A Guide to the Conveyancing Process
FRAMEWORK OF A TRANSACTION
There are two stages to the sale or purchase of land in England and Wales. The first is an exchange of contracts and the second is completion.
On exchange of contracts a legally binding agreement comes into being. Before contracts are exchanged either party can withdraw without obligation to the other. At exchange of contracts the buyer pays to the seller (via solicitors) a deposit of ten percent of the price. This shows the buyer's good intentions and allows the seller to have security for his costs if the buyer breaches the contract. Occasionally, a seller will accept a sum less than ten percent of the price if, for example, the buyer is having a mortgage in excess of ninety percent of the price. However, the buyer remains liable to pay the full 10% if he fails to complete.
On completion, the balance of the money is paid and in return the deeds and keys are handed over. This is the day that the seller must have moved out and the buyer can move in.
TIMESCALE OF THE TRANSACTION
There is no set timescale and each case has to be dealt with on its merits. However there are averages. This is often six weeks to affect an exchange and a further two weeks to complete. We have dealt with cases in days but there must be very special circumstances to permit that timescale.
COSTS
You will have our cost quotation. If it transpires that the nature of your matter is not reflected in the costs quoted we shall let you know as soon as possible and give a revised quotation.
Please note that the basis of our acting on your behalf is that we shall receive from you all the money to finalise the transaction, including our costs and the disbursements, prior to completion. Due time has to be given to the clearance of cheques including those received from Building Societies or Banks. We can only pay out for exchange of contracts and completion upon cleared funds. Funds should be transferred to us by way of Telegraphic Transfer, directly from your bank to ours. The account details will be provided to you nearer the time. We cannot accept cash.
WHAT YOU SHOULD DO:
HOMEBUYERS SURVEY AND VALUATION
Carefully consider having a Survey carried out. If you wish you can contact the Royal Institution of Chartered Surveyors on Chartered Surveyors on 020 7222 7000 who will be able to give you details of local surveyors who you can contact.
Should there be anything wrong with the property it is for you, as buyer, to find out and not for the seller to disclose it. This rule is known as ‘caveat emptor’ and means buyer beware. Once you have exchanged Contracts it will almost certainly be too late for you to complain about a defect.
There are three types of Survey that can be arranged. The lowest level is not a Survey for you but a valuation for your lender only. Sometimes these are shown to you but they are of little significance for you.
The middle type of Survey is known as a Homebuyers Survey. The main objectives of the Homebuyers Survey is to give professional advice to assist you
- To make a reasoned and informed judgement on whether or not to proceed with the purchase;
- To assess whether or not the property is a reasonable purchase at the agreed price;
- To be clear what decisions and actions should be taken before Contracts are exchanged.
The report focuses on what the Surveyor judges to be urgent or significant.
Significant matters are those that typically, in negotiation over price, would be reflected in the amount finally agreed. Urgent matters are defects judged to be an actual or developing threat either to the fabric of the building or to personal safety.
The above type of Survey is an economy package. It is less detailed than a full Structural Survey. It is appropriate for use only on conventional houses, flats, bungalows etc in an apparently reasonable condition.
If you wish to receive advice on matters normally outside the scope of the Homebuyers Survey and Valuation or issues of concern are highlighted in them then a full Structural Survey can be obtained. This would normally be recommended as necessary by the Valuer or Surveyor carrying out the Homebuyers Survey prior to the purchase proceeding.
FINANCIAL ARRANGEMENTS
If you need a mortgage to buy the property please ensure you have made arrangements for an application to be considered by a lender. Otherwise, please ensure that you have made accurate calculations and that you will have accessible funds to buy the property. In particular ensure that funds are available from their place of investment and in the case that you are receiving gifts from family or friends that you have the money in your name and under your control prior to exchange of contracts.
Please note that we shall request the mortgage advance for the working day before completion so as to avoid difficulties on the day you are looking to move. This will often mean that the lender will charge you interest from that day prior to completion.
THE LOCALITY
The location of a property is one of the most important aspects to be considered when making a purchase. You should check the area to ensure you will feel happy living there and that there are no unpleasant surprises awaiting you. For example, the local search deals with the property itself and not the locality. There is one exception and that relates to plans for road schemes within a 200 metre radius of the property.
You should contact the local authority to find out if there are any permissions or applications for properties or land close to the one you are looking to purchase. Remember that any view expressed by the Council will only be a view on that day. Policy can change and new applications may be made shortly after you have enquired.
CHANCEL INDEMNITY
If the property is in a Church of England Parish with a church built in medieval times or earlier (15th Century or older) and it has a Vicar (not a Rector) you may be liable to contribute towards the cost of repairs to the Chancel.
Your mortgage lender will require us to cover this risk and we will on completion effect an insurance indemnity policy to satisfy any potential charge to you or your lender.
This risk needs to be covered so that neither you nor any mortgage lender suffer loss due to a claim rising during your ownership. Accordingly we have negotiated a block insurance policy backed by Lloyds Syndicate 4472 for all purchasers in England and Wales.
The sum insured will be the purchase price you are paying to the maximum level of £1,000,000.
The policy will cover you, any mortgage lender you have during your ownership and successors in title. The cost of cover is a one-off payment of £10.60.
If as an alternative you would like us to carry out a full Chancel Search against the property the cost will be £100 plus VAT and on average the search will take approximately 14 days from request.
Unless we hear from you to the contrary in writing before exchange of contracts we will effect indemnity cover on completion and include the premium in our completion statement to you
If you are taking a mortgage to purchase the property covering this risk will be a condition of the lender proceeding with the loan.
