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PROPERTYNOTEBOOKMARCH 2020CONDUCT, PRELIMINARY, PLANNINGPERMISSIONCONDUCT ACTING FOR SELLER & BUYERGENERAL RULE Principle 4: separate duties to act in the best interest of each client  O3: cannot act where there is a client conflict (see conduct notes) or a significant risk of a client con...

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PROPERTY NOTEBOOK MARCH 2020

CONDUCT, PRELIMINARY, PLANNING PERMISSION CONDUCT ACTING FOR SELLER & BUYER   GENERAL RULE  1. WHETHER CONFLICT OF SIGNIFICANT RISK OF ONE 2.

3.

O3.3 identifies some relevant circumstances: a) Clients have different interests (such as the best price) b) Whether the client is vulnerable or imbalance of bargaining powers c) A need to negotiate between terms d) Solicitor’s ability to give independent advice will be fettered The following will tend not to achieve O3.5 (therefore, conflict) a) IB3.3: acting where matters of substance are being negotiated (such as price) b) IB3.14: acting for the buyer and seller in a transfer of land for value/grant/assignment of a lease Consider whether buyer and seller are related or associated companies  If so, may not be a conflict (check facts carefully)

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O3.6 states that you can act if there is a substantially common interest (see conduct notes). This could apply where:  The property is being gifted, or  Purchase on developer’s standard terms (but watch out for imbalance of bargaining power IB3.4)

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Generally not applicable as each party wants the best price for the transaction; IB3.11 O3.7 is never relevant (parties are not competing) Always apply it to the facts & consider whether a conflict could arise in the transaction Decision is ultimately the solicitor’s to make Consider age of the seller/buyer, bargaining power, mental capacity, history of purchases, undue influence Not many firms will act for both in commercial transactions

SUBSTANTIALLY COMMON INTEREST

CONCLUDE

Principle 4: separate duties to act in the best interest of each client O3.5: cannot act where there is a client conflict (see conduct notes) or a significant risk of a client conflict  Apply to the facts; there is a conflict here because the buyer will want the lowest price for the property and the seller will want to get the highest price for it There are two main exceptions

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1

CONDUCT ACTING FOR BORROWER & LENDER A duty is owed to both clients independently (Mortgage Express), but the solicitor may act for both the borrower and lender unless there is a conflict of interest or a significant risk of one arising O3.5 states that generally there will be conflict where:  The terms of the mortgage are negotiable  The buyer wants a cheap and flexible mortgage whereas the lender wants profitability and good security O3.6: this is applicable because both the buyer and the lender want the buyer to obtain good title to the property and ensure that there are no problems that could decrease its value If the exception is established, then put in safeguards: i) Explain relevant issues to client ii) Have a reasonable belief they understand the issues iii) Both lender and borrower give informed, written consent to you acting iv) Satisfied that the benefits of you acting for both outweigh the risks; and that v) It is reasonable for you to act in all the circumstances

 GENERAL RULE WHETHER CONFLICT OF SIGNIFICANT RISK OF ONE

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 SUBSTANTIALLY COMMON INTEREST

O3.7 is never relevant (parties are not competing)

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CONCLUDE

 WHERE THERE IS A CONFLICT

COMMERCIAL PROPERTY Mortgages will usually be negotiated, so separate representation is required and advisable A solicitor may do title investigation for both parties and then cease to act (IB3.3)

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RESIDENTIAL PROPERTY It will be fine if it is on the standard mortgage terms: (IB3.7)  Provided in normal course of lender’s activities  A significant part of those activities is lending; and  Material terms are not negotiated by the parties

Immediately decline to act for both

OR 

Continue to act for one with the other’s consent

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Do not reveal the nature of the conflict without consent (Halifax Mortgages v Stepsky)

2

CONTRACT RACE

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ACTING FOR THE SELLER Winner is one ready to exchange first (signed contract and full deposit) High risk for buyer’s (abortive costs); consider becoming uninvolved If the seller’s solicitor is asked to deal with more than one prospective buyer at the same time, the solicitor must:  O11.3 Immediately inform all buyers/solicitors of the seller’s intention  Explain to the seller that they must do this and it must be done immediately

