Property Law and Practice

DRAFTING = SGS3 (Sale contract), SGS5 (TR1) or SGS8 (Repair clause)

*CHECK GET SDLT RATES FOR UNREGISTERED LAND

KEY TERMS

Mortgagor Owner of property who gives mortgage to lender in return for funds (i.e. borrower)

Mortgagee Person/institution accepting mortgage as security in return for lending funds (i.e. lender)

Title Term of ownership of land; can be ‘legal’ or ‘equitable’ Person with the Benefit (‘PWB’) Landowner who benefits from an easement over another’s landOfficial Copies Copies of title registers & deeds (Land Registry (LR) holds originals)

- Can be used in transactions & admissible in Court as if originals- LR guarantees all info on Official Copies is accurate at time & date stated on them

Anyone who suffers loss as result of inaccuracy in them is entitled to compensation from LR- In standard format, divided into 3 sections:

(1) Property Register Describes the estate & any rights benefiting it(2) Proprietorship Register Explains title (I.e. who owns property & restrictions dealing c. it)(3) Charges Register Buyer bound by interests registered on charges register

I.e. restrictive covenants/ leases/ mortgages Index Map – Map, based on Ordnance Survey (OS) maps, held by LR, showing every registered property & applications for 1st registration

- Can be searched by submitting SIM to LR for fee CON29R; CON29O; CON29M; CON29DW Local Authority Searches = submit to local authority to find out info about property

- Normally 1 form used & solicitor chooses which searches to carry out; “O”, “M” & “DR” refer to particular sections of form

- Not all searches will be carried out (to save costs) LLC1 Local Land Charges Search= another method by which solicitors discover info re propertyStandard Conditions of Sale (“SCS”) Precedent contract often used to sell residential propertiesStandard Commercial Property Conditions (“SCPC”) ^^ commercial propertiesStamp Duty Land Tax (“SDLT”) Tax paid to HMRC on value of land sold on completion of saleCLLS City of London Law Society; issue precedent documentsI.e. CLLS Certificate of Title = industry standard certificate summarising property’s title, any search results & leases Lenders may require this as a pre-condition of granting a mortgage Land Registry (“LR”) Body which administers registered freehold & long-leasesCentral Land Charges (“CLC”) Registry Body which administers certain charges registered over unregistered land (N.B doesn’t administer unregistered land itself)Registered Land Land the title of which (along c. any charges over it) has been registered c. LRN.B Registration of all land became compulsory on 1/12/90 across England & Wales BUT compulsory first registration came into force at earlier dates in certain regions

- Compulsory First Registration any previously unregistered land sold on/ after this date should’ve been registered c. LR once sale was completed

Unregistered Land All land was originally unregistered & title was proved through the production of deeds, conveyances & other proof of ownership. Some land will not have been sold since compulsory 1st registration came into force & may therefore still be unregisteredPersonal Representative (PR) Executor (/if not named in willadministrator) of deceased’s estate Trustee-in-Bankruptcy (T-in-B) T appointed to administer the affairs & assets of a bankruptJoint Tenants (“JTs”) Where land owned by 2 + people; can be owned by way of joint tenancy or tenancy-in-common

- JTs own land under joint tenancy each owner has an undivided interest in property- To sell their interest all owners must agree to sell the entirety of their interest- Right of survivorship when 1 owner dies, their interest passes to remaining owner(s)- Certain events (i.e. bankruptcy) can cause joint tenancy to sever into tenancy-in-common

Tenants-in-Common (“TiCs”) TiCs own their land under a tenancy-in-common each owner has a divisible, quantifiable interest in the property

- TiC is free to transfer their interest to another (either during lifetime or under will) w/o having to seek consent of other TiCs

Caveat emptor “let the buyer beware” Buyer of property is under duty to look for issues & (loosely speaking) may not have any remedy re obvious defects he doesn’t bother to inspect BUT N.B See remedies re freehold sale Assignor Tenant who assigns their interest in a lease to another

- Sub-Tenants can also assign, as can Sub-Sub-Tenants etc.Assignee Someone who receives Assignor’s (Tenant’s) interest & thus becomes new T

- May also see Assignee referred to (depending on no. of assignments that have taken place) as the Second Tenant & the Assignor referred to as the Tenant / 1st Tenant

Sub-Tenant Person who rents from Tenant under a sub-lease, where T in turn is renting from L- Tenant would be Sub-Tenant’s “immediate Landlord”

LEASEHOLD SECTIONUse Purpose for which property is usedLicence Document evidencing consent / permission & terms of which it is given

- Creates privity of contract b/w all parties to itPrivity of Contract Contractual relationship b/w all parties that agree to terms of same contractPrivity of Estate Relationship b/w immediate parties that have an interest in the same land, even where there is no privity of contract

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I. Initial Stages of the Transaction / Investigating Registered Titles

Buyer’s Concerns Must ensure:Seller has right to sellContract reflects the terms agreedPhysical condition is adequate (i.e. get survey)Physical condition is adequate The rights benefitting the property have been identified3rd party rights have been identifiedSufficient funding availableTransaction meets their business requirements

Seller’s Concerns Realise fundsTransfer the propertyEnsure contract reflects terms agreedEnsure transaction meets business requirements

Lender’s Concerns Is the property marketable?

I.e. Does it have a good title free from adverse matters?I.e. Is it free from any prior security interest?

Is the property readily saleable?- Any restrictions in being able to sell the property?- Any 3rd party’s consent required to sell?

Can the property be used for its current purpose?- For whatever the mortgagor wants to use it for?- Other future uses if the lender were to take enforcement action & wanted to sell it on?

Can the property interest over which security is being taken be terminated?- Relevant for leasehold property:

Lender won’t lend to purchase long residential lease which allows forfeiture on insolvency of tenant as leasehold interest would cease to exist & lender’s security would be worthless

Value of the property asset- Lender will check that the loan to value ratio isn’t too high

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Exam Technique: IDENTIFY potential issue for client EXPLAIN why those issues could cause problem given client’s proposals SOLVE by providing potential solutions AND recommending most appropriate

To deduce title to registered land Need:o Official copies of the register o Title plan o Copies of documents referred to in official copies IF relevant rights not fully

extracted

INVESTIGATING OFFICIAL COPIES

RUN THROUGH CHECKLIST OF POTENTIAL ISSUES:

PROPERTY REGISTERDescription of the property & rights benefitting it

o Description of the property what the client was expecting? Freehold / Leasehold Extent of the property accurate? Check Title plan /confirm c. client County & district in which property situated

o Rights & Easements benefiting propertyI.e. Right of Way Adequate for client given its proposed use of land? On foot / with vehicles? If commercial client: is roadway wide enough to allow goods lorries though? Only certain time of day? Run from property to public highway?

- Advise If inadequate, approach servient land owner to vary the easementDrainage & Water – Is property connected to mains water & public sewer?

New property? s104 Drainage Agreement in place?Lateral drains should now have all been adopted by local utility co. - Advise Commercial: Ask utility supplier/ Residential: Commission CON29DW

Easement from property to public drains?- Advise If not adequate approach person who owns burdened land to vary

- Registered if burdened land is registered? Caution against first registration if burdened land is unregistered?

In need of Maintenance? Who maintains / repairs? Cost of maintenance / repair?

- Advise Could mean ongoing costsRaise pre-contract enquiries c. seller I.e. How much have they been charging)

Likely to be Adopted?I.e. Private roads that will be adopted Road charges Already been adopted/ future adoption by Council? Check

CON29R (enquiries of local authority) N.B Frontagers (i.e. people whose land adjoins where it’s going to be adopted; have to pay some of it)

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- Advise Could mean incurring costs to bring road up to standard required by council but after this client will save on ongoing maintenance costs

o No rights? Are any actually required?

o Registered Right?Registered if burdened land is registered? Burden in Charges RegisterUnregistered Land Register Caution Against first Registration over burdened land

New property? s38 Roads Agreement in place?

PROPRIETORSHIP REGISTER Who owns the property & restrictions dealing with it

o Class of Title Title Absolute? LR’s guarantee as to the title strongest form of title landowner can have,

meaning they have strongest possible proof they’re lawful owners of the land Mortgagee requires client shows they have title absolute as pre-condition to loan

- Advise Report if Qualified / Possessory/ Good Leasehold (as may not be rightful owner)

o Names & Details of Registered Proprietors Same person as Seller? Companies Company search for co. name, co. number & solvency at CH

No change in co. name?- Companies can execute deeds

Individual Must sign contract & transfer (see Drafting Workbook) Personal Rep Need to confirm identity of registered proprietor & official copy

of PR’s Grant of Representation PRs must then assent the sale in writing (use a deed) & all must executeN.B Payment to 1 PR overreaches any beneficial interests

Attorney Buyer needs to see certified copy of power of attorneyCheck it was validly granted, hasn’t been revoked & this property sale is within the attorney’s powersBUT N.B Sale can still be valid even if Buyer isn’t aware power’s been revoked at some point

JTs Hold legal estateAssume beneficial estate also held as HJT unless there’s a restriction on the Proprietorship Register (i.e. “no disposition by a sole proprietor”)If there is: means there has been a severance of the JT so beneficial estate is now held as a TiC How many of the JTs or TiCs are surviving?

- All JTs alive All must execute deed- All TiCs alive All must execute deed- 1 surviving JT Survivor can execute as he has both LT & beneficial

interest vested in him; but LR need to see Death Certificate (/ certified copy) for others

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- 1 surviving TiC Purchaser can overreach all beneficial interest if 2nd T is appointed & purchase monies paid to surviving TiC & 2nd TException if there’s a PR No need to appoint another T to overreachN.B LR need to see both death certificate(s) of other TiC(s) & deed of appointment of 2 nd T , if relevant

Restrictions TiC – the restriction applies if they are tenants in common, NOT JTs Lender – if this restriction is present then the mortgagee’s consent will not be

required as the mortgage will at any rate be discharged on completion. o Indemnity Covenant (relevant for PCs in Charges Register)

CHARGES REGISTER Buyer bound by interests registered on charges register & leases & mortgages

o Restrictive Covenants Do facts indicate current breach by seller? Future breach by buyer?

I.e. Extension? WAS CONSENT GIVEN BY PWB (or PERSONS WB)????

Remedies for breach: Options depend on age of covenant & whether it’s past/ future breach

o Restrictive Covenant Insurance (easier if past breach)o Consent / Release / Modification of covenant by PWBo Upper Tribunal Lands Chamber (to remove the cov.)

Which is best on the facts (N.B Use same remedy if past & future breach, and beware that if seek consent from PWB, they may sue if you are going to be in breach)

If insurance – PCR ISSUE – can your firm arrange insurance and still be in compliance with s19 (1) FSMA?

o Positive Covenants Indemnity covenant given by previous owners in proprietorship register?

If so, PC can bind the buyer SCPC 6.6.4 & SCS 4.6.4 Buyer must give indemnity covenant in the

Transfer (the wording of which is usually agreed in the contract) If no IC, then PC can’t bind

If PCs bind: Current/ Past breach by seller?

o Require seller to remedy breach / reduce price?o If breach irremediable, possibility of insurance? Release from PWB?

Future breach by buyer?o Possibility of enforcement?o Insurance / Release from PWB? NB. If seller indicates PWB might give consent for a price: means

they’ve already been approached, so insurance would be void POTENTIAL SOLUTIONS

Depend on when breach took place & hold old covenant is:

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Past breach where covenant is >50 years old = take out insurance & don’t tell PWB of breachPast breach where covenant is <50 years old = seek PWB’s consent Intend to breach in future = seek consent of PWB Any (where PWB won’t give consent) Go to Lands Tribunal (s84 LPA 1925) to have covenant dischargedN.B Last resort, as takes long time & expensive & tribunal may decide against

o Easements burdening propertyI.e. Rights of way over land enjoyed by neighbour

- Advise Client as to nature &/ extento Leases over the land

- Advise Could be bound by them & so become a landlord on purchaseo Mortgage Undertaking from Seller’s solicitor? (N.B Don’t confuse c. lease wording)

Seller must discharge mortgage using DS1 / Electronic Discharge (ED)/ e-DS1 Need undertaking from seller’s solicitor to forward the discharge monies to the

lender once received from buyer’s solicitor AND to forward the DS1 (evidence of e-DS1) once receivedOtherwise Buyer could be bound by mortgage

Need 1 PER mortgage Mortgage receipted if unregistered titleDS3 is used for discharge of mortgage over part of the land in title.

