REAL Estate - Lecture notes 1-10 LLB PDF

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LARGE GROUP 1: Taking instructions Introduction ● Real estate = Property that consists of land and buildings, to distinguish it from other types of property such as physical goods and intellectual concepts. ● No two pieces of real estate are the same ● Real estate clients vary as clients buy land and buildings for different reasons - Client who wants to occupy his house or business premises - Client wants to invest in or develop a property to raise income or capital profit - Some may want outright ownership and pay the purchase price upfront - Some may only want to purchase for a limited time ● Taking instructions from a client to transfer a freehold registered property from a seller to a buyer. ● Transfer = Transfer of Deed Outline of a conveyancing transaction -

Does not matter if commercial or private, Freehold or Leasehold = The procedure is the same. Conveyancing = Buying & Selling property

● Two milestones 1. Exchange of contracts 2. Completion - Vast majority of purchase money is transferred from buyer to seller - Documents exchanged -

Traditionally used to be a gap between the two milestones to allow breathing time however now they can happen simultaneously.

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Caveat emptor - Buyer beware. Seller does not have to disclose any information to buyer Upto buyer to find out problems with the property Process of investigation (Due diligence stage from transactions)

● Three stages: 1. Pre-exchange stage Exchange of contracts 2. Pre-completion stage

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Completion 3. Post-completion stage Pre Exchange stage - Pre contract package from - Official copies of Title to Land - Official copies - registered - Epitome of title - unregistered - Solicitors should send to buyers solicitor with draft contract - Seller solicitor who should produce a contract. Buyer's solicitor should check if the Seller has a Good title to sell. - Buyer should check if the title has encumbrances (Easements, restrictive covenants, mortgages) - If there are encumbrances, figure out what should be done with them. - Buyer's solicitor should be happy that the title is good as there will be a condition in the contract that once the contracts have been exchanged the buyer cannot raise any issues. - Additional searches and enquiries; Boundaries, access, Disputes, Outgoings, Previous works/alterations. - Make enquiries with local authorities and various organisations. - If you ask the seller a question and they give a false answer the buyer may have a claim for breach of contract. - Searches cost money. - This may raise issues which may lead to the terms of the contract being negotiated. Exchange of Contract - S.2 LP(MP)A - Legally binding - Physical exchange of contract - Rescission of contract - Breach of contract claim - Deposit normally 10% of the purchase price - Held by the sellers Solicitor until completion - Biggest document - Conditions of sale Pre-completion stage - Buyer now has an equitable interest in the property and we must prepare a deed to transfer the legal title to them. - Check nothing else has appeared on the title since registration. - Check solvency of buyer to check they can still go through with purchase - Keys handed over

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Post-completion stage - Freehold property needs to be registered at the Land registry to complete registration - Tax paid (SDLT paid on transactions) - Existing mortgages’ discharged by solicitor (undertakings)

Activity 1 - Any party can withdraw from the transaction up until exchange as not legally binding yet, however they will lose any costs already incurred. Professional conduct ● When solicitor first takes instructions from a client need to be careful that; a) They can act on behalf of this client? b) They can carry out the client’s instructions? - If later in the process find that cannot act may cost clients a lot of money and Solicitor will be in trouble. SRA Codes of Conduct 2019 ● Two codes - Code of conduct ● Principles - Acting with integrity - Acting in the best interest of each client Conflicts of interest - paragraph  6 SRA Code ● Acting for buyer and seller - GENERAL RULE = P6.2 Cannot act for a buyer or seller if you consider there is a conflict of interest or significant risk of it arising in the future. -

EXCEPTION = P6.2(a) Clients have a substantial common interest and that safeguards can be put in place. Both clients must consent in writing and show that they reasonably consent to what is going on and that you, as the solicitor, consent to acting for both parties. (Risk is always high, so would never act when purchasing a property)

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EXCEPTION = P6.2(b) Solicitor can act for buyer and seller if they are competing for the same objective. (Big commercial firms, never property transaction)

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● Acting for borrower and lender - Most people will get a loan from a bank to get a charge over the property to receive a mortgage. - GENERAL RULE = P6.2 Cannot act for a lender or borrower if you consider there is a conflict of interest or significant risk of it arising in the future. -

EXCEPTION = P6.2(a) Lender and borrower have a substantial common interest and that safeguards can be put in place.