Seller Refuses  If the seller refuses to allow you to disclose to the other buyers, then:  Confidentiality duty is triggered under O4.1 and so you cannot disclose to the buyers without the seller’s authority  You must decline to act

ACTING FOR THE BUYERS 

If two or more buyers ask a firm to act for them in a contract race, then: 

There is a conflict of interest triggered under O3.5, so you should not act, unless O3.7 exception applies: (competing for same objective) i) Buyers are sophisticated users of legal services (IB3.6); and ii) It is a commercial transaction

Avoiding Contract Race  To avoid a contract race, ensure only one buyer is in possession of a draft contract at any one time. This would not trigger O11.3:  B1 has the draft contract when you receive a better offer from B2  Ask B1 to return the draft contract and withdraw S’s acceptance  Accept B2’s better offer and submit draft contract to them instead

JOINT BORROWERS (UNDUE INFLUENCE) GENERAL

SCENARIO

THEREFORE

SOLICITOR REQUIREMENTS

PRESUMPTIONS

A solicitor may act for joint borrowers provided a conflict of interest does not arise (O3.5) Husband borrows against matrimonial home to put money into business Wife is required to consent to the mortgage Lender will worry that if they claim against the house, the wife will claim UI to set the mortgage aside i) If the transaction is not to one borrower’s advantage, the lender is put on enquiry (Royal Bank Scotland v Etridge) ii) Lender must take reasonable steps to satisfy itself that the person is fully aware of the practical implications of the mortgage iii) Lender will rely on solicitor’s confirmation that they advised borrowers correctly (below)  The solicitor must: a) Advise the person face-to-face (without the other borrower present) b) Use non-technical language c) Give reasoned advice as to the disadvantages of the transaction d) Get express authority from the person to give to the lender e) If it is obvious the person is being wronged, you must decline to act  There is no presumption of undue influence for husband/wife  There is a presumption for solicitor/client and parent/child (rebuttable)

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3

UNDERTAKINGS

DEFINITION

“a statement made by you or your firm to someone who reasonably relies on it that you or your firm will do something or cause something to be done or refrain from doing something”  State that Undertakings apply to Principles 1, 2 and 6

PRINCIPLES WHAT THEY ARE

WORDING

WHO BOUND

BREACHING AND ENFORCEMENT

IMPOSSIBILITY

UNQUALIFIED PERSONS

BEST PRACTICE

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An enforceable promise that may be done orally (but make an attendance note) The word “undertake” is not required O11.2: perform them within an agreed timescale or a reasonable amount of time

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Ambiguity will be read against the giver If costs isn’t specified, ‘proper costs’ is implied Even if expressed as “on behalf of client”, it is still personally binding on the solicitor It can, in theory, exclude personal liability of the giver (but it will not be accepted)

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Personally binding upon the solicitor who gave it It is the responsibility of the firm to make sure it is honoured (especially if it is a junior lawyer). If not, Partners will be in breach of conduct

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If a solicitor breaches, they are personally liable for any loss caused (Udall v Capri Lighting) Courts can enforce them (the SRA cannot) SRA can take disciplinary action against the solicitor who breached, ultimately being stricken off the Roll

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If the undertaking becomes impossible to perform, solicitor is still bound by it The recipient may agree to release them IB11.6: if a conditional undertaking can no longer be performed, inform the recipient immediately

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Do not accept an undertaking from an unqualified person because they cannot be enforced O11.1: should not take unfair advantage of unqualified persons IB11.7: should not take advantage of another’s lack of legal knowledge, so it is inadvisable to force on them an undertaking

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IB11.5: should maintain a proper system of given and received undertakings Undertaking should ideally be given:  By a Partner  In writing  If you are certain you can carry it out (client has money)  Express and current client instructions and consent

4

TAX CONSIDERATIONS SDLT   STAMP DUTY LAND TAX   

COMMERCIAL / MIXED USE FREEHOLD

RESIDENTIAL FREEHOLD

If payable, it is payable on the VAT inclusive sum Not payable on the value of the chattels (only payable on the consideration for the land) (so if sale includes chattels, can reduce tax liability by apportioning some of the purchase price to the chattels) Payable on whole of price, not just the exceeding portion Payable within 30 days from completion Dependant on whether commercial or residential freehold (below) Not exceeding £150,000 £150,000 - £250,000 £350,000 - £500,000 Exceeding £500,000

