1. What needs to happen before you can exchange contracts?
All searches and enquiries need to be dealt and satisfied with and if applicable, you must have a full mortgage offer before exchange of contracts. These include the following:
- Local authority search (see FAQ 3 below for an explanation of this search)
- Water search – we check whether the property has a water supply and is connected to mains drains and sewers.
- Environmental search – we check to ensure the property is not on or near contaminated land.
- Chancel Check search – we check to ensure the property is not within a Chancel Repairliability area.
- Pre-contract enquiries – these are enquiries specifically relating to the property.
If the property you are buying is leasehold, we would also require replies to enquiries of the landlord/managing agents to give you an idea of what works are anticipated (if any) and also obtain confirmation of the current charges being demanded for maintenance/ground rent. We will also ask for a copy of the current buildings insurance policy and schedule to be supplied by the landlords/managing agents. An up to date copy schedule is required since there is usually a covenant in the lease for the landlord to arrange buildings insurance.
vii. If you require a mortgage to buy the property, we require your full mortgage offer before you commit yourself to the exchange. Exchanging contracts without the mortgage offer will mean you have a risk that the mortgage does not arrive in time for completion meaning that any resultant losses incurred by the Seller have to be paid by you (these can be considerable). It can mean we are not able to satisfy the lender’s requirements so the mortgage cannot ever be completed and you would lose the deposit you paid on exchange of contracts. The Seller could even obtain a Court Order forcing you to proceed with the purchase of the property.
2. How long will it take to exchange contracts?
Contracts are exchanged when a Seller and a buyer are ready to commit themselves to the transaction. Often exchange of contracts is referred to as “the point of no return”. All searches and enquiries must therefore be carried out and the mortgage offer received (if a mortgage is being obtained) prior to committing yourself to an exchange of contracts. It can take some time to get replies to the enquiries and local authority search results which can often lead to a delay in exchanging contracts.
If you are obtaining a mortgage to purchase the property we will also require your full mortgage offer from your mortgage company before contracts are exchanged. If you are selling property, we will not exchange contracts unless you authorise us to do so and you are ready, willing and able to complete on the completion date. If you are synchronising the sale of your property with another purchase we will not exchange contracts on your sale until you have everything you need on your related purchase (i.e. search results, mortgage offer and replies to all pre-contract enquiries).
3. What is the local search and why do I need one?
A local authority is required by law to keep a register of certain matters open to public inspection. This is known as the local land charges register. The search results reveal any entries kept by the council of financial charges, tree preservation orders, smoke control orders, compulsory purchase orders, planning permissions granted/refused. In the event of you requiring a mortgage for your purchase, please note we will not only require clear results before committing you to an exchange but also such search results need to be no older than three months as at the date of exchange of contracts and no older than six months as at the date of completion in order to comply with our obligations to your lender and be able to draw down the loan.
4. What is ‘Building Regulations Consent’?
Where work has been carried out to property, or the property has recently been built, Buildings Regulations control the methods and materials used to ensure that proper standards have been maintained throughout. The lack of Building Regulations Consent may suggest the works were not constructed to the proper standards of the local authority and Building Regulations.
5. What is the ‘Mortgage Deed’?
The mortgage deed is the legal document which borrowers execute to confirm they understand all terms and conditions of a mortgage offer, and agree to comply with them. When we receive the mortgage offer we will write to you to advise you on the terms and also ask you to sign a form confirming that you have yourselves read the copy of the mortgage offer. Before signing the mortgage deed, you must let us know if there is anything in the mortgage offer which you do not understand or you would like us to explain to you. We will not ask you to execute any mortgage deed unless you are happy with the contents of your mortgage offer and are ready to proceed with the loan. Please also note we need to have the mortgage deed with us no later than the day of
6. What are ‘Office Copy Entries’?
‘Office Copy Entries’ are copies of the Land Registry Registers showing who owns the property and what legal rights, restrictions and mortgages there are on it and the extent of the property. The three Registers (Property, Proprietorship and Charges Registers) need to be up-to-date and supplied to us by the seller’s solicitors with the draft contract.
7. What is a contract?
A contract is an agreement enforceable at law. Essentially the contract creates the legal obligation between the seller and buyer to complete the transaction on the completion date. In conveyancing, a contract is the document prepared by the Seller’s solicitor and delivered in draft form together with copies of the title to the Buyer’s solicitor for approval. When parties are ready to exchange contracts the signed copies of the contract are actually exchanged between the Seller’s and Buyer’s solicitor by telephone with each lawyer being legally obliged to send their client’s signed copy to the other (with the deposit in the case of the Buyer’s lawyer).
