The Home Buyer And The Law

Having decided which house to buy, agreed a price with the seller and raised the finance- probably through your building society – the next step is to make sure that the house or flat is legally transferred into your name. It is no use committing yourself to the biggest purchase of your life, only to find a few weeks later that you had no legal right to it in the first place.

We start by looking at the legal procedures which have to be completed and then discuss the need to employ a solicitor.

CONVEYANCING

The term ‘conveyancing’ will occur frequently in this section. It covers not only the actual documents transferring the ‘title’ of land – which, of course, includes the buildings on it – from one person to another, but also the enquiries, searches, contracts, and other documents used in connection with such a transaction.

The conveyance is the document by which the title to land is transferred. It will actually be called a ‘conveyance’ when the title being transferred is unregistered and a ‘transfer’ when the title is registered..

FREEHOLD AND LEASEHOLD

When you purchase a property your interest or ‘estate’ in that property will be freehold or leasehold. A freehold means that you are the absolute owner of the property. Originally it was an estate of inheritance, being the most extensive interest a person could hold from the Crown.

Leasehold. With a leasehold interest, you will occupy the property under a lease as the tenant and the landlord will own the freehold. Leases can be for a period of only a few years or for as much as 999 years. Long leases, for periods of 99 years or over, provide for a low ground rent to be paid. This may be only ,£20 or £30 per annum, although the modern practice is to provide for several increases over the period of the lease.

The lease will contain covenants regulating what you can and cannot do. For 22 example, covenants as to the use of the property as a dwelling and governing what alterations and additions require the landlord’s consent. When a property held on a long lease is sold, the purchaser will pay to the outgoing tenant a ‘premium’ which is the purchase price for the remainder of the lease.

If your house has a long lease, you may have the right to purchase the freehold under the Leasehold Reform Act 1967. Your solicitor will advise you on this.

Most flats are let on long leases, the reason being to ensure enforceability of covenants in the lease against other tenants in the same block. The individual leases usually provide that, in addition to the ground rent, the tenants will pay a ‘service charge’ to cover the costs involved in maintaining the structure of the building and any common services and amenities.

Freehold

There are freehold flats as well as leasehold flats. It is claimed that freehold flats cause particular problems concerning enforceability of covenants and many building societies do not look favourably on them, so if you wish to buy a freehold flat ask your solicitor to make sure that the legal documents are acceptable to your building society before proceeding.

REGISTRATION OF LAND

In the case of unregistered land, the title to the property will consist of the title deeds. These will be the previous conveyance and any other documents recording any transaction affecting the property over a period of at least the last 15 years.

Registered land is land where the title is registered at the Land Registry. As long ago as 1862 it was felt desirable to record the titles of properties throughout England and Wales in a register and compulsory registration was introduced in 1897.

The system. Compulsory registration of land now applies in most parts of the country and the Chief Land Registrar hopes that the whole of England and Wales will be subject to compulsory registration by about 1985.

When your property is registered, you receive a Land Certificate which is a copy

There may be additional legal implications when buying a new property. If you ask the builders to do work not included in the basic specification, agree the extras in writing to avoid disputes later of the register entries, recording your interest as owner and all the various covenants, rights and other matters affecting the property.

The object of the Land Registration system is to maintain a record of the ownership of property in a simple form which avoids re-examination of the Deeds on successive sales, and to guarantee the security of the owner’s title — the register’s accuracy is guaranteed by the State.

Upon purchase of a property that happens to be in an area of compulsory registration, land with an unregistered title must be registered for the first time at the Land Registry. This process is one that is normally carried out by the purchaser’s solicitor.

THE CONVEYANCING PROCEDURE

We now look at certain aspects of the conveyancing procedure in England and Wales in more detail from the point of view of first the buyer and secondly the seller of the property.

Making an offer

Having found a property to buy, you will make an ‘offer’ to purchase. ‘Offer’ is used here in its technical, legal sense, since the creation of a binding contract requires an offer and an acceptance plus consideration. You are perfectly free to make an offer which is less than the ‘asking price’. You may feel that the asking price is somewhat high in comparison with similar properties in the neighbourhood, or you may wish to negotiate a reduction as the result of a structural 23 survey report showing that you are going to have to spend money to put the property into a satisfactory state of repair.

It is very important that in any correspondence with the vendor or the estate agents, you should refer to an offer as being made ‘subject to contract’. The inclusion of these important words will ensure that there is no binding contract between you and the vendor at this stage. You will clearly not want to commit yourself until you have obtained a mortgage and possibly had a structural survey carried out, and until your solicitor has made the relevant searches and other enquiries about the property.

