Property SGS 4 Solution Pack 20-21 PDF

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LPC: PROPERTY LAW AND PRACTICE

SGS 4 ACTIVITY SOLUTION PACK

PROPERTY LAW AND PRACTICE SGS 4: COMPLETION AND REMEDIES Legal Practice Course

Pre-SGS MCQs Solution Question 1 You act for the buyer of a registered commercial freehold property. Contracts in the standard form incorporating the SCPC (Third Edition – 2018 Revision) have just been exchanged. The Charges Register discloses a subsisting registered charge by way of legal mortgage (the ‘Charge’). Which ONE of the following statements is CORRECT? [A]

You must send a Completion Information and Undertakings Form TA13 to the seller’s solicitor or you will not be able to obtain an undertaking from the seller’s solicitor in relation to the discharge of the Charge. NOT CORRECT. This statement is incorrect. Whilst it is correct that a Form TA13 (published by the Law Society) COULD be used to request the seller’s solicitors’ undertaking, the Form TA13 is not an obligatory format for a commercial property purchase and many firms have their own in-house forms or use similar forms published by other legal stationers.

[B]

The Charge must be discharged by the seller before completion. NOT CORRECT. This statement is incorrect for two reasons. First a charge can only be discharged by the lender, not the seller or the seller’s solicitors. Secondly, while a charge can, in theory, be discharged prior to completion (if the seller were in funds), usually a seller will only be in a position to procure a discharge of a charge over the property once it is in receipt of the proceeds of sale of the property– i.e. on or immediately after completion.

[C]

The seller will be obliged to discharge the Charge because Special Condition 4 of the contract reads “The property is sold with vacant possession.” NOT CORRECT. Selling with ‘vacant possession’ means selling the property free of occupiers/not subject to tenancies, whereas it is SCPC 4.1.2(d) which requires the seller to sell the property free of charges.

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SGS 4 ACTIVITY SOLUTION PACK

[D]

LPC: PROPERTY LAW AND PRACTICE

If the Charge is to be discharged on completion using a Form DS1, the seller’s solicitor should either send the completed Form DS1 to the buyer’s solicitor on completion or give an undertaking to pay to the chargee bank the amount required to discharge the Charge immediately after completion, once the sums have been received from the buyer’s solicitor, and to send the buyer’s solicitor the Form DS1 as soon as the seller’s solicitor receives it. CORRECT. Care must be taken by the seller’s solicitor when giving the undertakings. You may be expected to demonstrate an accurate knowledge of the form and mechanics of the undertakings re: a seller’s charge by way of legal mortgage over the property in the PLP exam.

Question 2 You act for Warren Peters Ltd which is buying the freehold of Unit 3 Station Parade, Midhampton. The property is registered with Title Absolute under title number NGL2046. Contracts have just been exchanged with Ashford Carpets Limited and it is agreed completion will take place on Friday of next week. Atlantic Bank Plc is lending Warren Peters Ltd £750,000 by way of mortgage for their purchase. You are not acting for Atlantic Bank Plc. Which of the following statements about pre-completion searches on this scenario is, or are, CORRECT? (i)

You should carry out a company search against Warren Peters Ltd on behalf of their lender, Atlantic Bank Plc. NOT CORRECT. If the buyer’s solicitor is acting for both the buyer and the lender in relation to the purchase of the property (as is usual in residential transactions), they will need to carry out a solvency search against the buyer on behalf of the lender and if, as here, the buyer is a company, the solvency search against the buyer would be a company search. However, where the buyer and lender are separately represented as is usual in commercial transactions and as is the case here, the lender’s solicitor will undertake the solvency search against the buyer. So Atlantic Bank Plc’s lawyers will do a company search against Warren Peters Ltd.

ii)

You should carry out an OS1 search against title number NGL2046 and a company search against Ashford Carpets Limited. CORRECT. The searches required do include the OS1 search AND a company search against the seller to check for solvency which should be done on the morning of completion.

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LPC: PROPERTY LAW AND PRACTICE

iii)

SGS 4 ACTIVITY SOLUTION PACK

If the OS1 search result (‘OS1R’) indicates ‘no adverse entries’, you can safely complete even if the ‘priority period’ of the search has already expired. NOT CORRECT. Even though ‘no adverse entries’ means nothing adverse has been registered since your ‘search from date’ (the date of your official copies), it is not safe to complete and lodge the Land Registry application outside the priority period because you risk a third party applying to register an interest after the date of your OS1R. If the priority period has expired or will expire too soon, you will need to carry out another OS1 search, obtain a new priority period and ensure that you complete and apply to register within that new priority period.

iv)

If the OS1R indicates that a further charge has been registered in the Charges Register (since the date of the official copies you received), you should ask the seller’s solicitor to give an appropriate undertaking on or before completion relating to the discharge of that further charge. CORRECT. Any charge disclosed must be discharged on or before completion or the buyer will be taking a transfer of the property subject to it. The answer is therefore [D]: Options ii) and iv) are CORRECT.