8. When do I pay the 10% deposit?
On exchange of contracts a deposit of 10% of the purchase price is paid by the buyer’s solicitor to the seller’s solicitor. This deposit is forfeitable in the event of the buyer withdrawing from the purchase after contracts have been exchanged.
9. Can I pay a reduced deposit?
If you don’t have sufficient assets available in order to pay a full 10% deposit it may be possible to negotiate a reduced deposit, although rarely less than 5% of the purchase price. This is acceptable in most circumstances to a seller as long as the buyer can either confirm they have no funds available and are obtaining a 95% or 100% mortgage advance; or if their funds are tied up in a related sale/remortgage. If a reduced deposit is paid on exchange of contracts there is usually a provision in the contract which specifies that in the event of the buyer defaulting on completion, the full balance of the 10% deposit immediately becomes payable. If not paid, the Seller may sue for the balance if the purchase is not completed. It is therefore vital that everything is in place prior to proceeding to an exchange of contracts and paying the deposit.
From a seller’s point of view, accepting a 5% deposit reduces the money available to cover any losses in the event of anything going wrong although the buyer may in theory still owe the balance of the 10% deposit, it may be of little comfort if, as is likely, the buyer cannot pay.
10. What does ‘subject to contract’ mean?
All correspondence and negotiations between a seller and buyer and their respective solicitors are said to be “subject to contract” right up until contracts are eventually exchanged. Often you will see in estate agents’ windows particular properties where offers have been made “subject to contract”.
In a nutshell, this means that either seller or buyer who are negotiating the sale or purchase of a property can withdraw from the transaction without incurring any penalty right up until contracts are exchanged.
11. What are the ‘Standard Conditions of Sale’?
The ‘Standard Conditions of Sale’ are incorporated into most contracts in England and Wales for the sale and purchase of residential property. They set out the general procedure and rules governing the transfer of property and the obligations on either party in the transaction. If you would like to see a copy of the Standard Conditions of Sale, please let us know and we will forward a copy to you. The idea of using standard terms is to keep the time in preparing and negotiating a contract (and therefore also the cost) to a minimum.
12. Do I need to come into the office to exchange contracts/complete?
Generally, we do not need you to visit our offices in order to either sign the contract or execute the transfer documents. If there is enough time we would be more than happy to send these documents out to you. If there is not enough time between exchange and completion to rely on the postal system, we would ask you to come into the offices before the completion date to sign any transfer documentation. If acting for a seller we need to be holding the executed transfer document on the actual completion date.
13. Can we have access between exchange and completion?
Sometimes a buyer requires access to a property in order to carry out specified works/redecoration before the date of actual completion. Access to the property between exchange and completion is only ever available if your Seller is not actually living in the property and agrees to you carrying out the works/redecoration. If agreed, access is usually only on the basis that you do not take up occupation, but merely carry out the works/redecoration you require, and you will be required to sign an “access undertaking”. This is an agreement which allows the buyer access to carry out the works/redecoration on the basis that if anything goes wrong or damage is caused the buyer will indemnify the Seller against any losses.
14. When can I move into the property (completion)?
On exchange of contracts, the solicitors acting for a Seller and buyer will insert the date of completion into the contract. The Seller(s) and buyer(s) have to complete the transaction on the completion date (usually by 2pm). Traditionally completion took place 28 days after exchange of contracts, however, nowadays people like to complete a lot sooner. Typically people agree a two week period. The timescale between exchange and completion will to some extent depend upon how long it will take the mortgage company to supply the mortgage advance funds to the solicitor acting on behalf of the buyer. Usually mortgage companies require between one to two weeks to remit such funds. Also after exchanging contracts certain post-exchange searches are carried out. If you are a cash buyer then your Seller may agree that you can exchange contracts and complete on the same day. This is subject to neither party being in a chain (having a related purchase/sale) and the property being vacant.
15. What time can I pick up the keys on completion and where will they be?
If there are estate agents, the keys will usually be deposited with them before 2pm on the day of completion. You will not be able to pick up the keys until the funds required to complete your purchase have been received by the Seller’s solicitors and they have telephoned the agents in order to release the keys to you. In the event of there being no estate agents, then arrangements are usually made directly with the Seller.
16. What does completion mean?
In conveyancing, completion refers to the time when all terms of the contract exchanged between the buyer and Seller are fulfilled. In a nutshell, this involves the balance of purchase monies (i.e. purchase price less deposit paid on exchange of contracts plus any apportionments of ground rent/service charges if leasehold property) being sent by telegraphic transfer to the Seller’s solicitors. The Seller’s solicitors acknowledge safe receipt of the payment, date the Transfer deed and send this together with the deeds (proof of ownership documents) through to the buyer’s solicitors. When money has changed hands, and on the assumption the seller has moved out, the buyer will then be able to pick up the keys and move into the property.