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II. Pre-Contract Searches, Enquiries and Planning

LOOK OVER THE OVERLAP AND SPECIFICS OF LLC1 & CON29R

- What’s known about the property?- What planning permissions should be in place?- If planning permission not in place/ condition breached – is LA in time limit for enforcement?- Is planning permission required for what buyer wants to do c. property?

‘Local Authority Search’ consists of 2 separate searches:o Local land charges search on LLC1; &o Enquiries of the Local Authority on Con29R

& (if some of the optional enquiries are raised) CON29O Many searches can be done via NLIS (National Land Information Service)

ALWAYS:

Structural Inspection / Survey (by buyer / surveyor) Pre-Contract Enquiries of seller (CPSEs for commercial property / SPIF for residential)

o Elicits info that the seller isn’t bound by law to discloseo Seller must avoid verbal/ written misrepresentation

This can also be by conduct (i.e. Seller mustn’t conceal defects – Gordon v Selico)o Caveat emptor (let the buyer be aware) for physical defects – SCPC 3.2.1 (SCS 3.2.1)

but seller must avoid misrepresentationo PCR point:

If seller asks solicitor to mislead or misrepresent to buyer –solicitor must act with integrity!!

Local Land Charges Search (LLC1)o Look for:

Planning Permissions granted Enforcement/ Stop Notices Conservation Area Listed Building Tree Preservation Order Smoke Control Order

Know how to advise buyer if these are present Any breach of planning legislation may become buyer’s problem when own land

Local Authority Enquiries (CON29R)o Building Regulations Approvalso Road adopted?o Traffic Schemeso Contaminationo Any planning permissions applied for, granted or refused

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So buyer knows about planning history of property & area in general Highways Search (Letter to relevant LA)

Is property / right of way which property has benefit of, abutting a highway?As buyer needs to access highway to access property! If gap b/w highway & property, check to ensure right of way which abuts highway & buyer has benefit of it

Drainage & Water Search (Commercial Drainage & Water for commercial property / CON 29 DW for residence)

o Reveals whether private or public services, if metered etc.So buyer knows whether land is connected to mains (& who supplies if not)

Desktop Environmental Search – I.e. Homechecko Reveals contamination, flood risk etc.

As potential liability for contaminated land is very expensive (even if didn’t cause) Index Map Search (SIM)

o Reveals any other title numbers registered against the property (i.e. if any leases have been registered)

o Confirms boundaries in comparison c. title plano Can search neighbouring properties

So buyer knows about boundaries & who owns neighbouring land Chancel Repair Search (I.e Chancel Check; or by personal search of Nat. Archives)

o Liability to contribute to C of E church maintenance – only until October 2013Not knowing about liability is no defence & could be hefty

SOMETIMES :

Optional Enquiries of the Local Authority; ‘ CON 29O Enquiries’ o Public footpathso Common land, village greens - Commons Registration Act enquiry – CON 29O, Q22

Ensures buyer knows of all public land in area & issues c. land useElton Hall: Enquiries 5 & 22 of Con 290 relevant

Coal Mining Search (CON 29M)Subsidence /structural defects could cause problems/ expenseElton Hall: Frontier Miners Cottages suggest local mining.

Company Search – seller/buyero Check company name, number, not insolvent, able to sell, fixed & floating charges

So buyer can ensure the co. selling is authorised to sell/ property in’t subject to any insolvency proceedingsElton Hall: Buying from a co.

Waterways / Environment Agency o If river passing through property, will show maintenance obligations for riverbanks,

rights of way along tow paths, fishing rights, drainage rights, water abstraction rights, liability for flooding

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Buyer will be buying property subject to any rights in existence & if no rights, buyer is responsible for maintaining river banks & would be obliged to keep river free from obstruction

Full Environmental Survey (follow to Desktop if it raised concerns)Phase I = Surveyor…. Phase II = Soil sampleso Liability for clean-up costs

Principle is that the polluter pays, but subsequent owners may also be liableTo decide how to apportion the clean-up/ buyer may not want to buy at allElton Hall: Desktop search raised issue of contamination & Phase I survey revealed no evidence

Utilities searches (NLIS)o If certain utilities aren’t there, buyer can set them up

Planning

s57 Town & Country Planning Act 1990 Sets out fundamental principle of planning law: Planning permission is required for development

- s55 Development = building works & material changes of use

Exam Technique:

Have you any info suggesting past/future breaches of planning?N.B Just because planning consent obtained, doesn’t mean PWB’s consent obtainedThen check LLC1 to see if right permission has been granted

Building Operations:

Planning Permission?o Covered by the GPDO

(General Permitted Development Order 1995?I.e. Pre-granted development & thus don’t need to apply for permission

Building Regs Approval? Listed Building Consent? (for internal or external work) Conservation area consent for demolition or works to trees?

o GPDO may be disapplied in a Conservation area – need to check LLC1 & 3.10 Con21R Consent of PWB of RC on title?

Change of Use:

Planning permission required for developments: building works/ material change of use Covered by Use Classes Order 1987 / GPDO Planning permission not required where the change of use is within the same class

(I.e. Hairdressers Shop = A1 A1)

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OR where permitted by GPDO (I.e. Restaurant Clothes shop = A3 A1, which is permitted)

Listed Building Consent needed if works affect its character (inc. partial demolition)(N.B This is in addition to any planning permission required)

Conservation Area means planning permission required for even minor works (& would have required Conservation Area Consent up until 1/10/13) inc. trees as well as all kind of demolition N.B ARTICLE 4 DIRECTION DISAPPLYING ELEMENTS OF THE GPDO

If client is carrying out building works which involve demolition & tree felling- Building Regulations Consent- Planning permission (unless part 31 GPDO)- Listed building consent- Conservation Area Consent (re tree felling)

Time Limits:

s7 (1) (b) Country and Town Planning Act Carrying out building works w/o planning permission:

4 years from substantial completion of works Breach of condition in planning permission:

10 years from date of implementation Material change of use:

10 years from date of change (N.B. change of use to a single dwelling house = 4 years from date of change)

Building Regulations: No time limit for enforcement (Cottingham)

Conservation Area / Listed Building Consents No time limit for enforcement

Otherwise LA may enforce

Occupiers

Check for Occupiers via inspection & pre-contract enquiries of seller

Equitable Interests:

Occupier’s written consent to sale / special condition in contract Appoint second trustee to overreach equitable interest

Spouse’s statutory right to occupy – FLA 1996:

Protected by notice on the Charges Register prior to completion (or Class F CLC for unregistered title)

Spouse to consent to sale and remove notice prior to completion (i.e. remove the Class F)

Leasehold interests:

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Is there security of tenure? Should the lease have been registered?

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III. Drafting the Contract

Seller’s solicitor prepares 1st draft (using Heads of Terms) & sends to buyer’s solicitor Buyer’s solicitor checks contract:

- Accords c. Heads of Terms & buyer’s instructions- Deals c. issues arising from buyer’s investigation of title (SGS 1) & results of buyer’s searches

(SGS 2) & from seller’s replies to pre-contract enquiries (SGS 2)Buyer’s solicitor drafts the TR1

s2 LP(MP)A 89 Contracts for sale of land must be:- In writing;- All relevant terms must be incorporated into the document - Signed

Para 2; Sch 3 LRA 2002 Person in actual occupation of a property will, except in certain circumstances, bind the purchaser of that property

ss1 & 2 C(RTP)A 99 Virtually always excluded from contracts for the sale of property ss1, 2, 3, 6(1) & 6(2) LP(MP)A 94 Deals c. different forms of title guarantee

Standard ConditionsStandard Conditions of Sale (SCS) Use in residential (& some v. simple commercial) transactionsStandard Commercial Property Conditions (SCPC) Used in more complex property transactions

Special ConditionsAmend/ exclude any standard conditions which aren’t appropriate to specific transactionI.e. ‘On or before exchange of contracts, the Buyer shall …… SCPC 1.1.1 shall not apply’

Tailor-made contracts More often used in commercial properties (as more to negotiate) - Almost always incorporates the SCPC

Standard (pre-printed) contracts More often used in Residential contracts If do use tailor-made contract Still incorporate SCS

I.e. ‘This Contract incorporates the Standard Conditions of Sale (Fifth Edition) save as excluded or varied below’ Incorporates many of the “boiler-plate” clauses which don’t need to be redrafted each time & which are much quicker to negotiate because solicitors are familiar c. their contents

N.B SCPC 8.1.1 & SCS 6.1.1 aren’t very important, because most of the time the parties will agree a completion date b/w them, this will be written into the contract on exchangeBUT remaining provisions of conditions 8 & 6 respectively are very important

Seller’s duty of disclosure is dealt with in SCPC 3.1.2

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The Contract

DRAFTINGFront Page:

Beware of typing/ drafting errorso Misspelt or incorrect parties/property

Purchase Price/Deposit/Contents Price (if separate) / Possible SDLT saving?o BEWARE FRAUD on HMRCo Do NOT include VAT (if payable)

1. Date- Leave blank until exchange, when it will be inserted

2. Seller- All full names & their addresses- Must have LT to property & all legal estate owners must be parties to the contract

BUT maximum of 4 names (regardless of how many own the land in equity (i.e. as JTs)- Must also have legal personality (i.e. not a partnership)

If a partnership (which isn’t an LLP): Max 4 partners holding LT must enter into contractIf a company: include company name & number

3. Buyer- All full names & their addresses

If a partnership (which isn’t an LLP): Max 4 partners holding LT must enter into contractIf a company: include company name & number

4. Property (Freehold/ Leasehold)- Full & correct description (i.e. may include rights attached to the land)

Registered Title: Description should reflect wording in Property RegisterUnregistered Title: Description may be by reference to a conveyances in epitome of titleSales of Part: Must include plan c. land sold edged in red & land retained edged blue

- If incorrectly described, buyer may have remedy for misrepresentation & breach of contract (SCPC 9.1 / SCS 7.1) SCPC 9.1.2: Damages or material difference b/w description/ value of property as represented & as it isSCPC 9.1.3: Rescission where buyer has to accept property which differs substantially (in quality, quantity or tenure) from that which error/ omission led them to expect

5. Title Number/ Root of TitleRegistered Title: Insert title number for the property (& delete words root of title)Unregistered Title: Insert root of title for property (& delete title number)

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6. Specified IncumbrancesN.B In practise (for registered land) Specified incumbrances always defined by reference to entries in the charges register I.e. “the matters set out in entry 1 of the Charges Register of title number [xxxx]”- Make reference to all the entries, except the seller’s mortgage Seller’s common law duty of disclosure- Only has to disclose latent incumbrances (I.e. Covenants or easements burdening the land; something that burdens the land & may restrict the owner/ occupier from using the land in a certain way/ restrict the ability to sell by requiring 3rd party consent etc.) & defects in title

- No duty to disclose patent incumbrances (obvious on inspection) or physical defects (i.e. subsidence)Matters which the buyer is deemed to buy the property subject to (under SCS & SCPC)SCS (3.1.2) & SCPC (3.1.2) Incumbrances the property is being sold subject to

- If in doubt, seller’s solicitor will include it in:Specified Incumbrances section on front page of standard form of contract (if using one); or as express special condition if a tailor made contract

- SCPC/ SCS (3.1.2 (d)) Buyer buys free from any mortgage the seller has on the property Exclude existing mortgages

7. Defects in TitleAny proof of title that is missing I.e. Seller might be missing a conveyance which proves that the previous owner that sold the house to the Seller in the first place had the LT to do so- Solve any defects in title by Faruqi v English clause:“the seller has no knowledge of the whereabouts of the Conveyance dates [xxx] referred to in the Charges Register of title number [xxx] or the matters contained in or referred to in that document & the Buyer shall purchase the Property with full knowledge of this and shall raise no requisition on this”

8. Full/ limited title guarantee (defined in ss2 & 3 LP (MP) A 1994)Guarantee of seller’s quality of ownership (title) to property (given in the purchase deed)

If seller is an owner/occupier = Full title guaranteeGuarantee that the seller has the right to sell the property & property is free from all charges & incumbrances & other rights exercisable by 3rd parties (other than Specified Incumbrances/ ones it couldn’t reasonably have known about) Applies even if sellers are JTs or seller is landlord of a fully let propertyGenerally given: position under SCS 4.6.2 (unless front page is amended) & SCPC 6.6.2 (unless special condition is added in so check)