Question 3 Which of the following statements is/are CORRECT about the Form TR1 when it is used in the sale of a registered freehold property? i)

A Form TR1 must always be executed by or on behalf of the seller and the buyer (as Transferor and Transferee respectively). NOT CORRECT. A TR1 must always be executed by or on behalf of the Transferor (the seller). However, the Transferee (the buyer) does not always need to execute the TR1. Whilst many Transferees (buyers) like to execute the TR1, the Land Registry notes on the TR1 set out when the Transferee must execute, examples include when the Transferee is:  entering into new restrictive or positive covenants;  giving the transferor an indemnity covenant (for example, pursuant to SCPC 7.6.5); or  declaring a trust (for example, where joint purchasers declare whether or not they will hold the property as tenants in common or joint tenants). For the purposes of the LPC, if an exclusion of the Contracts (Rights of Third Parties) Act 1999 is included in panel 11 of the TR1, the Transferee should also execute the TR1.

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SGS 4 ACTIVITY SOLUTION PACK

ii)

LPC: PROPERTY LAW AND PRACTICE

A Form TR1 should be dated as soon as it is signed by the Transferor. NOT CORRECT. The Transfer is merely signed ‘in escrow’ at this stage and should only be dated once completion actually takes place (usually over the phone), when it is dated immediately.

iii)

A plan is not usually required to be attached to a Form TR1. CORRECT. In all cases where there is a transfer of the whole of a registered title the TR1 does not need a plan. This is because a TR1 deals with all of the land comprised in that registered title, the extent of which is already set out in the title plan registered at the Land Registry.

iv)

The name of the Transferor on the Form TR1 must be the same as the name which appears on the Proprietorship Register of the seller’s title. NOT CORRECT. There are several situations where the names may be different. For example, the seller(s) may:  have changed their name; or  be personal representatives of a deceased registered proprietor. The answer is therefore [A]: Option iii) is the only correct statement.

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LPC: PROPERTY LAW AND PRACTICE

SGS 4 ACTIVITY SOLUTION PACK

Activity 2 Solution Remember that the contract incorporates the SCPC. 1.

By what time on 13 November 2020 must completion occur to be ‘on time’? By 2.00pm. SCPC 9.1.2 provides for 2.00pm as ‘the latest time’ for completion and this has not been varied by way of special condition in the Elton Hall contract.

2.

If RPL does not complete ‘on time’, what remedies are available to the seller? Contractual compensation Compensation can be claimed for each day of delay including the contractual completion date (13 November 2020) but not the day on which completion actually occurs (SCPC 10.3.1 - 10.3.2), provided the money is received in full by the ‘latest time’ i.e. 2pm (unless the contract varied SCPC 9.1.2) on the day on which completion actually occurs. Note that compensation is payable for all days from and including the contractual completion date and NOT just working days. Common law claim for damages The seller can also claim damages for breach of contract in respect of any additional loss if contractual compensation is not sufficient (SCPC 10.3.3). Notice to complete and recission The seller may also serve a notice to complete at any time after the specified completion time in SCPC 9.1.2 (but check the special conditions in the contract to see if the completion time has been varied). The notice to complete makes time of the essence and requires completion within 10 working days, excluding the day on which notice is given (SCPC 9.8.1-9.8.2). Note that rescission is only available after the expiry of that period (SCPC 10.5.1). If completion does not occur within 10 working days of service of a notice to complete, the seller can rescind (SCPC 10.5.1 and 10.5.2) - i.e. the contract will be set aside - the seller can also retain the deposit and the seller will be free to sell the property and any contents included in the contract to someone else. A seller who rescinds may claim damages (under SCPC 10.5.2) but the contractual right to compensation for late completion under SCPC 10.3 is lost since, on rescission, the contract itself is at an end and so is never actually completed (late or otherwise).

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SGS 4 ACTIVITY SOLUTION PACK

3.

LPC: PROPERTY LAW AND PRACTICE

Assuming the base rate of Barclays Bank plc is 1%, calculate: (a)

the amount of compensation payable per day under the Elton Hall contract in the event of delayed completion; You should round up or down to the nearest penny (so show your answers to two decimal places) in accordance with the ‘usual’ mathematical rules.

You were told in SGS 3 (see Document 42) that when contracts were exchanged, the parties had agreed the contract rate at 4% per annum above the base rate of Barclays Bank plc, so, as the question states that the base rate of Barclays Bank plc is 1%, the contract rate is 5% per annum. SCPC 10.3.2 provides for compensation to be payable at the “contract rate on an amount equal to the purchase price (less any deposit paid)”. So, the annual amount of compensation payable is: Contract rate x (Purchase Price minus Deposit paid) i.e. 5% x (£5,000,000 - £500,000) = 5% x £4,500,000 = £225,000.00 per annum For the rate of compensation payable per day, simply divide this figure by 365: £225,000.00 = £616.44 per day 365 The daily amount must be shown to two decimal places (i.e. show pounds and pence). Round up or down using ‘usual’ mathematical rules as necessary. (b)

bearing in mind your answer to question 1, how much compensation would be payable by RPL if completion was delayed from 13 November 2020 until 11 December 2020? You should round up or down to the nearest penny (so show your answers to two decimal places) in accordance with the ‘usual’ mathematical rules.

