Property Sales : Step By Step Guide
Throughout the conveyancing process, solicitors should observe the rules of professional conduct contained in the Solicitors’ Code of Conduct 2007.
When instructions are first taken, it is essential that the money laundering regulations are complied with.
Heads of terms, confidentiality, exclusivity
Prior to the contract being prepared, there will be preliminary discussions, identifying heads of terms, issues of confidentiality and exclusivity.
Energy Performance Certificates
An Energy Performance Certificate may be required.
Preparing the contract
The seller's solicitor or conveyancer drafts the contract for negotiation with the buyer's solicitor and engrosses the agreed form for signature.
It is common for contracts for the sale of commercial property to incorporate the Standard Commercial Property Conditions.
Where the sale relates to residential property, the contract will normally incorporate the Standard Conditions of Sale.
Investigating the property
Investigating the property involves finding out about the physical property and about its legal title and third rights affecting the property. Depending on the type of transaction, the process of investigation may be done by the buyer or the seller.
As a general rule, the buyer takes responsibility for investigation through its legal and other advisers who will prepare a report on the property for the buyer and any bank involved in the financing of the purchase.
The process will involve:
· The buyer raising pre-contract enquiries for the seller to answer.
· The buyer carrying out all appropriate searches, including title searches at the Land Registry.
· The buyer obtaining any documents and other information from the seller that it cannot obtain from any other source.
· The buyer instructing a surveyor, environmental auditor and valuer as appropriate.
· The buyer physically checking the property to make sure that it is what the buyer wants to buy.
Some large commercial transactions are run differently so that the onus of investigation is shifted to the seller whose lawyers will prepare a Certificate On Title for the buyer and the buyer's lender if any. The Certificate may be supported with warranties from the seller.
This process will involve:
· The Seller's solicitors agreeing a form of Certificate on Title with the buyer/buyer's lender.
· The Seller's solicitors obtaining all necessary information to complete the Certificate on Title. This will be done through a combination of enquiries of the Seller, title and other searches and examination of deeds and other documents.
· The Seller's solicitors delivering the Certificate on Title and possibly negotiating warranties to be given by the Seller on the accuracy of the information in the Certificate on Title and that it continues to be up to date to the point at which the transaction completes.
The buyer's solicitor or conveyancer will need to check that the financing of the purchase is in order. If a loan is being taken from a bank, the bank will need to be satisfied as to the adequacy of the security it will be taking.
Exchange of contracts
For the contract to be valid, it must satisfy the statutory requirements contained in the Law of Property (Miscellaneous Provisions) Act 1989.
When contracts are exchanged for the sale and purchase of property, the beneficial interest in the property passes to the buyer with effect from exchange provided that the contract is specifically enforceable. The legal estate in the property remains vested in the seller until completion. The seller is said, for certain purposes, to hold the legal estate on trust for the buyer pending completion. It is, however, a special type of trust, the obligations being based on a constructive trust.
Once contracts are exchanged, the buyer has an insurable interest in the property and risk in the property passes to the buyer. Exchange of contracts therefore marks the point at which the buyer should insure the property.
Pre-completion searches and arrangements
The buyer's solicitor or conveyancer carries out pre-completion searches and confirms the practical arrangements for completion with the seller's solicitors.
Preparing the transfer
If not already in an agreed form, the buyer's solicitor or conveyancer drafts the transfer in accordance with the contract and sends it to the seller's solicitor or conveyancer for approval. Once in agreed form, the buyer's conveyancer prepares the engrossment and arranges execution by the buyer.
On completion, the buyer's solicitor or conveyancer will need to arrange for completion monies to be transferred to the seller, to receive the executed transfer and all the necessary title documents, and to ensure that any charges affecting the property, which should have been discharged on completion, have indeed been discharged.
On completion, the seller's solicitor or conveyancer will need to ensure that the executed transfer and all necessary title documents are handed over to the buyer's solicitor and that any charges affecting the property which should be discharged prior to completion, are discharged. The seller's solicitor or conveyancer will also need to check that completion monies from the buyer are received and that any document that needs to be executed by the buyer and handed to the seller has been received.
If the property is registered land, the legal estate remains vested in the seller until registration has been completed. Once registration has been completed, the effects of registration are backdated to the date of the application for registration.
If the property is not registered land, the legal estate passes from the seller to the buyer on completion.
Stamp duty land tax
The buyer must file a Land Transaction Return (using Form SDLT 1 and any applicable supplemental forms) to notify HM Revenue & Customs (HMRC) of the transaction. On receipt of the return, HMRC will issue a certificate, which must be sent to the Land Registry with any application for registration of the transaction.
The buyer is responsible for registration of the conveyance/ transfer/assignment at the Land Registry, although in practice their solicitor or conveyancer is likely to do this.
If the property is unregistered, the transfer will trigger compulsory first registration.
If the property is registered, the transfer will be a registrable dealing.
“Practical Law PLC” January 2010