If seller is trustee/ PR/ inherited&never lived there = Limited title guaranteeNot guarantee that property is free from all 3td party rights, but instead that seller hasn’t created any incumbrances since the last sale/ isn’t aware anybody else has

If seller is a squatter = No title guarantee

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Means Buyer has no remedy against the Seller if there’s a later difficulty c. title of purchased property

9. Date & time of day for completionOtherwise don’t know if it’s late SCPC 8.1: completion takes place 20 working days after exchange (though never relied on in practise; automatically overruled by agreed completion date in special condition) SCPC 8.1.2/ SCS 6.1.2: Must take place by 2pm (though may be overruled by special condition)If buyer is late completing: it must pay compensationUnder SCPC: seller wouldn’t have to pay compensation for late completing but may be amendedFailure to Complete: SCPC 8.1.1 If parties fail to complete, the seller isn’t automatically free to offer the property to another buyerBUT N.B Time can be made ‘of the essence’ by serving a notice to complete, giving the receiving party 10 working days within which to completeDelay in Completion: Compensation will be payable

10. Contract RateShouldn’t be penal & should be linked to base rate

- Time not of the essence until notice to complete is served:Before served: only remedy is for late completion;Compensation is payable at the (annual) contract rate

- SCS & SCPC 1.1.1 (e) If no specific figure is inserted (i.e. at 3%/4%/5% per annum above the base rate from time to time of one of the clearing banks) the Law Society’s interest rate applies

11. Purchase price & SDLTStamp Duty Land Tax rate found at back of Property bookAs chattels excluded from tax, can separate contents of property & purchase price will be apportioned (lowering SDLT) BUT can only do so up to the max. market value of chattels (otherwise fraud on HMRC (Orsman v HMRC))Price paid on completion

12. DepositAmount: SCPC 2.2.1 Buyer pays 10% deposit on exchange (but can be amended by Special Conditions) BUT parties can agree whatever deposit they chooseN.B neither standard conditions include any deposit for contents/chattels – see SCS 2.2.1 Capacity in which the deposit is held: SCPC 2.2.2 & SCS 2.2.6 Deposit normally paid to seller’s solicitor to be held as stakeholder (i.e. as custodian to both parties & kept by seller if contract is rescinded) though can be held by solicitor as agent for the seller (& thus available to seller from moment of exchange)

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Balance = Price – chattels price – deposit

13. ContentsFixture included unless specifically excluded from sale & vica verca for chattelsOne of the pre-printed special conditions at 3 (a) & (b) should be deleted according to whether the sale includes the contents of the property

14. Pre-printed Special Conditions Incorporating the standard conditionsContents & FixturesRepresentationsNon-owning occupiersStandard form commercial contract

15. Additional Special ConditionsN.B If amending/ drafting special condition (i.e. amending/ overriding SCS/ SCPC) WHO is to do WHAT by WHEN?

Points arising from investigation of official copies or searches, I.e.:o Restrictive covenant indemnity policy to be purchased before completion by sellero Seller to obtain missing planning permission / building regularisation certificate etc.

by completiono Faruqi v English clause needed?

If defect in title (i.e. a lost conveyance) avoids Seller’s obligation to answer/ satisfy and requisitions/enquiries about it.

For SCPC 3.1.2 must ensure incumbrances include entry giving rise to the need for Faruqi clause

New covenants/ easements created on sales of partInclude wording of indemnity covenant from buyer to seller (SCPC 6.6.4 / SCS 4.6.4)

o If 6.6.4 is incorporated, this is an obligation.o It should be included in the transfer (6.6.4(a))

Matters specifically agreed Chattels included / Fixtures Removed

o N.B If no special conditions: Chattels are excluded (i.e. garden statue, painting above mantelpiece) Fixtures are included (i.e. fireplaces, fitted wardrobes)

Exclude rights under the Contracts (Rights of Third Parties) Act 1999 from persons who are not party to the contract (see SCS 1.6 for wording)

Vacant possession (Standard Special condition / delete alternative)I.e. Assurance that any occupier waives their interest & will vacate the property

- Get separate document from occupier as well

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Vary time for completion (i.e. “Conditions 6.1.2 & 6.1.3 shall take effect as if the time specified in them were 12:00pm rather than 2:00pm”Outline who bears risk of liability to take out insurance & when they do so

N.B Completion goes ahead even if special condition not complied with (but Buyer has remedy of damages/ rescission for breach of contract/ misrepresentation)Only way to make completion condition on fulfilment of special condition is to specifically state that completion won’t occur until condition is complied withI.e. Planning permission granted/ financing not sortedMay need to add this in & specify a long-stop date for condition to be met

16. Value Added Tax (VAT)Not payable by buyer in addition to purchase price (SCS/SCPC 1.4) UNLESSSale of ‘new’ commercial buildings (i.e. 3 years of less from date of practical completion)Standard rated for VAT (i.e. 20%)N.B Purchase price in contract must be expressed to be ‘exclusive of VAT’ (& if buyer doesn’t meet cost of VAT then burden will fall on seller)

Sale of ‘old’ commercial buildings (i.e. over 3 years)S9 VATA: Exempt supply therefore it is exempt from VAT Subject to….. Seller’s option of taxSale then becomes a standard rate supplyYou could then charge VAT on the purchase price… & then recover on VAT already paid (I.e. plumbers/ builders etc.) You can’t charge VAT unless you pay VATTransfer of a Going Concern (‘TOGC’)

Contract for a Sale of Part

Description – plan Mortgagee’s consent / Form DS3 Express easements to benefit / burden the buyer / seller: exclude implied easements Express covenants to impose on buyer / seller When explaining special conditions state who (i.e. buyer or seller) is to what (e.g. provide

document or deal with issue), and by when (e.g. on or before the completion date ‘Completion’)

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IV. Professional Conduct Issues, Finance & Exchange of Contracts

Professional Conduct

SRA Chapter 3 – Conflicts of InterestsSRA Glossary

-‘Client Conflict’ = Owing separate duties to act in best interests of 2 + clients re the same/ a related matter & those duties conflict/ there’s a significant risk those duties will conflict

N.B P (4) You must act in the best interests of each client.N.B O (1.2) Provide services to clients in manner which protects their interests in their matter, subject to admin of justice IB (1.25) Unlikely to comply c. Principles (i.e. P (4)) or achieve Outcome (O (1.2)) IF:

- Act for client when instructions given by someone else or by 1 client when acting jointly for others (Unless satisfied the person providing instructions has the authority to so on behalf of all the others)

Acting for both buyer & sellerYou can (albeit rarely) act for both buyer & seller of property

IB (3.14) Default position: Acting for more than 1 party in a property transaction = unlikely you’ve satisfied Chapter 3 outcomes;Esp. O (3.5) not permitted to act for more than 1 client where there’s a client conflict/ significant risk of a client conflict

IB (3.3) Further supports this: You shouldn’t ordinarily act for both parties if you need to negotiate on matters of substance (i.e. price/ rate of interest etc. b/w buyer & seller)IB (3.2) Further: Shouldn’t act for parties whose interests in direct conflict (i.e. C & D)

BUT these property-specific provisions are non-mandatory IBs (& thus aren’t actual prohibitions) Thus v. occasionally possible to act for both buyer & seller

- O (3.6) & O (3.7) exceptions have some limited application (see table)

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Confidentiality / Disclosure / Mortgage Fraud

SRA Chapter 4 – Confidentiality & Disclosure

N.B Confidentiality continues regardless of end of retainer or client’s death Must be reconciled c. duty of disclosure to clients (limited to info which is material to my client’s matter)If not possible: stop acting for client to whom I can’t disclose the material info. (v. limited exceptions)O (4.1) Keep client’s affairs confidential unless disclosure required by lawO (4.2) must make client aware of all info. Material to the retainerO (4.3) if duty of confidentiality to 1 client conflicts c. duty of disclosure to another: confidentiality takes precedence

- IB (4.5) Likely to comply if I don’t act for HSBC where M is a client for whom I hold confidential info. which is material to HSBC, unless the info. can be protected (but too late, as already acting for HSBC?)

Finance BANK FUNDING Certificate of Title

- Buyer provides Seller c. Certificate of Title (akin to Report on Title; Doc 43) just pre- Completion (serving as formal request for mortgage money)

- Seller releases funding on day of completion (14th Nov; as per document 21)BUT N.B For Commercial Mortgage

- Buyer provides Certificate or Title DRAFT before exchange of contracts - Won’t normally commit to exchange UNTIL lender confirms funds to be advanced on completion date

BECAUSE buyer could otherwise be committed to a contract without mortgage funds guaranteed!

PCR RESTRICTIONS ON GIVING FINANCIAL ADVICE RE CLIENT’S PROPOSED MORTGAGEFSMA (RAO) 2000 S19 (1) No person may carry on regulated activities in UK/ purport to do so unless authorised to or exempt S22 (1) An activity is regulated if it’s of a specified kind carried on by way of business & –

(a) Relates to an investment of a specified kind; or(b) In the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in

relation to property of any kindRAOPart 2 – Specified Activities Article 53A – Advising (a borrower) on regulated mortgage contracts = a specified activity Article 61 – Entering/ Administering a regulated mortgage contract as lender = specified activityArticle 61 (3) (a) 3 Elements to a ‘REGULATED MORTGAGE CONTRACT’

(i) Lender provides credit to Borrower(ii) Borrower’s obligation to repay is secured by a 1st legal mortgage on land; &(iii) At least 40% of the land is used (/ intended to be used) for Borrower’s dwelling (or if borrower is

T, then a B’s dwelling)

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Pre-Exchange BUYER’S SOLICITOR

1) Searches & Enquiries Are all issues dealt with &/ incorporated into the contract?2) Survey Has Buyer carried out & satisfied?3) Deposit Have we received cleared funds into the Buyer’s client account?

Refer to SCS 2.2.5 if funds depend upon successful completion of a “chain” of residential properties

4) Mortgage Finance If needed: Buyer received binding offer of finance &formally accepted?Get confirmation from lender that funds will be forthcoming on completion

- Request for this is providing mortgagee c. CLLS certificateN.B Any conduct issues if acting for Buyer & mortgageeN.B If any of the price (except deposit) is also from Buyer: check Buyer has funds to do so & cover our fees

5) Receive engrossed contract from Seller’s solicitor6) Buyer signs their part of the contract (in person)

Solicitor explains contract to Buyer & takes instructions on completion date Buyer gives authority to exchange

SELLER’S SOLICITOR1) Current Mortgage Get provisional redemption figure from old mortgagee to check

proceeds of sale will be sufficient to discharge it (N.B Risk of negative equity)2) Engross the contract & send to Buyer’s solicitor3) Seller signs their part of the contract (in person)

Solicitor explains contract to Seller & takes instructions on completion dateSeller gives authority to exchange

Exchange 1) In person

Solicitors meet, date own client’ contract, hand over to other (+ cheque for deposit from Buyer), make file note to record this & inform clients

2) By post Buyer’s solicitor posts signed contract & cheque to Seller’s solicitor; Seller’s solicitor posts Seller’s signed contract on receipt (this is the deemed exchange date)

3) By phone under Law Society Formula B Most common form of exchangeEach solicitor has client’s part of contract & agree to exchange during a telephone call

FORMULA B BEFORE EXCHANGE

Ensure lender is satisfied c. CLLS certificate of titleEnsure client wishes to exchangeEnsure client has placed cleared funds into firm’s client account (B)

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Request cheque from firm’s accounts department which is made out to Seller’s solicitor (B)Ensure client has signed their part of the contractFinal check that signed contract is correct & Buyer’s solicitor holds deposit

ON EXCHANGE Telephone other solicitor Check the signed contracts are identical (usually by asking whether each holds same version number)Solicitors confirm they hold client’s signed part of contract (& B solicitor confirms he holds deposit) Completion date agreed & inserted EXCHANGE: Exchange words (set out in Formula B) said & exchange

- Each undertakes to hold client’s contract to the other’s order (i.e. ownership ‘exchanged’) & each undertakes to send contract(for B’s solicitor: the deposit) to the other solicitor that day

AFTER EXCHANGEMake file/ attendance note to record that exchange has taken placeSend your part of the contract to other solicitor immediately

In practice, the deposit is often telegraphed to seller’s solicitor in advance of exchange At common law, if property burns down b/w exchange & completion, buyer’s liable to repair