Occasionally a vendor or his estate agent may wish you to pay a preliminary deposit as a gesture of good faith. There is no reason why you should make such a payment before exchange of contracts. Therefore, the best advice is to resist such a request. Clearly, if the seller is adamant, you will have to decide whether to comply, it yoti are very keen to purchase the property. Your solicitor will again be able to advise on this. You should certainly not pay the main deposit before signing the contract.

The contract

The vendor’s solicitors will prepare a draft contract and submit it to your solicitor for approval. A degree of uniformity and standardization of the form of contracts now exists and there are sets of standard conditions. These seek to balance and to regulate the rights and remedies of both vendor and purchaser up to and including the completion date.

The two most common sets of standard conditions are the National Conditions of Sale and the Law Society’s Conditions of Sale although local Law Societies often use their own variations of these conditions.

At the initial interview with your solicitor you will normally be asked into whose names the property will be put. It you are purchasing jointly e.g. as husband and wife, then you can own the property as joint tenants’ or ‘tenants in common’.

As ‘joint tenants’, it one of you dies the deceased party’s share will automatically pass to the surviving joint tenant and this is the case even though there is a provision to the contrary in any will. The reverse is the case with a deceased ‘tenant in common’ when his or her share passes under the will as part of the estate and does not automatically pass to the surviving tenant in common.

Incidentally, do not be alarmed by reference to ‘tenants’ in the context ofjoint ownership as this is used in a technical legal sense here and does not mean that you are simply a tenant of the property.

Most contracts for new properties on new estates provide for a fixed price being paid. Some contracts, however, provide for an increase in the purchase price to cover increased costs incurred by the builder; such contracts need very careful consideration as a rapid escalation in costs can throw your financial calculations into confusion. Sometimes it is possible to negotiate a ceiling to any such increases. Your solicitor will advise you.

If you request the builders to carry out works that are not included in the basic specification, make sure that they are agreed in writing with the builder, also recording the date when they are to be completed and when payment is to be made. It is not advisable to pay any money for such extras until contracts have been exchanged.

Sometimes the contract will provide for instalments of the purchase price to be paid as the building work progresses. If this is the case first check with your building society to see whether they will allow the mortgage advance to be paid in instalments.

Exchange of contracts

Once the form of the contract has been agreed, this will be prepared in duplicate and the buyer and seller each sign a copy. These copies are then exchanged and at that point there is a binding contract between the parties.

A deposit is paid at the time of exchange of contracts and it is the buyer’s responsibility to insure the property from this date. The contract will refer to a completion date which is normally some four weeks from the date of exchange of contracts.

In the case of properties on new estates, where the property is not complete at the time of exchange of contracts, the completion date will normally be within a set period, for example, within 14 days, from the date when the property is completed by the builder. Do bear in mind that the completion date on your sale may have to be based upon the builder’s estimate of when the property you are purchasing will be ready.

The deposit

While contracts are being prepared, it is up to the buyer to arrange funds for the payment of the deposit -normally 10 per cent of the agreed purchase price. This is paid when contracts are exchanged. If you are buying for a second time you will need to arrange bridging finance. This can be arranged through a bank.

If the vendor asks you to pay a larger deposit than 10 per cent this should certainly be resisted but your solicitor will be able to advise you about this.

It you are obtaining a 95 per cent mortgage, it may be possible to negotiate a reduction in the deposit from 10 per cent to 5 per cent.

The object of the deposit is to safeguard the seller in the event of your not completing the purchase in accordance with the contract. In such circumstances, one remedy open to the vendor is to seize the deposit and sue you for the balance of the purchase price. The deposit therefore acts as a powerful incentive to abide by the terms of the contract.

The deposit will normally be held either by the vendor’s solicitor or the estate agents, as ‘stakeholders’. This ensures that the deposit will not be paid over to the vendor until the purchase is completed and in the meantime it is held in trust on behalf of both parties. The stakeholder cannot pass the money on to the vendor without the purchaser’s written permission.

Sometimes the deposit will be held by the solicitors or estate agents as agents for the vendor, which means that the vendor can require the deposit to be paid to him or her before the completion date. If this happened, it could cause difficulties should you wish to recover the deposit where, for example, the vendor fails to complete the 24 ‘ sale to you or a defect is found in the title to the property. Nevertheless, there are occasions when the vendor will insist that the deposit is held by his or her solicitors or estate agents as agents for the vendor, particularly in the case of a new estate where the builder wishes to use the deposit to reduce his outgoings as quickly as possible. The matter should be discussed with your solicitor who will advise you of the legal implications and of any problems that might arise.

