The residential property market has been particularly turbulent in recent years. In the early months of 2014, for instance, the housing market was relatively booming, compared to a very lean period during the recent global recession.
It is often said that moving house is one of the most stressful events in life. However, buying or selling a residential property in England or Wales can be relatively pain free. If there is no ‘chain’ and an individual is buying a property without a mortgage, the transaction can take a matter of days.
In other instances it can be a difficult, stressful and time-consuming process. If there are a number of properties being bought and sold in a ‘chain’ of transactions which must complete on the same day, the process can be lengthy. Other factors can also make a sale or purchase longer than anticipated. For instance, a mortgage offer may include a condition that must be complied with before the purchase can go ahead.
A residential property can be a freehold detached property or a leasehold second floor flat; a semi-detached home, a bungalow or a terrace. Each has its own unique legal aspects that need to be checked before a purchase goes ahead.
Issues of a more practical nature can arise. Buyers may need a mortgage to buy their property and the mortgage company requires copies of documentation such as planning permissions, or insists on indemnity insurance before it agrees to lend the money. A search of a local authority may reveal that a bypass is planned near the house, or it may prove tricky to obtain flood insurance.
Whatever the type of property and the needs of the buyer and seller, understanding the process of buying and selling a property is useful if you are considering a property transaction.
Conveyancing is the legal and practical process of transferring the legal ownership of a property. At its simplest, the process involves:
You cannot legally buy or sell land or property based merely on an oral agreement, even if money changes hands. The law makes clear that a contract for the sale or other ‘disposition’ (e.g. a lease or mortgage) of land must be in writing incorporating all the terms on which the parties have expressly agreed. If a transfer of land does not comply with this requirement, it will be treated as void.
If you have made an offer on a property and it is accepted by the seller, you should arrange to see a solicitor. When you have instructed a solicitor (or other conveyancing lawyer) to undertake the conveyancing work for you, give your estate agent or the seller (if a private sale) the solicitor’s details. The agent or seller will then send the relevant paperwork, property details and details agreed to the solicitor.
If you need a mortgage to buy the property, give your mortgage company the details of the property and, if you have not already, apply for a mortgage.
You will need to give your solicitor all the information required to deal with the transaction and to ensure all details on the legal documentation are accurate and correct. Typically, your solicitor will need to know:
Your solicitor will send you a ‘client care’ letter setting out fully the terms upon which they will act for you, including an estimate of costs. They will also request the draft contract and all supporting paperwork from the seller’s solicitor. These include the title deeds, any planning permissions and other documents you and your solicitor will need.
Your solicitor’s role is to check ‘legal title’ to the property, ensuring the seller has the legal right to sell the property, and to ensure the contract drafted by the seller’s solicitor is accurate and correct. The Law Society’s Standard Conditions of Sale are designed for use in residential conveyancing and are invariably incorporated as part of the contract. These standard conditions are extremely useful and govern many issues such as occupation and insurance of the property before exchange and completion, the time by which completion must take place, and the remedies available to the buyer and seller in the event completion is delayed.
The pre-contract work your solicitor will undertake includes:
When all the pre-contract work is complete, your solicitor should go through all the information with you before you discuss exchange of contracts.
A search of the local authority will reveal whether any issues relate to the property or those in the immediate vicinity. The results may influence your decision whether or not to proceed. The local authority search covers many matters including, for instance:
Your solicitor should undertake all necessary enquiries in relation to the property, particularly if you are having a mortgage. Invariably, your solicitor will also act for the mortgage company and has duties to the lender as well as to you.
Your solicitor will advise you on the results of the search and may need to report the results to the lender (if any) if it could affect the mortgage offer.
If you are a cash buyer, it is possible to avoid any delay and expense of having pre-contract searches by taking out indemnity insurance instead. If you are a cash purchaser, it is worth discussing this option with your solicitor.
This will reveal whether there is a risk of flooding, radon or subsidence, or contaminated land within a given radius of the property and whether it could adversely affect it. If any are revealed, your solicitor will discuss these with you and will likely need to report it to your lender (if any).
If you are buying a property jointly with someone else, for instance, your partner or spouse, you will co-own the property. In law, there are two ways in which you may co-own property:
Joint Tenants: this is not to do with tenancy in the usual sense of the word but the legal status of co-owning property. If you own the property as joint tenants you both own the whole of the property, you do not own a distinct share. The ‘right of survivorship’ applies which means if one of you dies, the survivor inherits the whole of the property. Neither co-owner can leave half to someone in their will. If the property is sold, the proceeds will be split equally. It is typical to own a property as joint tenants if, for instance, the parties contributed equal amounts to the purchase price. More than two co-owners can also own the property as joint tenants.