RISKS BETWEEN EXCHANGE & COMPLETION (NOT IN WRITTEN NOTES)RISK & INSURANCE Passes to Buyer on EXCHANGE, who should immediately insure the property unless the contract states otherwise as a special condition (SCS 5.1) Seller still owes duty of care to Buyer to exercise reasonable care to keep the property in the same state as at exchange

- If Seller doesn’t will be liable in damages for deliberate damage & negligence under common law

OCCUPATION BY BUYER BEFORE COMPLETION If Buyer moves in before completion might decide not to complete & simply squatSeller then needs to seek a possession order to remove himTo prevent Buyer losing incentive to complete: Buyer should be stated to be a “licensee” SCS 5.2 ensures for this residential contracts BUTUnder SCPS special condition must be inserted

UPON DEATH / INSOLVENCY OF EITHER PARTYContract will still be validBUTResponsibility for completing passes to PRs/TiBs of deceased/ insolvent partyIf they do not complete, same breach of contract remedies will still be available against themAlso note:

- Dead Seller: PRs need a grant of representation & death certificate(s) must be produced as evidence for the LR

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TiCs: Need to be overreached by 2nd T JTs: Survivor entitled to sell alone

- Dead Buyer: PRs need to complete transaction once grant of representation is obtainedSurvivor of any JTs remains bound & must complete BUT bank may withdraw their mortgage offer (leaving JT/ PR w/o sufficient funds)

- Bankrupt Seller: Seller’s assets vest in TiB so Buyer must deal c. TiC instead- Bankrupt Buyer: May be impossible for TiB to complete, esp. if mortgage offer is withdrawn

BUT TiB has right to disclaim any contracts it considers onerous

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V. Completion and Remedies

Drafting TR1PREPARING FOR COMPLETION

Buyer’s solicitor usually prepares purchase deed (& sends to seller’s solicitor for approval – see SCPC 6.3.2 / SCS 4.3.2)- s52 LPA 1925 Confirms Transfer must be in deed

N.B If drafting Transfer, need:i. Official copies of seller’s title (i.e. for title number & list of specified incumbrances)

ii. The Contract (i.e. for correct names of buyer & seller)

TRANSFER:o Transfer of whole of registered freehold title = TR1o Transfer of part of registered freehold title = TP1o Transfer of whole of registered leasehold title = TR1o Transfer of portfolio of registered titles = TR5o Transfer of unregistered title = TR1 or conveyance

Drafting TR1 Box 11 – Covenants etc.

o Include: Indemnity Covenant C(RTP)A99 exclusion

Box 12 – Executiono ALWAYS executed by sellero SOMETIMES executed by buyer where he’s giving an indemnity covenant, where

more than 1 person/where making a declaration of trust o Executed as a deed! 2 authorised signatories each

N.B Pre-completion, buyer solicitor sends seller solicitor Completion Information & Undertakings Form (TA13) (Doc 73) c. practical arrangements so completion runs smoothly

- I.e. Where to collect keys/ completion location/ Docs seller will send to buyer’s solicitor after completion/ balance due on completion/ Undertaking for release of seller’s mortgage/ Confirmation that no changes to replies to enquiries (if use in-house-style form, rather than TA13)List charges(s) which will be discharged on completionUndertake to remit monies to each lender so each charge can be discharged by lenderUndertake to forward evidence of discharge (DS1) upon receipt from lender

Priority Periods for Pre-Completion searches : o OS1 search = 30 working days (from date of search)

Checks no change to official copies since date of the official copies the buyer’s solicitor investigated title from

- Search from date for Elton Hall = 9 September 2014 from 13:04:06Priority period = Period in which register is frozen & buyer takes free of any 3rd

party interests (i.e. lease) that sought to be registered in that period (provided Buyer completes & registers purchase within period)

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N.B If registration doesn’t occur within that period & 3rd party tries to lodge an interest, it’ll take effect immediately upon expiry of priority period

o Solvency Searcho K15 (Central Land Charges) or K16 (bankruptcy) search = 15 working days

K16 search only needed if buyer is individual who is mortgaging property & solicitor also acting for the lenderI.e. Bankruptcy search No need against a seller of registered land

o Company Search on buyer & seller- Doc 74 (OS1 result) shows no adverse entries made against Elton title to property since official copies dated 9 September 2014- Doc 75 shows no entries relating to solvency & status of Elton entered

N.B Pre-completion finances:Buyer’s solicitor must:

- Send buyer a bill of costs (legal fees) & financial statement Total cost of transaction (inc. sale price, money payable for chattels, estate agent fees etc.) N.B Funds discussed c. client well in advance to give time for co.’s internal procedures/ banking procedures & required notices/ funds to clear through buyer’s solicitor’s account etc.

- Following buyer’s solicitor providing any lender c. draft certificate of title (pre-exchange), (s)he should now contact lender to ensure money will arrive in good time for day of completion

Seller’s solicitor must:1) Reply to Completion Information & Undertakings Form

See SCPC 6.3.1 / SCS 4.3.1 – within 4 working days after receiving them2) Prepare Completion Statement to send to buyer’s solicitor & request redemption statement from

seller’s lender(s) (if any)Completion statement = Shows total amount required from Buyer to complete & how it’s calculated: Inc. chattels less deposit paid at exchange +/- apportionments I.e. insurance premium where buyer decides Io take over seller’s policy)

- Redemption figure = Amount required by lender to pay-off (redeem) the seller’s mortgageMortgage Redemption:

o Seller’s solicitor asked to provide undertaking to: Pay the lender the money required to redeem the mortgage

N.B Seller shouldn’t say they will discharge mortgage as only bank can Forward the DS1 (evidencing the discharge) immediately upon receipt

3) Approve (/ amend) Transfer & arrange for it to be executed by the seller- Once Transfer agreed, buyer’s solicitor forwards ‘engrossment’ of Transfer (i.e. final version to be printed

out for execution for seller)

COMPLETIONFixed completion date is formally agreed b/w parties at exchangeNormal method of completion = Law Society’s Code for Completion by Post Buyer’s solicitor must ensure :

- Satisfactory answers to Completion Information & Undertakings Form (c. relevant undertakings by seller’s solicitor) given

- TR1 signed by seller (& buyer if appropriate)- Obtained all original documents from seller’s solicitor on completion (if registered title)- Pay completion monies via bank transfer (CHAPS) to seller’s solicitor’s client account

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Seller’s solicitor must ensure (once accounts department notifies seller’s solicitor about receipt of completion monies) following are assembled to give to buyer’s solicitor:

- TR1 executed & dated- Any title/ other deeds re property are held by seller (i.e. deed of easement)- Seller’s solicitor’s undertaking:

1) To remit funds required to redeem the charge (i.e. figure referred to in lender’s redemption statement)

2) To forward the DS1 discharge confirmation within a short, specified timeframe- Originals of planning permissions/ building regulation approvals/ guarantees - Receipts for payment of apportionment & receipts for any chattels purchased separately

POST-COMPLETIONSeller’s Solicitor

(i) Reports to client(ii) Date Transfer (TR1)(iii) Arranges for lender’s charge to be discharged (sending redemption funds to lender)(iv) Send client balance of sale proceeds (v) Prepare notices to 3rd parties (i.e. if sale is subject to leases, Tenants needs to know who their

new Landlord is)(vi) Forward DS1 (/ED/ e-DS1 confirmation) to Buyer’s solicitor

Buyer’s Solicitor (i) Report to client(ii) Date the Legal Charge (mortgage)(iii) Company buyer; perfection of security (i.e. register any mortgage created by co. @ CH) (21 days)(iv) Pay stamp duty land tax (SDLT), lodge Land Transaction Return (30 days)(v) Register Transfer of registered title at Land Registry (30 working days)

Apply for first registration of an unregistered title = 2 months(vi) Title Information Document (vii) Custody of title documents

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POST COMPLETION MATTERS TO BE CARRIED OUT BY BUYER’S SOLICITOR

Step to be taken Form Other Documents need to be sent with it

Where form & documents are sent

Deadline Consequences of failure to miss relevant deadline

Register a new co. charge MR01

Cheque for £13 fee (£10 if online) & certified copy of debenture / mortgage / charge

CH

Within 21 days from the day after the date of completion

Prejudices lender’s security Security would be void against liquidator/ administrator/ other creditor

Loan becomes repayable on demand & any officer in default will be liable to a fine

Pay SDLT & file Land Transaction

Return

SDLT e-submission form / SDLT1

Cheque for SDLT if not sent by TT or online

HMRCWithin 30 days of ‘effective date’ (i.e. completion)

Penalty for late submission of form

Possible interest liability for late payment

Can’t register title at LR w/o SDLT5 certificate

Register at Land Registry:

Discharge of seller’s charge;

transfer; buyer’s charge

AP1

Fee & AP1;TR1 certified copy;Certified copy of charge; (Certified copy of change of name certificate);SDLT5 certificate; DS1/Evidence of discharge

LR

Within priority period of OS1 search, (i.e. 30 working days from date of OS1 search result)

3rd party interests may be able to obtain priority if registered in meantime

Until registration of transfer, buyer only has ET & not LT

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REMEDIES

Common law remedies available for:- Delay in completion- Failure to complete - Misrepresentation

BUT Standard Conditions are preferred because they have certain advantages…

MISREPRESENTATION (SCPC 9.1 / SCS 7.1)

If there’s a material difference b/w property as represented by seller & the actual property: Buyer is entitled to damages

If the error or omission is as a result of fraud or recklessness; OR If there’s a substantial difference in the quality/quantity/tenure of the property: Buyer is entitled to rescind

- No need to prove reliance- Did the misrepresentation result from fraud / recklessness?- Is there a material substantial difference?- Which is the most suitable remedy?

DELAY (SCPC 9.3 / SCS 7.2)

If 1 party’s late in completing purchase (i.e. fail to complete by time&date stated in contract) Non-defaulting party is entitled to remedies

Contractual remedieso SCS 7.2 Non-defaulting party entitled to compensation:

- Calculated at interest rate set out in contract (usually 4% above base rate) No need to prove loss

If buyer’s in default: Compensation is payable on the purchase price, less the deposit paid on exchange;If seller’s in default: Compensation is payable in total amount

o SCPC 9.3 Compensation as of right only if the BUYER’s in default - If seller’s in default: buyer must sue seller in common law to recover losses

There’s no contractual compensation available Compensation payable on purchase price, less the deposit paid on exchange Compensation is payable for each day of default, inc. the day of default &

inc. non-business daysN.B If after 2pm: then next business day

Seller doesn’t have to prove this lossBUT if seller’s losses are greater than amount recoverable by way of compensation under the contract, then the seller must recover the additional amount by way of court action.

o Seller may consider serving notice to complete in accordance c. SCPC 8.8 / SCS 6.8N.B Compensation unavailable under SPC/ SCS if contract is rescindedN.B If actual loss exceeds compensation payable: non-defaulting party may still obtain damages for any additional sums due

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FAILURE TO COMPLETE (SCPC 8.8 / SCS 6.8) If there’s a delay in completion Non-defaulting party should consider serving notice to

complete under SCPC 8.8 / SCS 6.8 providing they’re ready, able & willing to complete (N.B Can serve notice even if ‘latest time’ for completion hasn’t passed as can service notice

on or after date of completion) Notice may be served at any time from & including contractual completion date, even if the time for completion has not yet passed Effect of valid service is to make time of the essence- Notice requires parties to complete within 10 working days of service of the notice

(excluding day of service) Look at SCPC / SCS 1.3 deemed times of service to calculate time of actual service of notice Failure to comply c. a notice to complete entitles seller to forfeit the deposit, resell the

property & claim damages for any additional lossInterest for late completion under SCPC 9.3 / SCS 7.2 isn’t payable in case of rescission

If seller’s the defaulting party: Buyer’s entitled to repayment of deposit + accrued interest Rescission is governed by SCPC 9.5 & 9.6 / SCS 7.4 & 7.5

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VI. Investigating Title to Unregistered Land & First Registration

EPITOME OF TITLE = Set of copies of relevant documents c. cover sheet listing them in date orderI.e. Root of Title (Conveyance to current seller)I.e. Copies of legal mortgages (&proof of discharge if already done; but normally done@ completion)I.e. Copies of documents:

- Referred to in Root of Title (s45 LPA so long as Post-Root document; OR s45 (1)(b)(i) –(iii) Pre-Root document BUT Power of Attorney under which any doc in epitome has been executed Referred to by doc in epitome (i.e. reference to covenants imposed by pre-root conveyance)

- Relevant to land (i.e. deeds of easements/ leases) - Relevant where seller didn’t acquire title via conveyance (assent, grant of probate, deed of gift, death certificate) - Evidencing change of estate owner’s name (marriage certificate/deed poll/stat. declaration)

DON’T NEED TO INCLUDE:- Pre-root documents unless they’re referred to in the Root- Post-Root documents unless needed to show chain b/w name of person in Root and current seller- Docs re equitable interests which will be overreached on completion- Copies of leases which have expired & no longer affect title- Central Land Charges search certificate

(unless National Conveyancing Protocol adopted)

DEDUCING TITLE= Seller showing documents on Epitome of Title to Buyer- Seller only needs to give originals to Buyer on completion- Buyer then sends originals to Land Registry so can be registered

BUYER’S AIMS WHEN INVESTIGATING TITLE - Identify extent of property & rights benefitting it (i.e. right of way)

& other people’s rights over it (i.e. any restrictive covenants)- Ensure seller has good title (i.e. right to sell it!)