In the case of new estates, the builder may ask you to pay a preliminary reservation deposit, expressly for the purpose of holding the price for a set period. This is not an unusual practice but do make sure that the deposit is returnable to you, should your purchase not proceed. Where an estate agent is involved in selling the plot for the builder, you should pay the reservation deposit to the agent, to be held by him as stakeholder. Your solicitor will need to know the amount paid.

From contract exchange to completion

At the time of exchange of contracts the vendor’s solicitors will send to your solicitors an abstract of the title. The title of the property will then be checked by your solicitor, who will prepare and submit his report on the title to your building society with a request for the mortgage advance to be sent to him. The conveyance and mortgage will be prepared and signed and the final searches made prior to completion.

Things to do

While your solicitor is dealing with the legal work you will have plenty to organize. Here is a checklist:

– Contact two or three removal contractors to get estimates.

– If you wish to take over the telephone, notify both the vendor and British Telecom without delay.

– If the property has oil-fired heating, check whether there will be any oil left in the tank, negotiate a price for this and arrange for fresh supplies. This is obviously important in winter time.

– If you have a building society share account or bank deposit’account, you may need to give notice of withdrawal, so that you can arrange to place funds with your solicitor in good time for completion.

– or, alternatively, with a local firm of estate agents who have handled the sale. The estate agents will release the keys on hearing from your solicitor that the matter has been completed.

From the seller’s point of view, there is a risk in leaving the key with a next door neighbour when, for example, the purchase is not completed on the due date. Nevertheless, the vast majority of purchases proceed smoothlv on the appointed day, and the alternative is to cause considerable disruption in the removal arrangements, particularly where there is a whole chain of purchasers, all moving on the same day.

– Visit the property and establish with the vendor if there are any other loose ends to he tied up prior to the completion date.

Fixtures and fittings

A frequent cause of disagreement between vendor and purchaser concerns fixtures and fittings at the property. Generally speaking, fixtures are included with the property as they are permanently annexed to it. Fittings, on the other hand, will not generally be included as there is no such annexation. There can, however, be difficulties when deciding what is and what is not a fixture so it is sensible to prepare a comprehensive list for your solicitor showing the items that the seller intends to leave at the property and those that are to be removed.

New properties

With a new property, wherever possible during the period between exchange ol’ contracts and completion monitor the progress made by the builder. Timing is difficult if you are able to obtain only a provisional date from the builders for completion of the property. You will, therefore, need to leave removal and delivery arrangements until the last minute.

Inspection

Following receipt of the builder’s provisional estimate for completion, formal notice will be given to you or to your solicitors that the property is completed. It is essential at this point to make an immediate inspection, to ensure that it is satisfactorily completed. Here are some of the things to check:

– Test the central heating.

– Make sure all the doors and windows open and close properly, and can be locked securely.

– Check that the taps, lights and socket points work.

– See that the lavatories flush and the bathwater runs away properly.

There are likely to be one or two items that are not entirely satisfactory. If these are not major problems they can probably be dealt with by an undertaking given by the builder to sort them out after you have completed the purchase. Ideally, however, there should also be a deduction from the purchase money of an amount equal to the value of the outstanding items. This retention is likely to act as a spur to the builder as it will not be paid to him until the work is completed. Should the builder not carry out his obligations within a predetermined ‘reasonable time’, the retention can be used to pay someone else to complete the work.

Outstanding items can cause a lot of ill— feeling as builders are often reluctant to give priority to remedying defects when they are dealing with other properties on the site at the same time. It will be up to you to ‘pester’ the builder in order to make sure that he does comply with the undertaking given at completion, and if you have no success and there is no retention, your solicitor will have to take steps to enforce the undertakings.

You should be very wary indeed of accepting undertakings by the builder to complete any substantial outstanding works without a retention – particularly when your plot is the last on the estate and the builder has left the site. It may be very difficult to persuade him to return under these circumstances.

If the builder asks you to sign a certificate stating that you are satisfied that the property has been completed, it is advisable to discuss the certificate with your solicitor before signing.

Your building society’s surveyor will make a final inspection and the society will not release the mortgage advance unless the surveyor is satisfied that the property has been adequately completed. However, he will only be looking at the property to see that it provides adequate security for the mortgage advance, so your view and his view as to whether the property is completed may differ.

The electricity, gas and telephone authorities should be contacted 26 so that the property is connected up as soon as possible after it is completed.