17. What is a ‘Notice to Complete’?
In the event of either party failing to comply with the terms of the contract after exchange on the completion date, the party who is ready to complete (this could be the seller or the buyer) is entitled to serve a Notice to Complete. This notice will set out the fact the party is ready, willing and able to complete in accordance with the contract and put the other party on notice that he is entitled to interest plus costs and compensation for any losses incurred as a result of the delay and may be entitled to forfeit the deposit.
A Seller may serve a Notice to Complete on a buyer if, for example, on the completion date the money required to complete the purchase has not been sent through to the seller’s solicitor. After service of the Notice to Complete in these circumstances a buyer would forfeit the deposit if they don’t complete the purchase within the specified time (usually two weeks).
18. Why do I need a solicitor to act for me in the sale/purchase/re-mortgage of property?
You can carry out your own conveyancing. If someone is charging you, they must either be a solicitor or a licensed conveyancer. However, if there is a mortgage involved in the transaction (i.e. you require a mortgage over the purchase property; you will have a mortgage secured against the property you are selling; or you are remortgaging your property) the mortgage company will insist that a solicitor acts on their behalf in connection with the mortgage redemption/mortgage offer/remortgage. Usually your mortgage company will instruct the same firm of solicitors who you instruct in connection with the sale/purchase/remortgage (i.e. us).
Even if there is no mortgage involved in the transaction we still strongly recommend that you are advised by a solicitor because there is so much that can go wrong. Moving is traumatic enough as it is. Having a property specialist ‘hold your hand’ and avoid the pitfalls can save much unnecessary stress. After all, for most people their home is their most valuable asset.
19. What is the difference between leasehold and freehold property?
i. Leasehold property
A lease grants the owner the right to use a property for a specified period of time (traditionally 99, 125 or 999 years) granted by a landlord (who owns the freehold) to a tenant and recorded in a document known as a lease. Various obligations including legally binding promises, restrictions and regulations are created in the lease.
ii. Freehold property
Freehold property is not granted out of a lease. The owner of freehold property therefore generally has the right to do anything to the property without requiring the consent of a third party (such as any landlord).
20. What is meant by ‘share of freehold’?
Recently it has become common for leaseholders to acquire the freehold from the landlord using a limited company in which they each have a share. When a property is marketed for sale, agents will often describe it has having ‘share of freehold’ included. This generally refers to the share in the company which owns the freehold. People believe owning a share in the freehold allows them to have more of a say in the way in which the building is managed. It is not always as positive as it sounds as good management will rely on the leaseholders. It does not mean that you have a ‘freehold flat’, as the lease still exists and has to be complied with.
21. Why are buildings insurance details necessary when buying leasehold property?
The lease normally requires the landlord or management company to arrange buildings insurance for the entire building. The cost is recovered from each individual tenant as a part of the service charge paid. The Buyer’s solicitor will require such information prior to proceeding to an exchange of contracts to ensure the property is insured in accordance with the terms of the lease and is adequate to protect your interests and those of any mortgage company. Therefore a Seller’s solicitor must obtain an up-to-date copy of the buildings insurance policy and schedule and supply it to a Buyer’s solicitor.
22. Why do I need ‘Licence to Assign’?
Licence to Assign in plain English means “consent to sell”. Some leases contain a provision which requires the tenant selling the property to first obtain a licence from the landlord or management company before the buyer will be able to purchase the property. The landlord or management company may require references for the proposed buyers before they will grant their consent to the sale. The Seller will be responsible for the landlord’s legal fees and disbursements incurred in approving references and preparing the licence to assign. If the property is sold without obtaining the landlord’s consent then the sale would be in breach of the lease. The Buyer would have to apply retrospectively to the landlord/management company for the Licence .
23. What is a ‘covenant’?
A ‘covenant’ is a legally binding promise to do something or to refrain from doing something. In conveyancing, a covenant is usually found in the deeds, (eg. the lease). The covenant can be positive, stipulating of some act or the payment of money (i.e. payment of rent) or restrictive, forbidding the commission of some act (i.e. not to play loud music after 11pm at night).
24. What is ‘title’?
In conveyancing, ‘good title’ says the Seller of the property has a right to own it and therefore is able to sell the property. When preparing the draft contract documentation a Seller’s solicitor will obtain a copy of the title from either the Land Registry (if the property is registered) or from an older deed (if the property is unregistered) to show the Seller is able to sell on the property to the buyer. A buyer’s solicitor will then check the title to make sure the person selling the property is able to do so.