& Buyer can use property for intended purposeAs documentation more diverse (than if registered) must know what to look for in each document… CONSIDER: Documentation & Procedural Concerns

- Ensure seller’s ownership via a root of title & all subsequent docs properly executed etc. The Property, its benefits & burdens Caution required if unusual sellers

- I.e. Personal representatives/ survivor of joint owners

Title Investigation of Unregistered LandS – SearchesC – Co-ownershipR – Root of TitleA – Ad Valorem/PD StampsP – Positive, restrictive covenants; other incumbrancesP – PRs, unusual sellersE – ExecutionD – Discharge of mortgages

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ROOT OF TITLE

1st determine the Root so you can navigate around the EpitomeTo prove ownership to unregistered land, must show unbroken chain of ownership back to root of title

Is conveyance dated prior to 1/12/90? - Will necessarily be older than 15 year requirement

Check seller didn’t acquire property via conveyance post-date of compulsory 1st reg.N.B Property may be in area that was subject to compulsory registration pre- 1/12/90N.B if acquired title via assent/ deed of gift (i.e. not for value) pre 1/04/98; wouldn’t trigger 1st registration & epitome must include official copy of grant of probate/ deed of gift as well as previous conveyance of sale/ legal mortgage

Adequate description ? (usually by a plan included c. root of title)- In root conveyance/ earlier conveyance (in Epitome) referred to in the Root

Deals c. whole legal & beneficial interest (I.e. By deed & validly stamped & executed)- If executed by:

(a) Individual Pre 31/06/90: signed, sealed, delivered & witnessed Post 31/06/90: signed in presence of witness attesting to signature & delivered

(b) CompanyPre 31/06/90: Re articles (so long as co. seal affixed in presence of 2 Ds (/1D&1CS)Post 31/06/90: Affixing co. seal witnessed by 2Ds (/1D&1CS)

(c) Power of Attorney

Casts no doubt on seller’s title - I.e. no missing powers of attorney when seller in root document executed in this way

Or no official copy grant of probate where sale in root document was by executor(s) - Any change in their name must be investigated (perhaps requiring marriage cert./

Certificate of Change of Name if seller is co.)N.B Deed of gift or an assent isn’t acceptable as root of title

SEARCHES

Names o Search against correct names of all estate owners since 1926 mentioned in Epitome,

even if pre-rooto Remember to search against the current seller from the date of purchase to date of

sale using K15 (full Land Charges Search)N.B s25 LPA buyer will receive compensation if registered charge binding the buyer isn’t discovered by buyer’s solicitor

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Dates o Search:

From acquisition year (or earliest they could have acquired/1926 if unknown)To the year of disposal (or latest could have disposed if not known)If a dead co-owner, search to the date of disposal by the survivor

o Make sure each Conveyance is completed within the protection period (15 working days) of the searchIf it hasn’t completed: a new search period is needed.

Entries in common Central Land Charges searches o C(i) / C(iv) / D(ii) / F – see s2 LCA 1972

C(i) – Puisne Mortgage I.e. 2nd/ subsequent legal mortgageN.B First legal mortgage won’t be registered, but I’ll be alerted by absence of title deeds (which will be with lender!)

C(iv) – Estate Contract I.e. Contract to buy land/an option/contract to have lease granted over land)

D(ii) – Restrictive Covenant D(iii) – Equitable Easement F – Spouse’s Right of Occupation

o If any Land Charges affecting the land are revealed in certificate of search: buyer’s solicitor must obtain office copy of the Land Charge, confirming charge’s subject matter/ document by which it was created/ name & address of person who applied to register it & who thus owned the land which has the benefit of land charge

o Obtain office copy of the entry of the application that gave rise to the entry to check that it relates to the relevant conveyance & ‘fill’ the registration gap. If appropriate, seller’s solicitor to arrange cancellation of entry & supply cancellation certificate

CO-OWNERSHIP JTs or TiCs? If JTs Are they still? Check for memorandum of severance If a co-owner has died:

Where a JT Can rely on LP(JT)A 1964 for unregistered land by:o Obtaining official copy of death certificate o Showing no memorandum of severance o Showing neither JT is bankrupt

(K15 / K16: Result on K17 if no entries, K18 If there were)o Survivor declares in TR1 they’re “solely & beneficially interested ” in the

land Where a TiC Must get:

o Official copy of death certificate o Deed of appointment of 2nd trustee

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Ad Valorem / PD Stamps(ad valorem = according to value) (PD = Particulars Delivered)

As docs dealing c. land executed pre 1/12/03: would’ve been subjected to stamp duty regime so must check all docs (deeds etc.) going to root of title making sure correctly stamped

Ad valorem (circles) & / certificate of value required (AT LEAST 1; MAYBE BOTH

Consideration Ad valorem rate of stamp duty

Certificate of value?

Not over 60 000 Nil YesNot over 250 000 1% YesNot over 500 000 3% YesOver £500 000 4% No

P.D stamp (Particulars Delivered/ Produced) (square) ALWAYS required if conveyance / transfer on sale of freehold or 7+ year lease

If conveyance is unstamped: Buyer should insist (/ make special condition in contract) that seller resolves issue (& pays penalties & liabilities for late stamping, even if pre-root document) Seller can’t contract out of this responsibilityIdeally conveyance should be stamped pre-exchange; certainly pre-completion

If unstamped conveyance is the root of title: LR will refuse to register buyer’s title until it’s been stamped (as title won'

If it’s not the root of title: LR won’t refuse to register, but doc can’t be relied upon in court

POSITIVE & RESTRICTIVE COVENANTS, OTHER INCUMBRANCES i. COVENANTS

If discover covenant in epitome: 1st give client notice!1. Do they bind?

a. RCs must be registered as D(ii) Central Land Charges (CLC) against the original covenantor Will directly bind all successors in title to the landDoesn’t need to be registered against name of anyone whose bought property since

b. RCs, even if not registered as D(ii), may still indirectly bind subsequent owners if seller gave an indemnity covenant when it purchased

c. PCs may bind subsequent owners only if the seller gave an indemnity when it purchased.

d. If seller gave indemnity covenant (for either PCs or RCs), it can require inclusion of a special condition in the contract

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that the buyer also gives an indemnity covenant in purchase deed (SCPC 6.6.4 or SCS 4.6.4)

2. If binding, proceed as c. registered land, i.e. consider possible breaches & remedies

ii. EASEMENTS If discover covenant in epitome: 1st give client notice

1. Benefit or burden?2. Benefits the land being bought?

- Check description in draft purchase deed accords c. property & identifies rights to be expressly granted at time of sale

- Check for easements already enjoyed by seller (by deed/ s62 LPA/ impliedly/ prescription/ under Wheeldon v Burrows)

3. Is it binding? Do a SIM to see if either:a caution against 1st registration is registered on neighbouring land (if unregistered); or its registered on the Charges Register of neighbouring land (if registered)

4. If binding, check c. client:a. Is benefit adequate?b. Is burden acceptable?

2. PRs & UNUSUAL SELLERS i. Sole owner’s death Personal representative is seller

s36 (6) AEA 1925 requires:1. PRs state no previous disposal2. No memo of previous disposal on grant of probate3. Need to see official copy of grant of representation (i.e. grant of

probate) BUT not essential to see death certificate

Memo of sale to buyer must be endorsed on grant of representation Sale by PR to self must be authorised by Will/ beneficiaries/ court

orderii. Transfer by PRs to beneficiary under the will

By way of “assent” Must be in writing (s36 (4) AEA) If covenants, must be by deed

1. Check whether memorandum of disposal on grant of probate before “assented”

2. Should ensure that PRs endorse a memorandum of the assent on the grant of probate – this will also trigger 1st registration

3. Buyer must ensure ALL PRs executed, if forms part of epitomeiii. Other unusual sellers –

I.e. Companies Same checks as with registered land

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3. EXECUTION i. Individuals

1. Pre 31 July 1990 Sign, seal, deliver & witnessed2. On/ after 31 July 1990 Sign as deed, delivered & witnessed

ii. Companies 1. Pre 31 July 1990 Seal affixed in presence of secretary & a director2. On/ after 31 July 1990 Signed by:

- Director & secretary / 2 directors / 1 director in presence of witness

4. DISCHARGE OF MORTGAGES Buyer expects mortgage to be discharged before/ immediately after completion(& to obtain undertaking from seller’s solicitor to remit the funds required to redeem the charge & forward the receipted mortgage within specified time frame)- Should be done by separate deed of discharge (included in epitome) OR- Receipt will be endorsed on the mortgage deed itself

Has this been done?

5. APPLICATION FOR 1 st REGISTRATION i. Submit Form FR1 & title documents to LR within 2 months of completion

UPDATE WITH MINOR CHANGES FOR POST COMPLETION MATTERS FROM REGISTERED LAND TO UNREGISTERED LAND

I.E WHOLE OF EPITOME IS BEING SENT IN, WHOLE OF SEARCHES & ENQUIRIES, CONTRACT, COMPLETION INFO & UNDERTAKINGS, TR1 &CERTIFIED COPY, DEBENTURE & CERTIFIED COPY, COPY OF CERTIFICATE OF REGISTRATION, SDLT 5

2.

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VII. Consolidation: Registered Property Transactions in the Residential Context

Sales of Part

Title Matters o Existing covenants?

Will bind seller & buyer – usual remedies apply as for sales of whole.o Seller’s mortgage?

Need to get lender’s consent to sale & to creation of any incumbrances over retained land. Bank will probably require sale proceeds to discharge whole or part of mortgage. For registered land: Discharge of whole = DS1; Discharge of part = DS3 Deed of release or release of part for unregistered land

Matters to consider when agreeing terms :o Description of land?