Protection

In the case of a newly built property, a ‘House Purchaser’s Agreement’ will normally be entered into. Basically, the builder agrees to put right any defects which occur within an ‘Initial Guarantee Period’ of two years and which are due to his non-compliance with the National House Builders’ Council’s building and design requirements. Defects due to normal shrinkage and drying out are excluded. In addition to this there is normally insurance cover under the N.H.B.C. Scheme which means that the builder’s liability during the Initial

Guarantee Period is guaranteed by the N.H.B.C.. From the third to tenth years after the insurance cover is in force you are protected against a structural defect causing major damage. Broadly speaking, this is a defect which affects the load-bearing structure of the property. The N.H.B.C. will accept responsibility only where damage has occurred, and providing that the damage necessitates extensive repair work and is not covered by the normal household insurance policy.

Most building societies need to be satisfied that a new property will have the benefit of such an Agreement and insurance cover before granting a mortgage.

Completion

By the completion date specified, your solicitor should have received satisfactory results to all his searches and he will then complete the matter by paying over the balance of the purchase price to the vendor’s solicitors in exchange for the transfer or conveyance and the other title documents. These are then sent to the building society or other lenders where a mortgage is involved.

SOLICITORS

All the discussion on conveyancing has assumed the use of a solicitor. You are, of course, free to deal with your own conveyancing, without the services of a solicitor, but there are pitfalls for the unwary 21 particularly in the case of leases for flats. And you should remember that buying a house or flat is probably the biggest single financial transaction with which you will have to cope.

Most people use a solicitor, who has had to undergo a legal training. Every solicitor must also have an insurance indemnity policy that will help safeguard you in the unlikely event that you have to sue him for negligence, and in addition, a solicitor’s conduct is governed by the Law Society. The disciplinary committee of the Law Society can fine or suspend a solicitor from engaging in further practice where he has been guilty of misconduct.

Finding a solicitor

Most firms of solicitors will deal with conveyancing. Many people will go to a particular firm on the personal recommendation of a friend or neighbour.

There are lists of solicitors in the telephone book but if you have any particular difficulty, write to the Law Society, at Law Society’s Hall, Chancery Lane, London WC2. They will provide names and addresses of solicitors in your area who will be able to deal with the conveyancing work.

Once you have selected a firm of solicitors, telephone or write to them and arrange an appointment to discuss the whole matter.

Legal executives

It may be that the person who sees you will not be a solicitor but a legal executive I.e. a member of the Institute of Legal Executives who has undergone a course of training and examinations. He or she will work under the supervision of a solicitor and if you have any cause for complaint about the conduct of the matter, you should ask to speak to a partner in the firm.

In your own interests, give your solicitor as much information as you can about the property. He will probably not be able to go and see it for himself and will therefore rely upon both you and the replies to his enquiries addressed to the vendor’s solicitors.

Charges

At the time of your initial discussion with your solicitor you should raise the question of how much the conveyancing work will cost.

How the fees are made up

Before 1972, solicitors charged a scale fee based on the price of the property and whether or not the title was registered or unregistered. In 1972 the Solicitors Remuneration Order eliminated the scale and solicitors were left free to charge a fair and reasonable fee having regard to certain factors.

These include the complexity of the matter, the difficulty or novelty of the questions raised, the skill, knowledge and responsibility involved, the time spent and the number and importance of the documents prepared or examined, the location where the business is transacted, the amount or value, whether the title is registered or not, and, finally, the importance of the matter to the client.

In addition there will be the search fees, out-of-pocket expenses, Stamp Duty and probably Land Registry Fees.

Overcharging

If you are dissatisfied with the solicitor’s bill you can ask him to obtain a Remuneration Certificate from the Law Society. This will state whether the charge is considered to be fair and reasonable or, if it is not, what is a fair and reasonable sum. It you still teel unhappy then, you may apply to the Court to have the bill assessed by the Supreme Court Taxing Office. If such an application is made later than one month from the date you receive the bill the Court will normally still allow a ‘taxation’ to take place if it considers it reasonable in the circumstances.

If you wish to query an account, do so before making payment or you will lose your right to request a Remuneration Certificate and, after twelve months, the right to apply for a taxation of the bill.

Building society panel

Most firms of solicitors are on the panels of the major building societies, and therefore the building society that makes a mortgage offer to you will also instruct your solicitors to act for the society in order to ensure that a proper title is obtained and a valid mortgage created over the property.

A separate charge will be made by the solicitors for acting for the building society and this, too, you will have to bear. If your solicitor is not on the panel of the building society making an advance, another solicitor will be instructed by that society which will mean an increase in costs. There are scales of mortgage charges recommended by both the Council of the Building Societies Association and the Law Society to building societies and solicitors.

The Home Buyer And The Law

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