The Stamp Duty Holiday was a welcome boost for the Property market, but what will follow?
“Freehold” and “leasehold” are two different ways that you can own a property.
With freehold ownership, you own the land and any buildings on it outright. Subject to certain exceptions, you can do what you like with the property. This type of ownership is common for houses.
If you own a leasehold interest in a property, you do not own the land or building containing the property. You are granted a lease which gives you an exclusive right to occupy the property (either by the freehold owner or an existing leasehold owner) for a certain period of time. At the end of that period, the property reverts to the freeholder. Your occupation will be subject to certain conditions which are set out in the lease. This type of ownership is common for flats. Leases can be for terms of 99 to 999 years and these are considered to be equivalent to outright ownership as the freeholder is unlikely to get the property back during their lifetime.
Buying a share of the freehold means that, as well as acquiring a leasehold interest in a flat, you will become a joint owner of the freehold interest in the building containing the flat. Put simply, you will own a flat and a share of the building containing your flat.
The advantage of this is that you will have a say in how the building is managed. However, you will also take on a shared responsibility for the management and maintenance of the building.
There are two main ways that this can be structured:
There are four basic stages to purchasing a property:
The first stage of the process is to find out as much information about the property as possible, to make sure that the seller is legally able to transfer the property to you and that there is nothing affecting the property that might impact on your use and enjoyment of it.
This investigation is carried out before exchange of contracts as, once you exchange, you are contractually bound to purchase the Property.
The seller will provide a standard pack of information, including a draft contract, title information (including the lease if it is a leasehold property), replies to general enquiries and any relevant planning and construction information.In addition, your solicitor will carry out searches (see below for further information at question 7) and raise additional enquiries. Your solicitor will prepare a report for you on the Property and any issues affecting it.
If you are satisfied with the results of the property investigation, you can proceed to exchange of contracts. This involves you entering into a contract with the seller to purchase the Property on the terms of the contract.The contract will include a date for completion.
You will typically have to pay a deposit to the seller on exchange of contracts. The standard deposit is 10% of the purchase price.
On the day of completion, the balance of the purchase price is paid to the seller’s solicitors and the transfer deed or lease for the Property is dated. Your solicitor will send you a transfer deed or lease to sign prior to completion. This transfers the legal ownership in the Property to you.
Following completion, you will need to pay any Stamp Duty Land Tax that is due on the purchase price (see question 17 for further information).
Where you acquire a freehold or leasehold interest, the purchase will not be complete until the transfer or lease is registered at the Land Registry.
Your solicitor will apply to the Land Registry for you to be registered as the owner (known as the registered proprietor) of the Property.Once this has been completed, the Land Registry will provide an updated copy of the title register for the Property, showing you as the owner.This is proof that you own the Property.
There are three basic stages to selling a Property:
Your solicitor will prepare a draft sale contract and a put together a pack of standard information about the Property to be sent to the buyer’s solicitors.
As part of this pack you will be asked to complete certain standard transaction forms. These transaction forms were created by the Law Society to assist Sellers to provide the standard information that buyers will require. Most purchases will require you to complete a Property Information Form (TA6), containing general information about the Property, and a Fittings and Contents Form (TA10), setting out what is included and excluded from the sale price.Your solicitor can assist you to complete these forms.
The legal pack will also include copies of the Land Registry title register for the Property and planning and construction information.
If the Property is leasehold, you will be asked to provide a management pack from your landlord or managing agents (containing information on the rent and service charge etc.) and complete a Leasehold Property Information Form (TA7).
The buyer’s solicitors will review the information provided, together with the results of their searches, and may raise additional enquiries.
Once the buyer is satisfied with the information provided, you can proceed to exchange of contracts. This involves you entering into a contract with the buyer to sell the Property to them on the terms of the contract. The contract will include a date for completion. This creates a legally binding obligation on the parties to complete the sale.
The buyer will typically pay a deposit on exchange of contracts. The standard deposit is 10% of the purchase price.
On completion, the balance of the purchase price will be sent to your solicitor and the transfer deed for the Property or the lease will be dated. Your solicitor will send you a transfer or lease to sign before completion.
The completion will transfer the legal ownership of the Property to the buyer. You will then hand over the keys and any deeds or documents that you hold for the Property to the buyer.