Must be written and a suitable plan must be agreed.o Easements over the retained land to be granted to the buyer:

Exclude all implied easements (under s. 62 LPA) for certainty. Right of way (on foot or by vehicle?) Right of drainage? Any other rights?

o Easements over the property being sold to be reserved to seller: Right of way? Right of drainage? Any other rights? Common sense!

o Covenants to be imposed on buyer: According to instructions, BUT:

New building to be in accordance with plans approved by seller? Buyer to erect and maintain boundary? No business use (if residential)? Not to obstruct right of way

o Covenants to be imposed on seller: According to instructions/as negotiated

Protection o Easements burdening seller’s land must be registered in Charges Register of seller’s

title / Property Register of buyer’s land.o Easements benefitting the seller’s land must be registered in Property Register of

seller’s title / Charges Register of buyer’s land. Purchase Deed :

o Purchase deed will be Form TP1 (drafted by seller’s solicitor)o With a Sale of Part you MUST refer to a plan

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o Buyer carries out OS2 pre-completion search if part being sold is part of existing registered title

New Builds, Estates and Residential Property

In the sale of a newly built house on a newly developed estate, it’s normal for the developer’s solicitor to prepare both the draft contract & purchase deed (as the developer will want to ensure uniformity b/w the covenants for each plot)

A structural guarantee is a form of insurance against defects, & the developer will be issued c. instructions from the provider of the guarantee as to how to develop the landA separate structural guarantee will be provided to each buyer of each new house

When acting for the purchaser, in relation to road maintenance, you will need to check:o That there are suitable obligations in the contract c. the developero That the developer has entered into an agreement c. the Local Authorityo That such an agreement is supported by an appropriate bond or guarantor which

will provide protection in the case of the developer’s insolvency Be aware of PCR issues in respect of purchasers of residential properties:

o Are they buying as JTs or TiCs?o Are you instructed by both clients? Are you satisfied that the sole instructions are

sufficient for both? Where the sale is part of a chain:

o You need to rely on undertakings from the other solicitors in the chaino It’s best to use Formula C for exchangeo If you release your contract to another solicitor in the chain until 4pm that day and

the other solicitor rings back to exchange after 4pm but on the same working day then you are not obliged to exchange

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VIII. Grant of a Lease; Contents of a Lease I; Landlord’s Remedies

Street v Mountford whether tenant/licensee has exclusive occupation is a crucial factor when distinguishing lease from licence Milmo v Carreras A subletting of a term equal to the whole of the remainder of the mesne landlord’s term will take effect as an assignment

s149 (3) LPA 25 Reversionary lease taking effect more than 21 years after the date of grant = voids4 (1) LRA 2002 Lease granted for term exceeding 7 years must be registered at Land RegistryN.B It’s the tenant who signs the counter-part lease

TERMINOLOGY

Lease = Grant of a right to the exclusive possession of land for a determinate term less than that which the grantor has himself in the landI.e. Contract b/w Landlord (L) & Tenant (T) c. consideration of rent &/ covenants Exclusive Possession = Distinguishes lease from licenceN.B Legal lease must be created by deed (s52 LPA) unless it’s for 3 years or less (s54 (2))

Reversion = Interest in leasehold property retained by LOnce lease term has expired: full ownership ‘reverts’ to L

Demise = Extent of the property let to the tenant Term = Length of the leaseN.B Where term is expressed to be for 10 years “from” i.e. 12 May 2003 Lease begins at midnight b/w 12/13 May contractual expiry date = 12 May 2013 Terms = Covenants & conditions contained in lease Merger = Termination of a lease where the term & the interest immediately expectant on its

determination are held by the same person Grant = Creation of a new lease Assignment = Sale of an existing lease FRI Lease (“Full Repairing & Insuring” lease) = Institutional-quality “clear rent” lease

I.e. L not paying running costs: T directly/ indirectly (through service charge) pays upkeep & insuranceN.B Only some Ts c. strong bargaining power may be able to negotiate deviations

Covenants:o Absolute covenant = Absolute prohibition against doing something

I.e. “not to underlet”N.B Covenant still absolute, even if there are exceptions elsewhere UNLESS exception arises out of a definition

o Qualified covenant = Covenant not to do something w/o another party’s consent (usually the landlord) I.e. “not to underlet without the landlord’s consent”

o Fully qualified covenant = Covenant not to do something w/o another party’s consent BUT that consent can’t be unreasonably withheld I.e. “not to underlet w/o landlord’s consent, such consent not to be unreasonably withheld”

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Covenant Strength = T’s ability to pay sums under lease (i.e. proposed T a ‘good covenant’?)

L’s PERSPECTIVE in Granting LeaseL may ask for Rent Deposit (esp. if worried about Covenant Strength)

- Paid prior to grant/ assignment of T’s lease held for duration & drawn on if T defaults- In separate deposit account charged to L- If created pre- 26.12.03 & Co. T Charge must be registered at CH (s860 CA06)

BUT no longer necessary (though may be done as a precaution)ORL may require another party (a ‘surety’) to guarantee performance of T’s obligations

- Either from outgoing tenant (AGA) or parent companyT’s PERSPECTIVE in Leasing PremisesWants:

- No restrictions in lease preventing it from using property for required purpose- Rent doesn’t rise too steeply/ no other onerous provisions- Ensure it can sell/ assign lease if property no longer required (& form of lease is marketable)

Commercial Lease Code STARTING POINT ON POSSIBLE lease clause AMENDMENTS for T- Voluntary so L’s initially reluctant to adopt (as favours balance b/w L & T) but threat of legislative

intervention & adverse market conditions making them concede more - Accompanied by Occupier Guide & Model Heads of Terms - 10 recommendations

N.B T NEEDS TO CHECK L’s TITLE TO ENSURE:- L HAS GOOD TITLE (& MARKETABLE) - RESTRICTIVE COVENANT - MORTGAGE OVER PROPERTY

Difference b/w Grant of Lease & Sale of FreeholdDocumentation Lease replaces purchase deed (TR1)

- Drafted by L’s solicitor checked &/ amended by T’s solicitor who reports to T on terms- Attached to back of contract (known as ‘Agreement for Lease’) at exchange of contracts

Lease produced in engrossments (i.e. in duplicate)- Original signed by L- Counterpart signed by T- At completion 2 part are dated & each hands signed copy to the other

Pre-Completion Searches- If L’s title = registered, carry out Official Search of Register of L’s title (as in sale of fhold)

BUT- If taking lease of whole of L’s property search = OS1- If taking lease of part of L’s property search = OS2 (search of part)- If T’s lease doesn’t need to be registered carry out searches w/o priority as no application needs to be made to LR- If T’s lease does need to be registered search (giving 30 working days’ priority)

SDLT - Based on length of term/ amount of rent/ premium paid

Registration- Lease granted post 13 October 2003 Only need registration at LR if for more than 7 years

Different classes of title- Absolute =best possible- Good Leasehold = L’s title wasn’t deduced at time lease was granted- Possessory = Granted where T is in occupation but no paperwork exists- Qualified = No other title can be granted

N.B

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STRUCTURE OF LEASEDATE OF GRANT / PARTIESCheck Date of Grant for old/ new lease under LT (C) A 1995)DEFINITIONS Lease of whole or Internal Demise? If latter Ensure “envelope” is properly defined

- Defined Terms (i.e. “Insured Risks” / “Premises” / “Review Dates” / “Permitted Use”)TERM / DEMISED PREMISES / RENTInitial Rent may have increased as result of review

- Check Term (i.e. against Review Dates if expressed as anniversaries of term commencement date)- Demised Premises is related to extent of T’s responsibility under Repair covenant- What is reserved for Rent? See Definitions & Forfeiture Clause

T’S COVENANTS (i.e. Repair/ Alienation/ User/ Alterations/ Insurance)Is there a schedule of condition limiting tenant’s liability for repair?Consider types of alienation covered & grades of prohibition (re upgrading effect of ss19 (1)(a), 19 (1A)) (N.B NO UPGRADING EFFECT of s19 (3). Consider scope of permitted use)

- Consider types of works covered, grades of prohibition & reinstatement- Insurance provisions will be spread throughout lease: see also Definitions, L’s Covenants, T’s

Covenants, ProvisosL’S COVENANTS (i.e. Quiet Enjoyment/ Services/ Insurance)Ensure L gives covenant to provide services, if lease of part of premises on estate

- Insurance provisions will be spread throughout lease: see also Definitions, L’s Covenants, T’s Covenants, Provisos

PROVISOS (i.e. Forfeiture/ Rent Suspension / LTA 1954)Consider L’s Remedies for breach of T’s covenantsIs lease contracted out of LTA 1954?

- Check what is reserved as Rent & see Definitions for any Triggering Event- Check against Loss of Rent Insurance under Insured Risks

RENT REVIEW SCHEDULE (Assumptions & Disregards)- Check T’s Covenants & any other provisions in actual lease referred to in Rent Review clause

SERVICE CHARGE SCHEDULE- Check against Definitions, L’s Covenants & Demised Premises to determine whether fair proportion of

L’s expenses for services

DRAFTING LEASEHOLD CONTRACTS

WHEN DRAFTING CONTRACT: LOOK OUT FOR FOLLOWING ISSUES IF ACTING FOR TENANTN.B Some will be in later notes

REPAIR (SGS 8) INSURANCE (SGS 8) DEMISE (SGS 9) RENT (SGS 9) SERVICE CHARGE (SGS 9) ALTERATIONS (SGS 9) CHANGE OF USE (SGS 9) RENT REVIEW (SGS 10) ALIENATION (SGS 10)

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Cross Reference any DefinitionsI.e. Check that Premises & Insured Risks are consistent with each other such that I can be clear as to what is covered by the Tenant’s insurers in event of damage caused by an insured risk & what is covered by the landlord’s insurers

DEMISEPhysical extend of the premises let to the T & the duration (‘term’) of leasePremises

- Physical extent of premises let to T If lease of entire property = street address (& L’s title number if property registered)If lease of part = “internal envelope” of property occupied by T (normally accompanied by a plan)

- Internal Envelope Carefully drafted to exclude all external & structural parts (as T will be under obligation to keep ‘Property’ in repair)

- T should be granted a right to use the common parts (maintained by L) elsewhere in leaseI.e. Reception areas/ lifts/ external areas

Term need not begin on same day as grant of lease- Will often be stated to start on following “quarter day”

Security of Tenure Applies unless excluded under Landlord & Tenant Act 1954Break clauses can be made subject to any conditions

REPAIRRepair = Restoration by renewal or replacement of subsidiary parts of a wholeRecommendation 7 of Code

- T’s repairing obligations should be appropriate to length of term & condition of Premises- T’s should only be obliged to give premises back in condition they were at its grant

Controversial & L’s reluctant to adopt! Covenant to ‘to put & keep’ / ‘to put’ / ‘to keep’ in repair = T is liable to put property into repair, even if it wasn’t in repair at the beginning of term (i.e. even if took on a run-down property)

If representing T replace “keep in repair” / “put in repair” with “maintain”N.B L only likely to accept if T has excellent covenant strength & bargaining position

T should employ surveyor to report on state of property & photograph it & annex this “Schedule of Condition” to leaseCheck Heads of Terms to see if repairing covenant has been limited by a Schedule of Condition

Repairing covenant should be drafted to require T “to maintain the Premises in the state evidenced by the Schedule of Condition”

Amend any repair clause (or “yield up in repair” at end of lease clause) requiring L’s satisfaction, so T has to ‘rebuild/ renew/ replace’ “to the satisfaction of the L’s surveyor, acting reasonably”

Fixtures & fittings should only have to be replaced where it is ‘beyond economic repair’ & compromise re items which will be costly/impossible to replace

Any T’s repair obligation should exclude damage caused by Insured Risks so L is responsible for repairing damage caused by Insured Risks

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- Otherwise if T had to pay for insurance under fully-repairing-and-insuring (FRI”) lease as well as for the repairs which would be covered by the insurance effectively pays twice

Check definition of “Insured Risks” to see that it covers everything necessaryCheck who is to meet any shortfall in insurance monies following a claimCheck whether inherent defects arising from property design/ construction excluded from client’s repairing liability

Decorating interior (& exterior if lease of whole) “T will not be required to redecorate in the last year of the term if the T has redecorated within the previous 12 months”- Typically T required to redecorate interior every 5 years

Check that a rent suspension period will kick in

INSURANCERecommendation 9insurance policy terms should be fair, reasonable & represent value for moneyCommon in business leases: L insures whole development & recovers proportion of cost from each T

- Ensure reputable insurer & ask to see copy of insurance policy prior to grant/assignment Define “Insured Risks” (I.e. Fire, flooding, riot, storm, burst pipes, earthquakes)

Ensure:- L covenants to insure against the Insured Risks;

(Will also want “such other risks as the L may from time to time reasonably consider necessary”)

&- T covenants to pay insurance premium (/part of it if lease of part)T wants insurance premium in names ensures both pay insurance proceeds jointly & T avoids subrogation (where insurer acquires rights of L to pursue T for any losses he had contributed towards)BUT Rarely in both names so:

Check that insurer waives its rights of subrogation against T

Ensure there’s a covenant for L to use any money paid out by insurer to reinstate the property, & to “make up any shortfall out of its own monies” - No common law duty to do so

Delete any term allowing L to use insurance proceeds “as he deems necessary” Ensure rent payments are suspended during damage/ rebuilds

I.e. “if damage by an insured risk has caused the premises, or access to them, to be unfit for use”& there’s a longstop to terminate lease if L doesn’t comply- L will want the insurance policy to cover loss of rent during this period

I.e. L insures for (& recovers cost from T) “loss of rent for [3 years] where the premises or access to them have been rendered unfit for use or occupation by damage by an insured risk”

FORFEITUREIf T doesn’t comply c. T covenants in lease/ gets into financial difficulties L has several remedies for removing T