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Commercial property, greater risk as agreed on bespoke mortgage terms and not standard. More likely to meet the exception under this rule in a residential transaction as less risk as the lender owns the majority of the property.

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Activity 2 - Unlikely to act for buyer and seller. More likely to act for borrower and lender if mortgage is on standard terms notwithstanding a conflict of interest if both parties have a substantially common interest. Contract races - paragraph  1.4 SRA Code ● Seller is going to have more than one buyer and whoever exchanged first is the buyer ● Multiple Purchase packs are sent to prospective buyers. ● All buyers must be aware they are engaged in a race ● Whoever completes first - wins ● General rule = As the Solicitor you should immediately notify the intention to have multiple buyers to all prospective buyers. Buyers should not be misled. ● If the seller tells the solicitor not to tell the prospective buyers that there is multiple clients then the Solicitor has a duty of confidentiality paragraph 6.3 ● If the seller won't let you tell buyers about the contract race then you, as the solicitor, must stop acting as if you do tell them it will be a breach of confidentiality. ● Duty of confidentiality lasts beyond the grave. Undertakings - paragraph  1.3 SRA CODE ● Promise between solicitors to make sure you can perform ● Statement made by a solicitor or on behalf of a solicitor ● The person to whom they have made that statement can reasonably rely on it

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● Breach of undertaking = In trouble with SRA & have disciplinary proceedings & will be in trouble with the court. - Extreme cases could be struck off. ● Should only undertake to do something which is in your control and does not reply on someone else doing something ● Used in Exchange of Contracts and Completion. ● Expressly stated & Clear ● Speed process up ● Avoid unnecessary expenses Activity 3 - If the seller instructs its solicitor to send out a pre-contract package to the other interested person, its solicitor will probably breach SRA Codes of Conduct 2019 if, having obtained his client’s consent to the disclosure, he fails to inform you of this as soon as he is instructed to do so. Never give an undertaking conditional on someone doing something else as if they do not keep to their side of the agreement then you will breach your own undertaking. Money matters ● Legal costs of purchase - Solicitor fees - Search fees - SDLT - Land Registry fees ● Property taxation; a) SDLT - 1st Dec 2003 - Residential freehold property - Not 1st time buyers - Need to check if the document has been stamped correctly - Any tax due must be paid to the tax man within 14 days of completion, if not paid, the land registry will not register the transfer. - DO NOT NEED TO KNOW THE RATES - Fixtures will be added to the land and will be added to the value and will pay SDLT - Chattels are not subject to SDLT

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Amount putting onto chattels must be fair and reasonable otherwise will be found to be in breach of defrauding the tax man

b) CGT Principal private  residence is exempt from CGT if it is only or main residence however may lose if have periods of absence - Gardens more than 0.5 hectares can lose exception - Business use can lose CGT exemption c) Taxation of commercial properties - Do not pay VAT on residential property - Do pay VAT on commercial property Activity 4 - carpets and curtains can possibly be sold as chattels which are not subject to SDLT - reduces the amount payable by selling separately. ● Financing the purchase - Source of loan (Bank) - Security of loan (Charge over property ‘Mortgage’) - Giving advice (Specific advice is not allowed to be given as Governed by the Financial Conduct Authority, can give general advice E.G.HSBC is better than Barclays) - Acting for lender and borrower Money laundering and real estate fraud “Law enforcement authorities believe that the purchase of real estate is a common method for disposing of or converting criminal proceeds.” Anti-Money Laundering Guidance for the Legal Sector published March 2018 by the Legal sector Affinity Group. ● Need to watch out for; - Money laundering - Proceeds of Crime are converted, concealed or disguised as to seem that the proceeds come from a legit sauce. - Mortgage fraud - Borrower defrauds the lender through the mortgage process - Title fraud - Someone gains an interest in Real estate through fraud by pretending to be someone else ● Duties on independent legal professionals - Identities of the client - Risk assessment of the client - Manage and maintain policies and procedures