Tenants in Common: if the property is held as tenants in common you each own a separate, identifiable share in the property. If there are more than two co-owners each will own his or her own share and can leave that share in their respective wills. If the co-owners contributed unequal amounts to the purchase price it is only fair for the co-owners to own a share in the property representing their contribution. For instance, if two buyers bought a property with cash in a 30:70 ratio, it would be fair for them to own 30% and 70% of the property respectively.
The final transfer document will state whether the property will be owned as joint tenants or tenants in common. If necessary, ask your solicitor to advise you fully on co-ownership issues.
If you are having a mortgage, you will need a survey to satisfy the lender that the property is worth the purchase price agreed. Your mortgage adviser will discuss this with you and arrange a basic valuation survey of the property.
If you are a cash buyer, it is highly recommended you have a survey carried out to ensure you know whether there are structural problems with the property before you go ahead. Surveys can be expensive – but are undoubtedly cheaper than the cost of remediation work should you discover major structural problems with the property after you have bought it.
There are three types of survey (costing anything from £100 to £1000, or more):
Your solicitor will advise you on the most appropriate survey depending on the property you are buying.
Buying a leasehold property means there are additional factors you and your solicitor need to consider. Under a lease, you have the right to occupy the property for so long as the lease is valid. The lease sets out the basis on which you may occupy the property, whether it is a flat or, for instance, a new build where the developers choose to own the freehold of the development.
If you are buying a leasehold property, your solicitor will go through the lease and discuss its terms with you. The lease terms will include:
It is important to understand the lease and to comply with its requirements, and to appreciate the landlord’s duties towards you. You will also need to understand what the service charge (if any) covers and when it is payable, and what the management company’s duties are – if there is one.
Your solicitor will ensure the property has the benefit of National House-Building Council (NHBC) Buildmark cover (or similar). The builder is responsible for completing the property to the standard required by the NHBC. The NHBC provides cover at various levels for up to 10 years after completion of the property. For instance, the builder is responsible for rectifying any damage caused by its failure to build to the NHBC Standards within two years of physical completion of the property.
In addition, if the new property is leasehold your solicitor will check the terms of the draft lease and negotiate the terms on your behalf to ensure there are, for instance, no onerous restrictions or any terms that may not be acceptable to a mortgage company. You will be advised about the terms of the lease, the rent, service charges, and any management company.
Yes, sometimes a purchaser needs to have insurance in place on the property from the date of exchange of contracts. Sometimes, it depends whether the seller has a mortgage (in which case the lender will usually insist on insurance remaining in place until completion). Ask your solicitor when you need to have insurance in place.
When contracts are exchanged, the purchaser must put down a deposit. The deposit is usually 10% of the purchase price but it is common for the seller to accept 5%. Legally, a contract requires ‘consideration’ to complete the contract, and this usually takes the form of money. This is partly why a deposit is required on exchange of contracts for the sale of property. It is also effectively a practical demonstration of the purchaser’s commitment to the seller.
Your solicitor will discuss the deposit with you early in the transaction so that you have sufficient notice to send it to the firm’s account ready for exchange. It will be retained by your solicitor until exchange of contracts.
When you are happy with the terms of the purchase and there are no unresolved legal or practical issues, you (and any joint purchasers) will sign the contract. The seller(s) will sign an identical copy of the contract. A date for completion will be agreed – usually up to around 28 days after exchange.
When contracts are exchanged (usually by a telephone call between your solicitor and the seller’s solicitor), your signed contract and deposit will be sent to the seller’s solicitor. The seller’s signed contract will be sent to your solicitor. You will be legally bound by the contract and if you back out, you could lose your deposit and face legal action. This is why it is imperative you know everything you can about the property before committing yourself.
If you are selling a property at the same time and the sale proceeds will go towards the purchase price, the transactions will be synchronised so that exchange takes place at the same time. If this happens, it is common to use the deposit received from your buyer towards the deposit on your related purchase.
Your solicitor will undertake pre-completion checks and searches, and ‘order’ the mortgage monies in readiness for completion. The final documentation will also be prepared and you will need to sign the mortgage deed and the transfer (and lease documentation if necessary). You will need to ensure buildings insurance is in place for the completion date (if not already in place from exchange of contracts).