25. What is a ‘Deed of Variation’?
There are many different types of deeds of variation whereby the terms of an existing agreement, e.g. a lease, are varied by agreement between the landlord and the tenant.
A common Deed of Variation in conveyancing is to extend the term of an existing lease or correct a defect.
26. What is ‘ground rent’?
Ground rent is the periodical payment (usually stated ‘per annum’, payable in half yearly instalments in advance) due from the tenant to the landlord. The amount payable varies from lease to lease and can be as little as a ‘peppercorn’, but often in the region of £150 per annum. If you are selling it is important to obtain a copy of the most recent ground rent receipt from your landlord and supply this to the solicitor you instruct in connection with the sale of property. A buyer may refuse to complete without one as the receipt has other legal significance in that, if it is not endorsed by the landlord with a note of any alleged breaches of the terms of the lease, the landlord will have waived his right to forfeit the lease for those breaches. This is important.
27. What is the ‘service charge’?
In leasehold property it is usual to pay the landlord service charges for works required for the maintenance of the building and estate grounds / common parts. A landlord will also recover the premium payable for the buildings insurance policy in the service charge demand. Please ensure the solicitors acting on the sale of property have copies of the last three years service charge accounts and the current service charge demand / receipt and estimate for the next year. A buyer’s solicitor will usually require such information prior to proceeding to an exchange of contracts to show what service charges have been paid for the property in recent years. It will also allow the Seller to recover from the buyer on completion an apportionment of service charges paid for the period beyond the completion date.
28. What is the difference between ‘joint tenants’ and ‘tenants in common’?
Both expressions describe the legal relationship between them when two or more people own property together.
i. Joint Tenancy
If you hold property on a joint tenancy it means that if you die, your share would then pass to the surviving joint tenants automatically without being passed under a will. This type of joint ownership is commonly used by married couples with no commitments to parties outside the marriage (e.g. children by a previous marriage, etc.). However, that is not to say that you are obliged to hold property as joint tenants. It does not mean you need not make a will in respect of your other assets however and does not affect any tax liability (currently there is no tax liability between spouses on death).
The most important point of which you should be aware is the tenants would automatically be deemed to hold equal shares in the property, no matter what the respective contributions to the property were, either in hard cash or by way of other maintenance or contribution towards the household generally. Obviously matrimonial law can affect the ownership situation but at least at first instance the Court would have regard to the joint tenancy and assume you have an equal share. This kind of ownership can be converted into a tenancy in common by giving formal notice of "severance" of the joint tenancy at any time but this would not affect the shares up to the date of the notice.
ii. Tenancy in Common
This is only type of ownership you can have if you wish to have unequal shares. It can, however, also be used where there are equal shares but you do not want your share to pass automatically to the surviving tenants in the event of your death. It is vital you have a will to specify how you wish to deal with your estate.
Friends buying together would invariably choose to be tenants in common. If you are joint owners in a relationship but not married, you are strongly advised to adopt a tenancy in common. The reason is that if you should break up, you will not go through the normal formalities necessary to terminate a marriage (e.g. the financial settlements required by the court before granting a divorce) and it is easy to overlook the need to convert a joint tenancy into a tenancy in common. If in the future you have another partner and one of you dies, you will find that your share of the property will pass to your former partner. Clearly this could be extremely upsetting for all concerned.
29. Why has my solicitor advised us to have a ‘Declaration of Trust’ and what does this mean?
When buying property with your partner we strongly advise that you instruct us to prepare a separate document known as a ‘Declaration of Trust’ to document the respective contributions to the property and what will happen in the event of the relationship breaking down. This Declaration of Trust can also record which party in the relationship will be responsible for making the mortgage payments (whether jointly in equal shares, or separately), and can even spell out the responsibility for major and minor expenses.
30. What is the difference between a ‘mortgagee and the mortgagor’?
These are expressions used when referring to the mortgage lender (mortgagee) and the borrower (mortgagor). A mortgage loan is secured by way of a charge on the property in favour of the lender. In other words, the mortgagee (the lender) can force a sale of the property should the mortgagor (the borrower) default on the repayment of the mortgage.
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Contact our Conveyancing Solicitors
For further information or to speak to one of our conveyancing solicitors based in Camden Town in London please telephone us on 020 7387 2032, complete our online enquiry form or contact Richard McConnell, Janak Bakrania, Jeremy Galman, or Stephanie Nedas.