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Terrorist financing Nominated officer within the firm who you can go to if you have concerns

Large Group 2: Title investigation Why investigate titles? ● Buyer/lender - Is there anything which is in the title which burdens it e.g. restrictive covenants and easements - Covenant preventing the premises to be used for commercial premises - May be a right of way on a piece of land allowing people to use it - Could put client off buying the property - Caveat emptor ● Seller - Check the seller actually owns land and is in position to sell it - Seller solicitor should investigate title to be on the safe side eo ensure they are acting in the clients best interest Registered and unregistered title ● Registered ● Unregistered - Unregistered land triggers first registration - Reduced fees as making it registered makes it more attractive to sell. Unregistered land Deducing title ● Prove ownership by providing documentary proof of the title to the buyer ● Examining a pile of deeds which deal with the transfer of land over a period of time e.g. conveyancing, mortgages, easements. ● Title is proved by documents themselves called title deeds. ● Lender lent money on an unregistered title the lender will take the title deeds as proof of ownership. You will need to get these from the lender. No lender then the owner should have the title deeds, should be kept safely as it can cause problems if they are lost. ● Seller’s solicitor looks through title deeds and look for the root of title. ● Look for the best root of title, this will be the most recent document which meets the following requirements; a) At least 15 years old

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b) Deals with or shows the ownership of the whole legal and equitable interest contracted to be sold - The Vendor as beneficial owner hereby conveys unto the purchaser - The deed itself is a valid deed c) Contains a recognisable description of the property d) Contains nothing to cast any doubt on the title ● The best proof of the root of title = Conveyance or Mortgage as at the time they will have also investigated the title. - Assent of land if not Activity 1 - A conveyance from 1978 is capable of being a good route of title; ● Epitome of title - Once the root is found, the solicitor will list all documents relevant to the property from and including the root up until the present date. - Usually end where the interest was vested into the current seller - Send to the buyers solicitor - Buyers solicitor will then investigate the title Investigatie title ● Links in the chain - See an assent to the next owner of the land and that there is not an unbroken chain of ownership to the present owner - Legal estates only transferred by deed, so should be documentary evidence of a change of ownership. - If someone has died, it might be a PR who transfers the land on, not the owner (Check grant of probate to see if PR actually has authority) ● Stamp duties - Different to SDLT - Stamp on document - Sometimes if over certain value would also have to be sent to inline revenue to be stamped - Check if each of the documents subject to stamp duties had been correctly stamped, if it hasn't been then it is not a good title. ● Description of land ● Incumbrances - 3rd party rights; 1. Easements ‘Excepting and reserving’

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- Seller was reserving a right of way 2. Covenants - Restrictive - Positive - Freehold land has benefit and burden and runs diff - Burden in positive covenant does not directly run - Burden of positive burden is directly run in equity - Might find that your client has the benefit of one but more likely it is that you have the burden of one 3. Obligations ‘subject to’ - Pay towards maintenance of road ● Execution - Checking of deed itself - Execution of a deed - Old type & new types - All old deeds had to be signed sealed and delivered - s1LP(MP)A deeds now only have to be signed and witnessed, not sealed - Every case, the seller has to execute the deed, the buyer doesn't. - The buyer will only execute a deed when they are getting some personal promise from the deed or if there is a co-ownership situation. - Buyer will execute if covenant or if in declaration of trust if they are owning as TIC ● Searches - Some encumbrances (restrictive covenants) will only bind if they are registered at land charges register to be binding on purchaser - Solicitor acting on behalf of the client who benefited from the covenant should registered it - Ensure valid searches are made against all legal owners of the land even if their ownership predates the ownership of the title. - Land charge search is done against all previous owners even if it predates the root of title. - Land charge searches have no time limit - done once, don't have to redo them and previous ones can be relied upon. - Name must be absolutely right Activity 2 - The searches I would make are; - Search William from 1962 back until the beginning of 1926 as we do not know when he bought the house - Search Gail 1962 to 1984.

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- Search Frank 1984 to present D2 land charge - Not to use property for anything other than a dwelling house.