- Remedies depend on breach / triggering circumstanceCommercial lease normally contains proviso enabling L to re-enter demised premises & prematurely end lease on breach by T of any of its covenants / certain specified eventsI.e. Arrears for rent for 14 / 21 days after becoming payable

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I.e. Breach of any covenant, agreement or condition in leaseI.e. Bankruptcy or liquidation of T together c. series of insolvency events (i.e. winding up order)BUT N.B Insolvency provisions not usually found in leases c. capital value because would not be commercially feasible (as lenders wouldn’t want to see forfeiture on insolvency provisions as the lender itself would want to repossess capital assets)

LANDLORDS’ REMEDIES

BREACH OF REPAIR COVENANTS Exam Technique 1st REFER TO BREACH OF LEASE (& IF IT APPLIES: FORFEITURE CLAUSE)Landlord may:

1. FORFEIT Not at automatic right must be expressly reserved in the lease in form of a forfeiture clauseN.B DIFFERENT EFFECT DEPENDING ON WHETHER IT’S A L must serve an s146 notice where he wishes to forfeit (or claim damages) N.B. NOT necessary for non-payment of rents146 (1) LPA 1925 L must serve notice on Tenant:

(a) Specifying breach(b) Requiring Tenant to remedy it if possible (c) Requiring Tenant to pay compensation

Both notices would have to state that T has a right to serve a counter-noticeT has 28 days from date of notice to serve counter notice

If counter-notice is served L will be unable to forfeit or sue w/o leave of the courtFurther protection for leases granted for term of 7 years +, & has 3 years + remainingAND REPAIR s146 notice must the ALSO comply c. s51 LTA 1954 (extending) LP(R)A 1938 )

2. CLAIM DAMAGES Damages limited by s18 (1) LTA 1927 to reduction in value of L’s reversion (interest in the property)I.e. Damages L could receive are a lot less if value of land isn’t significantly affected

I.e. T covenants to repaint central London property: Repainting may be expensive, but value of land isn’t reduced by same amount because there’s still huge demand for the property

May not be sufficient to enable L to carry out the worksNB. L may have security I.e. Rent deposit to enable recovery of damagesNB. No damages may be claimed where it’s shown that premises would be pulled down on termination of tenancyN.B IF LP (R) A 1938 APPLIES (I.e. OVER 3 YEARS REMANING ETC….EVEN IF JUST WANT TO CLAIM DAMAGES) YOU STILL NEED TO SERVE A s146 NOTICE CHECK s1 LP (R) A (2)

3. SELF HELP No an automatic right Must be expressly reserved in the lease

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To avoid s18 (1) LTA 1927 / waiting for specific performance to be granted: Leases generally contain a Jervis v Harris clause : Entitles L to enter the property, notify tenant of any disrepair, & carry out the works at the

cost of the tenant if the tenant doesn’t do so Entitles L to recover full cost of the works through a debt claim (Jervis v Harris), which isn’t

limited by s18 (1) LTA 1927 (unlike claiming damages)N.B. L may have security I.e. Rent deposit to enable recovery of the cost of works

4. SPECIFIC PERFORMANCE Rainbow Estates v Tokenhold To force T to carry out his repairing obligationsRarely granted by courts because of difficulty in supervising the order

5. DEPOSIT Did L take a deposit at the outset which can be retained?

NON-PAYMENT OF RENT(1) FORFEITURE

See above ^^^ (2) ACTION FOR DEBT

L’s right to sue for unpaid rent is only available for rent due in preceding 6 years(3) DISTRESS (bailiffs) CRAR CAN’T RECOVER SERVICE CHARGE

CHECK………………………………………………….(SGS DESCRIPTION)Ancient right to peaceably re-enter & seize chattels to the value of the debt due in last 6 years

- L must serve notice on T before seizing goods- Cannot seize items in use by T

IX. Contents of a Lease II (Term, Rent, Service Charge, Alterations and Use)

SGS 9 – Contents of a Lease II; Term, Rent, Service Charge, Alterations & Use

LEASE LAW LANDLORD’S TITLE

ADDING AREA ONTO THE PROPERTY DEMINSED/ CHANGING LENGTH OF TERM N.B Deed of Variation which alters extent of property demised OR changes length of the term operates as the surrender of the existing lease & grant of a new lease

- ‘Implied surrender & re-grant’o Further SDLT payment may be payable on grant of new lease

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o If original lease was registered application needs to be made to close original title & open new one for the new lease

If it’s the extent of lease which changes do it via a separate new lease If it’s the term of the lease which needs to be extended could be done via

a ‘reversionary lease’ – takes effect at end of current lease, provided the reversionary lease takes effect no later than 21 years after its grant

N.B. May also mean difference b/w ‘new’ & ‘old’ lease in terms of original tenant liability

N.B Possibility of instead getting new leae over area of extension (just pays SDLT over area of extension)

Both likely to need a licence

ALTERATIONS

If Lease prohibits absolutely against T making any improvements to property:o s3 LTA 1927 T must obtain express consent (usually by way of a Licence to Alter)

or a Deed of Variation of Lease from L- T can then apply for compensation once lease ends if property has increased in

value as result of alterations L can refuse for any reason it wishes N.B. Statutory allowances I.e. Equality Act 2010

If L’s consent needed under the Lease:N.B Does T require planning permission/ building regulations/ consent of any PWB of any title covenants etc. to carry out works?

USE

If Lease prohibits absolutely:o T must obtain express consent (via Licence) or a Deed of Variation of Lease from L

L can refuse

If Landlord’s consent needed under the Lease:

o s19 (3) LTA 1927 DOESN’T UPGRADE qualified covenants to fully qualifiedI.e. More limited effect & L can be unreasonableBUT

S19 (3) If no structural alterations required to change use: L can’t charge any fine/ premium to T as a condition of giving consent….But L entitled to:- Recover any reasonable costs he incurred in giving consent- Require T to compensate him if his alterations diminished value of his reversion- At end of lease: Require T to reinstate property to condition it was in pre-

alterations If structural alterations are required statute won’t apply- N.B If lease is quiet L will be able to charge whatever he likes

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Does T require planning permission, building regulations, consent of any PWB of any title covenants etc. to change the use?

SERVICE CHARGE

LEASELAWLANDLORD’S TITLE

Amount paid for additional services provided by L I.e. Life maintenance, cleaners & doormen

- L estimates annual service charge & T pays a ¼ of estimate every rent payment day- L confirms actual cost for whole year at end of year- Any shortfall is repaid by T & any surplus is carried forward to next service charge

N.B Ensure estimate is realistic to avoid T having any cash flow issues etc.

Clearly define the list of services - Strike out phrases such as “and such other facilities as the L may see fit”- Ensure proportion of service charge T pays is proportionate to what T will use- Service charges are meant to cover essential services (I.e. Life maintenance)

L must be obliged to provide the services - Clause obliging L “to provide such of the Services as it deems necessary” unacceptable- T should resist L making provision of services conditional on having paid service charge

Service charge should be suspended if an Insured Risk causes damage/ destruction/ access issues

Ensure clause doesn’t define repairs as services:- “T shall not be required to pay as part of any service charge the cost of remedying any

inherent defect or any damage caused by any inherent defect”Obligations to make repairs will be covered elsewhere in the lease

If clause allows for L to replace machinery: inc. “only where renewal/ repair isn’t economically feasible”

If L wants to introduce new services in the future: L’s discretion to do so should be:- “Reasonable & in the interests of good estate management”- Could require L to consult c. T

X. Contents of a Lease III (Rent Review and Alienation)

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LIABILITY OF TENANTS

Old Lease (pre- 01/01/1996) Privity of contract T1 liable under the contract for any breaches of covenant by T2 & T3

- “Original tenant liability”New Lease (on/ after 01/01/1996)

No privity of contract (/”Original tenant liability”)s5 LTCA 1995 Once T1 assigns lease; not liable for breaches of covenant by subsequent TsUNLESS T1 gave L an Authorised Guarantee Agreement (“AGA”)

- T1 may then remain liable for breaches by T2 whilst T2 remains TBUT once lease is assigned to T3 T1 no longer liable for breaches

s16 LTCA 1995 L can require T1 to give an AGA before (s)he gives consent to assignment BUT ONLY IF lease (/ other agreement b/w L & T1) expressly provides for this

N.B Likely to be condition of subsequent assignment that T2 signs AGA so T2 remains liable for any breaches by T3 N.B Wallis Fashion L can only require AGA where reasonable to do so

N.B. Re both new & old leases:s17 LT(C)A 1995 T1 only liable for rent/ other fixed sums due from T2 IF L has served notice on T1 within 6 months of the money becoming due

TYPES OF LEASES Ground Rent Lease

For a long term (i.e. 99 years) reserving a nominal rent & would probably be granted for a premium Rent usually nominally increased on a stepped basis every 25 years or so, if at all

- Rarely contains rent review provisions- L’s investment is mainly achieved on the initial sale of the lease for a premium

Market Rent Lease Usually for commercial leasesReserves a substantial market rent for a shorter term (i.e. 5-20 years) w/o a premium so L’s investment return is regular instalments of rentUsual to see rent review provisions; keeps rent in line c. rental market&retain value in L’s investment

Institutional Lease Normally term of 5 years (if retail) or 10 years (office lease) (dependent on market);FRI terms (i.e. full recovery by L from T for service charge & insurance costs) ‘clear rent’ concept

- I.e. T liable for internal demise & L liable for structure AGA as a condition of assignment etc.Common to see rent review at least on the 5th anniversary of a 10 year institutional lease

RENT REVIEW

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3 Types:1) Open Market: What rent would be if property were leased on the open market

Most common”Upwards only”

2) Turnover: Rent linked to success of T’s business through T’s revenue/ other measure3) Stepped: Rent increases by predetermined amounts 4) Index Linked: Set against inflation (i.e. RPI)

OPEN MARKET rental value (undertaken by 3rd party surveyor) is based on a hypothetical lease- Used to create idea of vacant unit which can be valued on the open market

Looks at Particulars of Lease & surrounding properties- Looks at existing lease & whether T-friendly (i.e. worth more) or onerous (i.e. worth less)

Subject to various assumptions & disregards (included in the lease):

From T’s perspective: Reasonable ASSUMPTIONS

o Property is available c. vacant possession (/ premises fit for use)o T has complied c. all covenants (otherwise rent would be artificially depressed)o Lease has a term of [x] yearso Alienation clause as per leaseo User clause as per lease

UNFAIR assumptions:o L has complied c. its obligations (otherwise rent would be artificially inflated)o Premises suitable/ fitted for any prospective To T can recover as allowable input tax any VAT L has charged (as not all Ts can; rent would

be artificially inflated)

Reasonable DISREGARDS o T is in actual occupation o Any goodwill built up by T (otherwise rent would be artificially inflated)o Any improvements made by T (if included, T would have paid twice; for making

improvements & again for higher rent)UNFAIR disregardso Any absolute prohibition on alienation (would artificially inflate rent)o Any rent review provisions contained in lease (T-friendly leases are worth more)o Any rent free period (otherwise effective rent is too high

Although the amount of revised rent is determined principally by the market (assessed by the value of comparables) Drafting of the hypothetical lease will influence the amount of rent payable

- I.e. Restrictive/onerous clauses in actual lease (if assumed to be in hypothetical lease) deters bidders & result in lower revised rent

- I.e. Flexibly drafted clauses in actual lease (if assumed to be in hypothetical lease) attracts potential bidders & results in higher revised rent

T’s solicitor should ensure the rent review clause fairly reflects terms of the actual lease, & doesn’t disregard onerous provisions in the actual lease, which will artificially inflate the revised rent

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L’s objective = as high a rent as possible w/o making lease unattractive to a TT’s objective = as small an increase at rent review as possible

SDLT consequences of rent review:If lease subject to Stamp Duty (i.e. granted pre 01/13/03) no further SD consequences at rent reviewFor leases subject to SDLT Further SDLT payable re any rent review which occurs within 1st 5 years of term For rent review on/after 5th anniversary of lease SDLT only payable if abnormal increase

Finance Act 2006 More than a 20% increase in rent SDLT calculated on net increase in rent over the term

N.B. Where examining existing lease may need to advise T / L what to expect at rent review

N.B Where examining grant of new lease may need to amend review provisions (i.e. c. assumptions & disregards)

ALIENTATION

“Alienation” refers to T disposing of/ dealing c. his interest in the leaseI.e. Assigning ( T ‘sells’ remainder of existing term to assignee)

- Assignee then becomes immediate T of L- No new lease created & can’t change its terms (unless L specifically consents)

I.e. Subletting ( T retains leasehold interest but grants brand new (sub- / under-) lease to ST; ‘head-lease’ b/w L & T remains; no privity of contract or privity of estate b/w L & ST)I.e. Parting c. possession (granting a licence)/ Sharing (i.e. with s/o else in your group of companies)I.e. Mortgage or ChargeI.e. Surrender (T & L agree to bring lease to an end; but T may have to pay lump sum & how easy to get another T?))