0% 1% 3% 4%

Not exceeding £125,000 £125,001 - £250,000 £250,001 - £500,000 £500,001 - £1,000,000 £1,000,001 - £2,000,000 Exceeding £2,000,000 (by natural person) Exceeding £2,000,000 (by company)

0% 1% 3% 4% 5% 7% 15%

VAT & COMMERCIAL PROPERTY NEW COMMERCIAL FREEHOLD

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Completed in the last 3 years Standard rated A developer can recover their input tax

OLD COMMERCIAL FREEHOLD / LEASEHOLD COMMERCIAL

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“Old” means constructed, or such construction substantially completed, > 3 years ago Exempt, but seller has the option to tax (can elect to do so at any time) This would allow them to recover input tax (see below) Would put off VAT-sensitive buyers such as insurance companies/banks/building societies Sale of a green-field site Construction/civil engineering services Legal/professional fees Sale of a new freehold building Sale of an old freehold building Grant/assignment of a lease

RATES

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Exempt 20% 20% 20% Exempt Exempt

Payable on the whole purchase price, not just the portion that exceeds a given threshold

5

EXAM MODEL ANSWER GENERAL

VAT & COMMERCIAL PROPERTY

 Check who we are acting for [BUYER/SELLER]  Apply it to the facts of the case Status  For VAT purposes, this was a sale of an “old” freehold commercial property  “Old” in this context means constructed (or such construction substantially completed) more than 3 years ago  Accordingly, the sale was exempt, subject to the option to tax (by seller) Option to Tax  Thus, the seller has/had a choice as to whether or not to opt to tax  The seller can only recover some or all of the VAT it has paid to builders and such during the renovation works (from the output tax chargeable on the sale price) if it opts to tax Impact  The problem with opting to tax is that VAT would have to be charged on the purchase price on the sale and as an insurance company, the buyer would not be able to recover any of this (as it does not make VATable supplies in the court of its business)  The buyer might therefore object to the client opting to tax or seek a reduction in the purchase price to compensate it for the irrecoverable VAT  The seller will have to weigh up the benefit of recovering the refurbishment VAT against the potential loss of sale proceeds (or even the sale itself)

6

PLANNING PERMISSION  WHETHER ACTIVITY IS DEVELOPMENT

WHETHER AUTOMATIC PLANNING PERMISSION

ENFORCEMENT RULES



“Development” is defined in s55 TCPA 1990 as carrying out any building, engineering or mining operations on or over land “Development” is defined in s55 TCPA 1990 as making any material change in use of any buildings or land

Exceptions  Anything done on the interior of a building (doesn’t affect exterior appearance)  Dwelling house alterations that are consistent with its use as a dwelling (garage study)  Changes of use within the same class as listed in TCP(UC)O 1987  Consider whether the activity falls within GPDO (class)  If so, there is no need to apply for permission Exempt Categories  Development within curtilage of a dwelling house (laying a drive)  Demolition  Minor operations (painting exteriors)  Changes of Use from A2 > A1, B2 > B1, A3 > A1, A3 > A2  Non-compliance with any enforcement order is a criminal offence  Single dwelling house enforcement proceedings must be started within 4 years of breach  Other enforcement proceedings must be started within 10 years of breach  Thus, consider liability of buyer of those breaches seller may have made before sale Enforcement Orders  Enforcement Notice (states breach, remedial steps required and time limit to take them)  Stop Notice (served with enforcement notice)  Temporary Stop Notice  Breach of condition (cannot appeal against this)  Injunction

BUILDING REGULATIONS CONTROL  

GENERAL

ENVIRONMENTAL ISSUES CONSERVATION AREA LISTED BUILDING

Get from Local Authority before works are carried out Needed irrespective of planning consent (some DIY requires it such as central heating installation)