Registered land Deduction of title ● Supply the official  copies ● Request from the Land Registry ● Copies prepared directly from the register and show the up to date position. ● All official copies must be less than 6 months old ● Quick and cheap to do ● Copy of land registry plan ‘title plan’ Investigating title ● Freehold or leasehold over 7 yrs ● Addition date - date land registry registered the title ● Freehold title ● Date of official copies, shows copies existing on register at a specific date ‘snapshot’ ● Official copies = snapshot of these 3 registered at a given time. 3 registers; 1. The Property Register - This register describes the land and the estate in the title. WILL: - Contain a description of the land, by reference to the title plan - Indicate whether the title is freehold or leasehold MAY: - Show there are easements or rights benefiting the land - Easements or rights are subject to obligations - Certain things one might usually expect to come with the land are excluded Example - TOGETHER  WITH a right of way in common with the owners for the time being of numbers 1, 5, 7, 9 & 11 Portland Place for the Purchaser and its successors in title to pass and repass over that part of the land shown hatched brown on the plan attached hereto (“the Accessway”) as does not form part of the Property with or without vehicles during normal working hours for the purpose of gaining access to and egress from the rear of the Property SUBJECT TO the Purchaser paying one sixth of the cost of the maintenance of the Accessway and SUBJECT FURTHER TO

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the owners for the time being of numbers 1, 5, 7, 9 & 11 Portland Place having like rights over that part of the Accessway as forms part of the Property” - Have a right of way - Conditional easement - Need to know what this looks like as may come up - Seller and buyer when the easement was created, not currently. 2. The Proprietorship Register - This register specifies the class of title and identifies the owner. It contains any entries that affect the right of disposal. - All things personal to the owner WILL: - Identify the class of title, for example; title absolute - Identify the current owners and their address MAY: - Show the price paid for the land by the current owners (Only since April 2000) - Show restrictions on the owners’ ability to sell e.g. can include a restriction shwing co-owners own the beneficial interest as tenants in common. - The owners gave an indemnity covenant when they bought the land. EXAMPLES: - May see either of these but it will depend on the nature of the title Entry showing co-owners own as tenants in common. RESTRICTION: No disposition by a sole proprietor of the registered estate (except a land corporation) under which capital money arises is to be registered unless authorised by an order of the court. - Don't see this restriction = Joint tenants - This restriction is there = Tenants in common Entry showing existence of chain of indemnity covenants. The transfer to the proprietor contains a covenant to observe and perform the covenants referred to in the Charges Register and of indemnity in respect thereof. 3. The Charges Register - Any charges which affect the land (Incombrances) - Covenants - Easements - Leases over 7yrs - Mortgages - Unilateral notices - Vast majority do not cause problems, but the skill is identifying ones which may potentially be a problem and how to avoid it. Activity 3 -

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Large Group 3: Pre contract searches and enquiries; Town and Country Planning.

● We make searches and enquiries before contract because of Caveat Emptor. - Buyer beware. - If they are specifically asked questions must answer them honestly or will be in breach of contract. - Identify which searches have to be made - Something discovered after exchange which would have been found before, it is too late to pull out without being in breach of contract. - No duty to disclose physical defects of the property - Does not have to admit to the buyer if there is any problems with the neighbour unless the buyer specifically asks the questions - If you don't make the relevant inquiries and a problem arises will be guilty in negligence Types of pre contract searches and enquiries ● Personal inspection - Physical search - Advisable - Look at boundaries or easement disputes - Client can do this ● Survey - Physical search - Done by a professional surveyor - Different types in w.1 - depends on the type of property itself ● Local searches; a) Local Land Charges Search - LLC1 (Local search) - Details of local land charges which encumber the property - Financial charges - Planning consents - Conservation orders - Tree preservation orders

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Become part of the property Done in every case

b) Standard Enquiries of the Local Authority - CON29 (Local search) - General enquiries to local authority - Planning applications - Drainage agreements - Link to the property alone - Done in every case c) Optional Enquiries of the Local Authority - CON29O - Highly contaminated area - Each enquiry costs additional money - ...