If completion takes place prior to the ‘latest time’, which is 2.00pm, on 11 December 2020, then there will be 28 days’ compensation to pay (covering the days of default: 13 November to 10 December 2020 inclusive, all days including weekends are counted, not just working days). = 28 x £616.44 = £17,260.32 If completion takes place on 11 December 2020 but after 2.00pm, completion is deemed to take place on the following working day – i.e. Monday 14 December

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LPC: PROPERTY LAW AND PRACTICE

SGS 4 ACTIVITY SOLUTION PACK

2020. In such case, there will be 31 days’ compensation to pay (covering 13 November to 13 December 2020 inclusive). Completing after 2.00pm on the Friday means three additional days of compensation are charged (Friday, Saturday and Sunday). = 31 x £616.44 = £19,109.64

4.

Is there any way that completion could have gone ahead on 13 November 2020 as originally planned? What considerations would RPL have taken into account when weighing up the options of whether to complete on 13 November 2020 or to delay completion? Ritchisons knows that a penalty sum of around £25,000 would be payable if it withdrew the funds from the savings account without giving the one month’s prior notice. It would have had to compare this expense to the cost of paying compensation for late completion under the SCPC and also paying any additional common law damages. If the amount of compensation for the delayed completion plus any additional damages was greater than the penalty sum, then it would not have been worth Ritchisons delaying completion. So here, even though the contractual compensation under SCPC 10.3 is less than the amount of the penalty sum, Ritchisons would have needed to consider the risk of any actual loss or damage caused to the seller by the delayed completion giving rise to an additional claim by the seller (over and above contractual compensation) for common law damages (as envisaged by SCPC 10.3.3). This might have deterred Ritchisons from delaying completion. Alternatively it may have been possible to arrange a bridging loan to meet the shortfall so completion could have taken place on 13 November. Again, it would have been necessary to check how much this would have cost Ritchisons in terms of interest and arrangement fees when compared to the compensation liability under the SCPC and any additional common law damages. Last, but not least, if Ritchisons tries to delay completion until 11 December 2020, it also risks losing the property and its deposit, because the seller could serve a notice to complete after 2pm on 13 November 2020 (SCPCs 9.8.1 and 9.1.2) and, after the expiry of the 10 working days which that gives, (excluding the day on which the notice is given) (SCPC 9.8.2) enforce its rights, to rescind and to forfeit the deposit, which would arise before 11 December 2020. Therefore, it is often advisable in these circumstances, to contact the seller’s solicitor to ascertain the seller’s reaction to these developments before making a final decision as to whether or not completion should be delayed. However, in practice, the majority of sellers will be unsympathetic. In this situation, most sellers will serve a notice to complete at the earliest opportunity in order to put the buyer under pressure to complete on or as close as possible to the contractual completion date.

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LPC: PROPERTY LAW AND PRACTICE

PROPERTY LAW AND PRACTICE SGS 4: COMPLETION AND REMEDIES SOLUTION TO PRE-SGS ITEM 8 / ACTIVITY 4 WHAT STEP?

WHERE?

Register Buyer’s Debenture /Charge to Schreibers Bank plc (“SB plc”).

Companies House

WHAT FORM? MR01

Legal Practice Course

ENCLOSURES? Cheque for fee (£23 or £15 if online) and Certified copy Debenture / Charge to SB plc.

Pay SDLT & file SDLT1 / Land Transaction Return.

HMRC

SDLT1

Register: (i) Discharge of Seller’s Charge (ii) Transfer; (iii) Buyer’s Debenture/ Charge to Schreibers Bank plc (“SB plc”).

Land Registry

AP1

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Cheque for SDLT of £239,500 (SDLT rates are in the PLP handbook) if not sent by telegraphic transfer or online. Certified copies of: 1. DS1 2. TR1 3. Debenture / Charge to SB plc 4. Certificate of Registration of Debenture/Charge to SB plc 5. SDLT5 6. Change of Name Certificate for Seller PLUS 7. Land Registry fee.

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HOW LONG? Within 21 days beginning with the day after the date of creation of the debenture/ Charge. Within 14 days of the “effective date”, here completion. Within priority period of OS1 search (i.e. within 30 working days from date of OS1 search result).

CONSEQUENCES OF FAILING TO MEET RELEVANT TIME LIMIT?  Will prejudice the lender’s security if not registered in the time limit – security would be void against a liquidator, administrator or other creditor if not registered within the 21 days.  Loan will become repayable on demand.  Could be construed as negligence.  Cannot register Transfer at Land Registry without Certificate of Registration from Companies House.  Penalty for late submission of form.  Possible interest liability for late payment.  Cannot register Transfer at Land Registry without SDLT5 acknowledgement.  Third party interests may obtain priority, even if created after completion, if they are registered in the meantime.  Until registration of the Transfer to RPL, they are only beneficial owners; the legal title does not transfer until registration is completed.

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