Options  Option A: full plans (submit full detailed plans and full details of works intended)  Option B: building notice (submit simple form describing works)  Building Control Officer inspects and issues certificate of compliance No Certificate  If a seller cannot show certificate: a) Advise full structural survey is carried out b) Ask seller to obtain a regularisation certificate c) Get insurance to cover costs of buyer’s compliance with regulations (does not cover health and safety issues) d) Inform lender of breaches  Cost of clearing up may fall to new owner if contaminants present  Liability under common law and EPA 1990  Best practice is to get environmental report done for all transactions 

Any building may not be demolished without conservation area consent

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Features of whole structure may be listed Cadw and English Heritage in charge, but contact Local Authority too to double-check May need listed building consent to carry out any works There are no time limits for enforcement proceedings if works are done without consent

7

FREEHOLD

8

INVESTIGATION OF A REGISTERED TITLE STEP ONE Whether it is recent enough (more recent is better for a clearer understanding of recent activity) First bullet point on the official title (not edition date) Check these are the same in the Property Register they are in the sale contract This will ensure that the seller owns the land, so is particularly important for the buyer’s solicitor or lender’s solicitor to check

 CHECK COPY DATE STEP TWO

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CHECK NAMES & ADDRESSES

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Indicates whether freehold or leasehold  Freehold: outright ownership of property and land; no limit on period of ownership  Leasehold: property owned for a fixed term but not the land on which it stands. Possession subject to rent. When lease expires, ownership reverts back to the freehold owner Check easements/covenants match client’s needs; these may be subject to obligations Title Number: must correspond with Title Plan and contract Land Description: must correspond with Title Plan and contract



Apply the following specifically to the facts:



ENTRY

EASEMENT WITH CORRESPONDING BURDEN

APPEARANCE “Together with the right for the purchaser to drain water and soil from the property subject to the payment of £”

PROBLEM 

The use of the drain/easement comes with a cost of maintenance that the buyer will have to pay

ACTION 

Client must be informed of this obligation; may affect their decision to proceed



Make enquiries of the Seller about the exercise of this right and whether any disputes have arisen in respect of it

STEP THREE CHECK PROPERTY REGISTER

RIGHT OF ENTRY

“Subject to a right for the owner to enter the property to”



Property is subject to a right of entry

Inform client and check if it would cause concern “Entry [X] in the Property Register shows that the property is subject to a right of entry [BY/WHEN]. Enquiries should be made of the Sellers about the exercise of this right and whether any disputes have risen in respect of it. The client will also need to be informed and asked whether it would cause concern.”  Identify the land with the benefit and  May affect the the burden and ask buyer’s use and “Purchaser shall owner of likelihood enjoyment of land; not acquire any NO RIGHT TO of development in may be a problem in right of light or air EASEMENT OF future the future or any easement AIR/LIGHT which would  Inform the client  No easement to interfere with or  Write to person with prevent the benefit and see restrict free use of development nearby if they would that would remove adjoining property negotiate to give up light/air their right “This reveals that the property does not enjoy rights to light over a specific adjoining property. This means that there is nothing to stop the owner of the relevant adjoining land building on that land and blocking off light to the windows and such on the land the [BUYER] wishes to acquire. This has obvious implications for the buyer given that it proposes to [BUILD ON THE SITE]. It would be necessary to find out the precise location and extent of the adjoining land. [BUYER] should then be informed of the outcome of this enquiry and the implications of this entry.” 9

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MINES AND MINERALS NOT INCLUDED IN SALE

LAND HAS BENEFIT AND/OR BURDEN OF COVENANTS NOT IN BUNDLE

“All mines and minerals under the land hereby conveyed and also the right to work and carry away”

“The land is subject to the covenants contained in the conveyance dated between X and Y”



History of mining on the land, therefore a risk of subsidence and damage to the property



Property’s value may decrease in light of it

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Possibility of works being re-opened on the land, which is a disruption; discuss

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

Unknown covenants may interfere with intended use Liability for breach Liability for breach of covenant unaware of in future by buyer



Apply for a copy of the conveyance referred to and then inform the client

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Possibly knock the price down because of the clause

Make enquiries via CON29M to find out about previous and future mining operations Raise requisitions with the seller as to previous works and consequential damage to property Inform the client

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There may be a Halsall v Brisell clause; “cannot take benefit without burden”

Easements implied by prescription: 1) Common law prescript...