notice due to the existence of the contract.

Can the buyer occupy the property before completion?

Yes, the seller can permit the buyer to occupy the property as a licensee between exchange and completion. The buyer must pay a license fee, allow only household members to occupy the property, maintain it in good condition, and vacate within five days’ notice from the seller. However, commercial conditions do not include this provision.

What happens if the seller dies between exchange and completion?

The contract remains valid, and it becomes enforceable against the deceased seller’s personal representatives (PRs). The seller’s solicitor needs to redraft the transfer documents to replace the deceased with the PRs. The PRs must sign the revised documents, and the buyer’s lawyer will request a certified copy of the grant of probate or letters of administration for the Land Registry.

What happens if the buyer dies between exchange and completion?

The contract remains valid, and the deceased buyer’s PRs are legally obligated to complete the purchase. However, they must first obtain a Grant of Probate or Letters of Administration, causing a delay. The transfer of ownership documents must be amended to reflect the PRs as the new buyers. Additionally, the mortgage offer may be canceled, requiring the PRs to seek alternative funding.

What happens if the buyer goes bankrupt between exchange and completion?

If the buyer becomes bankrupt, their property will be transferred to the trustee. The sale cannot be completed with the bankrupt buyer; instead, the completion must occur with the appointed trustee. The trustee can pay the remaining balance to the seller’s lawyers to finalize the purchase. However, the trustee may refuse to complete the purchase, forfeiting the 10% deposit. If the purchase was dependent on a mortgage, the bankruptcy may cancel the offer. The seller can serve a notice on the trustee, giving them 28 days to complete or decline the purchase. If the trustee does not decline within this timeframe, they lose the right to do so.

What are remedies available for Delayed Completion?

Damages 

Compensation

Notice to complete 

Rescission 

Specific performance 

What are damages in the context of a breach of contract?

Damages refer to the compensation that the non-breaching party is entitled to receive for any losses resulting from the breach of contract by the other party. However, if the non-breaching party has already received compensation for their losses under the contract, their potential claim for damages may be reduced. The non-breaching party also cannot seek damages for losses that have already been compensated for.

How are damages determined in a breach of a land sale contract?

In a breach of a land sale contract, the “remoteness test” from the Hadley v Baxendale case is used to determine which losses are recoverable. These losses must either be a natural result of the breach or were foreseeable by both parties at the time the contract was formed. The goal of awarding damages in a contractual claim is to place the non-breaching party in the position they would have been in if the contract had been completed correctly.

What is compensation in the context of a contract breach?

Compensation refers to the payment that one party must make to the other party if they fail to meet their obligations under the contract, resulting in a delay in completion. The amount of compensation is based on the contract rate, typically 4% above the base rate of the bank that the seller’s lawyer has an account with, or the Law Society’s interest rate if the contract has not been modified. However, under certain conditions, only the seller has the right to seek compensation, and the buyer would need to sue the seller for breach of contract.

How does a notice to complete work in a contract?

A notice to complete is an option available to a party who is able to complete a delayed transaction but has been unable to do so due to the default of the other party. The notice to complete designates a specific timeframe, usually ten working days, for the defaulting party to complete the transaction. If the defaulting party fails to complete within this period, it is considered a breach of the contract, and the non-defaulting party may be entitled to certain remedies, depending on whether they are the buyer or the seller.

What are the options available to the seller if the buyer fails to complete the contract after a notice to complete has expired?

If the buyer fails to complete the contract and does not respond to the seller’s notice to complete, the seller has several options available to them. These include canceling the contract and returning the parties to their original positions, keeping any deposit and interest paid by the buyer, selling the property to another buyer, and suing the buyer for damages related to any losses resulting from the contract. The buyer must also return any documents provided by the seller.

What are the options available to the buyer if the seller fails to complete the contract after a notice to complete has expired?

If the seller defaults on their obligation to complete the contract and does not respond to a notice to complete, the buyer can choose to cancel the contract and get their deposit paid back to them with interest or they can keep their other rights and remedies. The buyer must also return any documents they received from the seller.

What is rescission in the context of a contract?

Rescission refers to the act of canceling a contract. In the case of a fraudulent misrepresentation by the seller, where false information was intentionally provided to mislead, the victim of this fraud has the right to rescind the contract and sue for damages in the tort of deceit. If there has been a negligent or innocent misrepresentation, the innocent party may be entitled to rescind the contract and/or claim damages for the breach.

What is the remedy of specific performance in a contract?

Specific performance is a remedy where the innocent party can ask the court to force the defaulting party to fulfill their obligations under the contract. This remedy can be sought even before the contractual completion date if it is clear that the defaulting party will not complete the contract. However, the court has discretion in granting or denying this remedy and may not award it if damages would be sufficient compensation or if the innocent party has delayed in seeking the remedy.

Stay tuned for more notes ………