Your solicitor will send funds to your lender to discharge your existing mortgage (if you have one), will pay the estate agents fee and any other disbursements and send the balance of funds to you.
The buyer will want to see the following documents:
Completed Law Society Transaction Forms
The Law Society has created a series of standard forms to assist sellers to provide the standard information that buyers will require.Most sales will require you to complete a Property Information Form (TA6), containing general information about the property, and a Fittings and Contents Form (TA10), setting out what is included and excluded from the sale price.
If you are selling a leasehold property, you will need to complete a Leasehold Information Form (TA7)
For leasehold properties, you will need to provide a Management Information Pack. This can be obtained from your landlord or managing agent and will contain information on the rent, service charge and management of the Property.
A valid Energy Performance Certificate (EPC)
The buyer will want to see as much information about the property as possible and will insist on seeing certain documents, such as planning and building regulations approvals, guarantees and warranties (particularly new build warranties), safety certificates for gas/electrical installations and share certificates (if applicable) for any freehold or management company.
If these cannot be found, some options are:
When acting for a buyer, it is standard practice to carry out searches on a property.
Searches are enquiries submitted to various authorities, including the local council, to provide you with detailed information about the property that you are looking to purchase. Searches are an essential part of the investigation process, as they reveal a variety of factors that may benefit or burden a property, including issues which may not be discoverable by simply viewing the property.
Typical searches that are carried out on most transactions are a local authority search, index map search, drainage and water search, chancel check search and environmental search.
Although surveys are not compulsory (unless required by your mortgage provider), they are an essential part of the investigation process. A survey will provide information on the physical condition of your property which may not be apparent from a simple viewing of the property. For example, your survey will reveal physical defects, potential structural issues and highlight areas that will require repair works (and therefore expenditure) in the future.
Once you have exchanged contracts, you will not be entitled to any compensation from the seller if you have to put right any defects. As such, a survey is a vital tool in ensuring that you are aware of the true condition that your property is in.
A survey will review the physical condition of your property. Your survey may comment on the value of the property, however this will be in the context of the effect of the physical condition on the value and the expenditure required to rectify any potential defects.
In contrast, a valuation will provide an open market value for your property and will incorporate a number of additional factors, such as the location, potential development value and the local market. A formal valuation is likely to be required by your mortgage provider.
These are the two main types of joint ownership for property:
Tenants In Common
As a tenant in common, each owner owns a separate share in the property. Each owner can give away, sell or mortgage their share and, if they die, they can leave their share to whomever they choose in their will.
The owners do not have to own equal shares and owners can be given a greater share if, for example, they contributed more towards the purchase price. Their shares can be fixed or can vary over time.
On exchange of contracts, the buyer becomes legally bound to buy and the seller becomes legally bound to sell the property on an agreed date (known as the completion date). Before exchange, neither party is bound to proceed with the transaction and can pull out at any time.The buyer will usually pay a deposit (typically 10% of the purchase price) on exchange. They will lose this deposit if they fail to complete the purchase.The buyer is said to take the “beneficial interest” in the property from the date of exchange and this can have certain implications (see the section on insurance below at question 13).
There will usually be a gap between exchange and completion. The dates are agreed between the parties but will usually be a few weeks.
On completion, the legal interest in the property is transferred to the buyer. The buyer pays the seller the balance of the purchase price and a transfer deed is completed to transfer the seller’s interest in the property. The transfer will then need to be registered at the Land Registry.
If you will require a mortgage to purchase the property, it is not advisable to exchange prior to receipt of the mortgage offer.
Once you exchange contracts you will become legally bound to purchase the property. If for some reason your mortgage offer is rejected and you do not have sufficient funds to pay the full purchase price on completion, you will be in breach of contract and would lose your deposit.
If you are buying a freehold property, you will typically need to put buildings insurance in place on exchange of contracts. You should make sure that you have this lined up before exchange.
The standard position is that a buyer takes the risk in a property from the date that the contract is exchanged (even if the seller remains in occupation). This means that if the property is damaged or destroyed between exchange and completion you will still be obliged to buy the property for the price stated in the contract.
If you are buying a leasehold property, it is likely that the property is and will continue to be insured by the landlord. You will not need to obtain buildings insurance for the property.
The parties are committed to the transaction and can make firm arrangements to move on the agreed completion date.