Your solicitor will send you the accounts setting out all the fees and costs, with the balance of what is required to complete the purchase on the completion date. You must ensure this money is sent to the firm’s bank account before completion.
Completion will take place on the day agreed in the contract, usually before 2pm. When you have been notified completion has taken place, you will be able to collect the keys from the estate agent or the seller – and the property is yours.
Your solicitor will apply to register your legal ownership of the property with the Land Registry, the government body that officially records ownership of all property in England and Wales on the land register. You will receive a copy of the record of your ownership in due course.
Your solicitor will prepare a land transaction return and send this with the stamp duty payable (if any) to HM Revenue & Customs.
If you have accepted an offer, you should instruct a solicitor or conveyancing lawyer to undertake the legal work for you. Your estate agent (if you have one) will send the relevant paperwork, property details and sale price to the buyer’s solicitor.
You need to provide all the necessary documentation in relation to the property including, for instance, guarantees and planning permissions. If you have a mortgage or any other legal charge over the property, give your solicitor the details. Your solicitor will draw up the contract for the sale and send this and all the relevant documentation about the property to the buyer’s solicitor, including the property information form and fixtures, fittings and contents form.
This is a form comprising various questions about the property covering matters such as whether there have been disputes with neighbours, what boundaries you have maintained, what work you have done to the property, and so on. You must answer as openly and truthfully as possible to avoid any claims of misrepresentation later on.
If the property is leasehold, you will also have to provide details in the leasehold information form concerning matters specific to the lease and service charge, etc.
This document comprises a list of all items commonly found in properties and the seller indicates what is to be left behind (i.e. included in the sale price), what is available at an additional cost, and what the seller will take on completion. It should reflect what is included in the estate agent’s particulars of sale.
When completed and signed by the seller, these will be sent to the buyer’s solicitor who may or may not raise further enquiries depending on the replies.
When the buyer is ready to exchange contracts and a completion date is agreed, you will sign the contract (if not signed earlier). The buyer will sign an identical copy of the contract. When contracts are exchanged (usually by a telephone call between your solicitor and the buyer’s solicitor), your signed contract will be sent to the other side and your solicitor will receive the buyer’s deposit and signed contract. You will be legally bound by the contract and if you back out of the sale, you could face legal action.
If you are also buying a property and your purchase is dependent on your sale, the transactions will be synchronised (as explained above) so that the deposit received from the purchaser will go towards your own deposit.
If you have a mortgage on the property, your solicitor will request a redemption figure made up to the date of completion. This is the amount remaining to be paid on the mortgage.
You will also sign the transfer deed ready to be sent to the buyer’s solicitor on the agreed completion date.
Your solicitor will receive the balance of the sale price from the purchaser’s solicitor. When this has taken place, the purchaser is entitled to the keys. Out of the money received, the legal fees will be deducted, estate agent’s fees paid, and the mortgage redemption money sent to your lender to pay off the mortgage. The balance (if any) will be paid into your bank account (or used towards a related property purchase) and your solicitor will send you detailed financial accounts.
Your solicitor will send the transfer document and any other relevant documentation relating to the property to the buyer’s solicitor. When the buyer receives a copy of his or her official ownership of the property, there will be no reference to you or to your mortgage.
Buying and selling property can take anything from a few days to months, depending on the nature of the property and how many properties are involved in a chain of transactions. A simple sale can take less than a week if needs be. At the other end of the scale, if there are problems with the legal title to a property, or where structural work needs to be carried out before a lender will advance the money, it can take months.
It is best to ask your solicitor how long your sale and/or purchase is likely to take, bearing in mind if a problem arises it could take longer than first indicated.
There are two separate costs you need to consider:
Legal Fees: your solicitor will charge a fee for undertaking the legal work for you. This usually depends on the sale or purchase price and can range from £300 right up to £1000 or more for a high value property. Do not forget to add VAT.
If you are selling, the estate agent will also charge you a fee (typically a percentage of the sale price).
Expenses/ Disbursements: if you are buying, the expenses will most likely exceed the solicitor’s legal fees. The initial searches and enquiries will incur a fee, as will later pre-completion searches and there will be a land registration fee on completion. If the purchase price is more than £125,000 you will also have to pay stamp duty from 1% (up to 15% if the purchase price is more than £2 million).
If you are selling, the expenses are minimal. Your solicitor is obliged to set out all the fees and disbursements that will arise in the transaction, and tell you if further expenses arise later on.
Nothing in this guide is intended to constitute legal advice and you are strongly advised to seek independent advice on matters that affect you.