In absence of express restrictions in lease T is free to assign lease freely

Absolute Alienation Covenant - ‘T shall not ….’

If Lease prohibits absolutely: T must obtain express consent (via Licence)/ Deed of Variation of Lease from L

- L can refuse

Qualified Alienation Covenant- ‘T shall not… w/o L’s consent’

If L’s consent needed under Lease:s19 (1)(a) LTA 1927

Upgrades qualified covenant against assigning/ underletting into Fully Qualified covenant- ‘T shall not… w/o L’s consent, such consent not to be unreasonably withheld’

If L’s consent is required L must be REASONABLE in deciding whether or not to give his consent- L has burden of proving actions reasonable - REASONABLENESS :

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International Drilling Fluids L’s decision must be referable to relationship of L & T

I.e. Rent payment is key to L & T relationship: L acts reasonably if refuse consent for lease to be alienated to bankrupt T but unreasonably if refused on grounds of new T’s ethnicity/ religion/ sexuality

Moss Bros Clearly stated, reasonable policy to enable management of the property may allow L to

reasonably withhold consent if T proposes assignee in breach of that policyAshworth Frazer Reasonable to refuse consent to assignment if L anticipates breach of covenant by assignee

s1 LTA 1988 L must respond to written application for consent within a reasonable time

- Either giving consent & setting out any conditions OR refusing consent & giving reasonsDong Bang Minerva v Davina Guideline: more than 28 days is unreasonable

s19 (1A) LTA 1927 Assignment provisions in new commercial leases:

o Lease can set out circumstances when reasonable for L to refuse consent to assign I.e. If T’s in arrears of rent

o Lease can set out conditions which L can impose on granting consent to assign I.e. T must enter into an AGA

Both deemed automatically reasonable (i.e. not subject to reasonableness test)S19 (1)(a) LTA L can recover any costs reasonably incurred by his giving his consent

IS CONSENT NECESSARY? 1. What does LEASE say?

- What type of covenant is it?2. Does STATUTE change this?3. Does COMMON LAW interpret the statute?4. Any LOCAL AUTHORITY CONSENTS needed (i.e. planning/building regulations)?5. Does anything on the FREEHOLD TITLE have any impact?

ASSIGNMENT PROCEDURE Title deeds comprise docs re L’s freehold title (as c. grant of lease) AND re lease being purchasedIf registered lease: need official copies for leasehold title + lease + related docs (i.e. deeds of variation)If unregistered lease: just need lease + related docs

T will contact L & ask for consent to assignIf granted: L, T & assignee enter licence to assign

- If assignment of ‘new’ lease the L T may enter AGA

Documents for Assignment Contract & Deed of Assignment b/w T & assignee

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- Or TR1 for a registered lease Licence to Assign / Underlet b/w L, T & assignee (UT)

Records L’s consent for T to assign (as no privity of contract b/w L & assignee)Possibly:

AGA b/w L & T If L requires additional security Rent deposit deed/ 3rd party guarantee & notice of

assignment b/w L & assignee

SURVEYOR Deals c. matters such as obtaining references/ bank statements/ accountants’ reports etc. re assignee/ undertenant to assess its covenant strengthL normally requires surveyor’s costs to be met by another party (i.e. current T)

- Undertaking for costs normally given & relevant deed/ licence (i.e. to assign/ underlet) also usually contain a covenant by T promising to pay L’s fees

s19(1)(a) LTA 1927 envisages L could recover such reasonable fees- Most leases contain such a requirement (see 4.69 of Vento Teso)

In ‘new’ leases, payment of sums owed by T to L is sometimes expressed as a condition for consent to assignment (clause 4.54(c))

POST COMPLETION MATTERS

Pay SDLT to HMRC Within 30 day sof completion By SDLT 1 and payment Fail to do so & mayu have to pay fine plus interes

Register Lease To LR Within priority period of OS2 Search By AP1, Certifiedcopy of lease (includes prescribed lease clauses), Abnk consent, SDLT 5, fee Failure to do so and will take subject ot interests registered after priority period. Will not be legal owner

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XI. Landlord’s Licences

Where L’s consent required will need to be documented in licence b/w parties- May be L & T together c. any superior L

& in case of assignment/ sub-lease, the assignee or sub-tenant respectively.

The licence should refer to payment of L’s costs which may be recoverable under statute or, where specifically provided, under the Lease.

In the case of a sub-letting, the head-lease will probably contain a clause requiring the sub-tenant to give a direct covenant to the superior landlord; this will be to create privity of contract and would enable the superior landlord to enforce the terms of the sublease directly against the subtenant.

What different types of licences might you come across when dealing with leasehold properties?

Licences to underlet, licences to assign, and licences to alter; you may also see “licences” relating to occupation of premises (though this may actually be a lease under the tests in Street v Mountford).

Who would usually be expected to meet the landlord’s costs for giving consent to an assignment of a commercial lease?

Usually it is the tenant that meets the landlord’s costs incurred in giving consent to assignment. These costs could relate to the landlord’s solicitors’ costs and also the costs of any surveyor employed to ascertain the covenant strength of the assignee. There is also usually a tenant’s covenant in the lease obliging the tenant to pay these costs. Section 19(2) LTA 1927 also permits the landlord to recover its reasonable costs from the tenant.

In order to be able to give consent, what information or other comfort might the landlord wish to obtain in relation to the proposed assignee or subtenant?

The landlord might wish to see e.g. three years’ trading accounts if the assignee/subtenant is a company and/or bank references or references from previous landlords. If that financial information does not give the landlord comfort then the landlord might be looking to take a guarantee from a parent company or maybe from a director of the assignee/subtenant. The landlord could also ask for a rent deposit which is a sum deposited and available for the landlord to draw down against if the assignee/subtenant does not comply with its obligations to the landlord. Finally if the lease being assigned is a “new” lease, the landlord can require an AGA from the outgoing tenant.

What key features would you expect to see in a well-drafted undertaking for costs? What else would you need to consider if it is your firm giving the undertaking?

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A well drafted undertaking for costs should be SMART (Specific, Measured, Agreed, Realistic and Timed). If possible, it should be limited to a fixed amount. The firm may well require funds from the client before giving the undertaking thought this will be a matter between the firm and its client.

Pending a licence to assign being finalised, would you advise a landlord to send a letter to the tenant granting consent in principle?

No. Landlords should be wary of sending a letter which gives “consent in principle” following Aubergine Enterprises Ltd v Lakewood International Ltd [2002]. This case made it clear that a letter which indicated consent was given in principle could be construed as landlord’s written consent even before a formal licence has been entered into. Putting the heading “Subject to Contract” at the top of the letter did not preclude the letter being construed as giving consent. The consequences of accidentally giving consent by way of such a letter would be that the tenant could lawfully go ahead with the assignment to the assignee without the assignee having given any direct covenant by way of licence to the landlord. The landlord would also be unable to ensure that any guarantees it might have required were entered into or that any other conditions intended to be attached to consent were satisfied.

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XII. Security of Tenure

Application

For Landlord & Tenant Act 1954 (‘1954 Act’) to apply s23 (1) Requirements for security of tenure must be satisfied:Must be: (i) a TENANCY; (ii) OCCUPATION ; &(iii) a BUSINESS (inc. charities)s24 (1) Protected lease won’t end on contractual expiry date (CED) & T may apply for new lease

SubTs may get benefit of security of tenure, as long as they’re in occupationN.B Periodic tenancies (i.e. monthly tenancy) ARE covered BUT tenancies at will AREN’T

s43 Rules re EXCLUDED TENANCIES o Agricultural holdings / mining leases/ service tenancieso Tenancy granted for term certain not exceeding 6 months unless can be extended beyond

this/ exceeds 12 months c. aggregate occupation together c. predecessor in same business

CONTRACTING OUTs38A 1954 Act may be excluded by agreement b/w parties 2 ways of doing this:

1) At least 14 days’ notice must be given by L to T stating Act won’t apply- T must then make a simple declaration confirming his receipt & understanding of notice

2) Less than 14 days’ notice may be given by L to T BUT then T must make a statutory declaration

In both cases: Lease must:

- Refer to the warning notice & declaration; & - Contain clau se stating parties have agreed to exclude security of tenure

NB. Leases dated before June 2004 required a court order

TERMINATION BY LANDLORD

L may serve a notice under s25 to terminate lease: Can be ‘HOSTILE’ or ‘FRIENDLY’:If hostile L is unwilling to grant a new lease

- Must give T not more than 12 nor less than 6 months’ notice of specified termination date (STD)

- Whilst notice doesn’t have to be served to end the lease on the CEDThe STD can never precede the CED of the leaseService must be made by the competent L (see s44)

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Such notice may not be served if s26 request already served by T

After receiving a s25 notice T wishing to renew its lease must ensure an application is made to court for a new lease This application can be made by L or T Purpose of application = allow court to determine the terms of the lease if parties can’t agree themselvesDeadline is the STD (s29A (2)(a))

- Possible for parties to extend deadline c. a view to agreeing matters themselves (s29B)If no application made by relevant deadline: T will lose right to new leaseIf application has already been made & parties subsequently reach agreement on terms of lease: Application may be withdrawn

TERMINATION BY TENANT

T may terminate its tenancy w/o renewal by: Serving a s27 notice at least 3 months before the intended leaving dateORT may simply vacate by the CED; in which case no s27 notice is strictly necessary (s27 (1A))

- Notice may not be served under this section to end the lease at any date before the CED- If T considers it may need to leave part way through the term:

It should ask for a break clause when negotiating the lease

REQUEST FOR NEW LEASE BY TENANT

If the T wishes to renew its lease: It can serve a request under s26 not more than 12 or less than 6 months before proposed commencement date specified in the requestWhilst the new lease doesn’t have to start on the day of the old CED (or even the day after it), the proposed termination date can’t precede the CED

Request must be served on the competent L & can’t be served if s25 notice already been served

After receiving a s26 request L may serve counter-notice within 2 months indicating whether or not he’ll object to the request (s26(6))The application to court is still necessary but can’t be made until T receives L’s counter-notice or (if L doesn’t serve this) until 2 months have passed following service of the s26 request (s29A (3)) Deadline for applying to court is the day before the proposed commencement date for the new lease as specified in the T’s s26 request (s29A (2)(b))

INTERIM RENT

Until a new lease is granted T will continue to pay the old rents24A allows either party to apply to court for an interim rentWill be payable from:

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- Earliest termination date (if s25 notice was served) OR

- Earliest commencement date (if s26 request was served) which could’ve been specified in relevant notice

Interim rent will be set at market rate UNLESS L is unwilling to grant a new lease: whereby it will be 10-15% less than market level

GROUNDS FOR REFUSING TO GRANT A NEW LEASE

s30(1) Ground Description Mandatory or Discretionary?

Compensation Available?

(a) Serious breach by T of repairing obligation

Discretionary No

(b) Serious & persistent delay by T in paying rent

Discretionary No

(c) Other serious & persistent breaches by T (catch-all)

Discretionary No

(d) Availability of suitable alternative accommodation

Mandatory No

(e) Sub-tenancy of part; needed for letting or disposal of whole

Discretionary Yes

(f) L’s firm & settled intention to redevelop premises, needing possession

Mandatory Yes

(g) L’s intention to occupy premises himself (N.B 5 year rule; s30(2))

Mandatory Yes

O’May v City of London Real Property Co o Current tenancy is starting point for court’s determination of terms of new lease, &

any proposed deviations must be shown to be reasonable by the proposers Street v Mountford

o Lease requires exclusive possession for term absolute Mannai Investment Company Ltd v Eagle Star Life Assurance Co.

o In case of errors court will consider whether the notice is sufficiently clear to leave a reasonable recipient in no reasonable doubt as to terms of noticeI.e. For example slight error on property address would probably not confuse most reasonable recipients

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