The transfer deed or lease will need to be signed by the parties in readiness for completion.This will be dated on completion.
The buyer’s solicitor will confirm the practical arrangements for completion with the seller’s solicitors and carry out pre-completion searches, to identify matters that may have changed from the pre-exchange searches.
The buyer will need to arrange for the balance of the purchase price to be sent to their solicitors. This should be with their solicitors in cleared funds the day before completion. The buyer will also need to approve a Stamp Duty Land Tax (SDLT) return for the purchase (if applicable) and ensure that their solicitors have funds to pay the SDLT following completion. If purchasing with a mortgage, mortgage funds will be requested from the lender.
If the seller has a mortgage on the property, their solicitor will obtain the final figure required to pay off the mortgage on completion.
The buyer’s solicitor will transfer the balance of the purchase price to the seller’s solicitors and the transfer deed or lease will be dated. The buyer will become the owner of the property and will be able to collect the keys.
The seller’s solicitor will arrange for any existing mortgage to be redeemed and will then transfer the purchase price to the seller. There may be additional fees to be settled, such as the estate agent’s invoice.
On completion. Once the seller’s solicitor has received the full purchase price from your solicitors, they will confirm that the keys can be released to you. You can then collect these from the estate agent or seller’s solicitor (depending on who is holding the keys).
Stamp Duty Land Tax (SDLT) is a tax on land transactions in England (a different tax applies in Wales). You must pay SDLT if you acquire property over a certain price (currently £125,000). This would include buying a property (whether this is freehold or leasehold) and entering into a new long lease of a property.
SDLT will be payable on the amount that you pay for the property and is charged as a percentage of the purchase price. There are certain reliefs and exemptions available.
You will have to pay a SDLT surcharge of 3% on top of the normal SDLT rates if you already own a property and the transaction will result in you owning two or more properties (for example, if you are purchasing a second home or buy-to-let property). This will apply even if your existing property is outside the UK.
A completed SDLT return must be sent to HMRC within 14 days of completion. Your solicitor will be able to assist you with completing the return and paying any tax due.
A “disbursement” is used to describe an additional expense or payment that will need to be paid in addition to your legal fees.
Typical disbursements that arise on a purchase of property are the search fees, SDLT and Land Registry fees for registering you as the new proprietor of the property. Where the property is leasehold, the lease may require you to pay fees to the landlord or their managing agent as part of the purchase, for example, to formally notify the landlord that the lease is being transferred to you.
There are two ways that you can obtain a lease extension:
Although people refer to a “lease extension”, what you will actually obtain is a new lease of your property for a longer term in substitution for your existing lease. You will have to pay a premium (i.e. a purchase price) to your landlord for the new lease. You are also likely to have to cover the landlord’s legal fees.
Lease extensions are most commonly encountered with flats.LRHUDA 1993 gives qualifying long leaseholders the right to a statutory lease extension of their flat. A key requirement is that the tenant has owned the property for at least two years (although if you are buying from someone who has owned the property for two years, they can transfer the benefit of this right to you). With a statutory lease extension, you will obtain a new lease for the unexpired term of your current lease plus 90 years (i.e. a 90 year lease extension) with no ground rent (referred to as a “peppercorn rent”). The other terms of your lease will stay the same save for any required modifications. There is a formal procedure to be followed, with strict time limits.Your solicitor will be able to help you navigate through this.
With a negotiated lease extension, there are no requirements and your landlord can set whatever premium or other terms they like.
You may receive paper deeds for the property if the seller has them, but this is not necessary or required.
An official copy of the register (previously known as an “office copy”) produced by the Land Registry electronically and stamped with the date and time of issue is the definitive proof of ownership of a property. There is no requirement to hold hard copy deeds.
There is a public right to inspect and to obtain official copies of the land register. Official copies should always be obtained when investigating title to registered land, as they provide the most up to date, and the official, record of all registered matters affecting the property.
This is a type of insurance commonly obtained in property transactions. Indemnity insurance protects against the risk of a third party bringing a claim against a property owner in respect of a defect with the property. For example, if a seller cannot provide a building regulations certificate for works, it would cover the costs of the local authority bringing a claim for breach of building regulations against the buyer.
You pay a one-off premium for the policy and they typically last forever.
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