BREACHES OF COVENANTS, PLANNING PERMISSION AND BUILDING REGULATIONS
It is common to find that properties have covenants, which affect their use. A covenant is a legal term for a promise. For example a covenant to use the land for a private dwelling only (which would exclude business use) or not to put up any extensions or make alterations without someone’s consent. It is important that we establish if any such covenants have been breached. If they have, you would inherit the breach with all the problems that can arise.
You should inspect the property and if, upon seeing the title documents that we will copy to you, you believe there is a possible breach, you must let us know. We will ask relevant questions of the seller and consider the Agents details and Surveyors report, if sent. Sometimes, perhaps mistake or design may omit important information. This is where your inspection becomes important.
For example, look out for extensions and conservatories (garages and summerhouses may also be a breach) or business use.
If there has been a breach of covenant you might be required to return the property to the way it was before, pay damages, or seek retrospective approval (which will take time and could be costly).
If there is a breach of Planning or Building Regulations you may be required to effect such re-instatement, remedial or additional work necessary.
There is now set out below some information for you to consider so far as it may be relevant to your particular transaction
Correspondence
You should not correspond with the other party or their solicitor but should make all representations in writing through us. This does not prevent you discussing the matter with the other party but prevents you unwittingly binding yourself to the sale/purchase, or other agreement.
You should return anything we require as quickly as possible as otherwise delays or extra costs can be incurred and this is particularly so after completion. There is still a substantial amount of legal work to be done after you move in. Time is crucial otherwise you can incur penalties from H M Revenue and Customs or a Landlord.
Disputes or Occupiers
There has been a tendency for the law in recent years to create new rights over a property, which can, in some cases, bind an unsuspecting buyer. Please therefore let us know if you should discover or suspect that there is anything unusual about the seller’s circumstances. For example, if there is a dispute between them or other people who live at the property in addition to the seller(s). This is an important point as otherwise you could buy a property with someone living in it!
Alterations
If you believe any alterations have been carried out to the property please let us know so that we can make enquiry to ensure the appropriate consents have been obtained or, if they have not, identify ways to resolve the matter. See the previous section dealing with breaches of covenants, planning permissions and building regulations.
Trees
If the landscaping, including trees within the boundaries or near to the property, was part of your reason for choosing this property, please be aware that even though they may be the subject of a Tree Preservation Order, if they are diseased or dangerous they could be removed. A Tree Preservation Order could prevent your felling or pruning the trees without the formal consent of the Local Authority. Further, tree roots can grow to such an extent that they may interfere with services or the stability of the property. Certain types of trees (for example Willow) are notorious for the consumption of water. This can cause shrinkage to certain types of soil and can thus undermine support. If you are at all concerned it will be prudent to have advice from a surveyor or an arboriculturalist before exchange of contracts.
Radon Gas
Radon is a natural radioactive gas, which comes from decaying uranium occurring naturally in all rocks and soils and is given off at the surface of the ground. It is a gas that is breathed in by people all their lives. Out of doors it disperses in air so levels are very low. Radon seeps into enclosed spaces such as mines and into houses, schools and places of work. It can collect there and build up to high levels depending on the local geology, atmospheric conditions and the state of ventilation.
Certain areas of the country have higher radon gas readings than others. Also throughout a year there can be different recorded levels of radon from season to season. It also varies indoors from day to day.
The Northamptonshire area along with other parts of the Midlands, Wales and the South West of England has a relatively high reading of radon gas. Whether or not your new home could be affected and to what extent can only be determined by a test. You may wish to have a test carried out prior to your exchanging contracts. Tests can take three months to assess. Quicker tests are available which will take about seven days but these will not necessarily give you a proper reading. Further information can be obtained from the Environmental Health Department of the Local Authority or more particularly the National Radiological Protection Board, Chilton, Didcot, Oxon OX11 0RQ Tel: (01235) 831600 Fax: (01235) 833891.
Deposit
The contract provides for a deposit to be paid by the buyer to the seller in the sum of 10% of the price. As more and more buyers are having mortgages in excess of 90% of the price these 10% deposits are becoming less common. Unless you inform us to the contrary we shall assume that you will place us in funds to pay the 10% deposit at exchange of contracts. Should you have any queries on this point, please let us know.
The contract provides that the deposit may be used by your Seller as a deposit on any linked transaction. This is on the basis that ultimately it is held by a solicitor as stakeholder. This means it is kept by the solicitor in the client account of his firm’s practice. We will not make further enquiry as to the use of the money other than of your seller's solicitors.
Finance generally
Wherever possible we endeavour to prepare a statement of account showing the financial side of the transaction as soon as possible but for many reasons this may not be until shortly before the completion date. It is for you to be sure that you have the funds to proceed and that they are easily accessible. Please bear in mind charges that are made by your lender (such as indemnity guarantee premiums and re-inspection fees).
Life Assurance
This can be an important part of your financial considerations. Who will cover the cost of the mortgage if you where to die? Will your dependents have sufficient income to be able to continue to live in it? You should speak with an Independent Financial Adviser about your requirements.
Fittings Furnishings and Central Heating Systems
It is for you to check the condition of any items being left or for which you are to pay in addition to the price of the property. Buyer beware is the principle that applies.
Sewers
It is probably the case that your property is connected into a mains sewer maintained by the regional Water Company. The usual rule is that the length of pipe from the mains to the boundary of the property is the responsibility of the Water Company. Any pipes within your boundaries are your responsibility. If pipes within your boundary are shared with a neighbour then they are jointly liable for the pipes, with you.
Buildings insurance policies normally cover repairs for pipes. You will need to check the provisions of your policy for fuller information.
Should you desire to build any other buildings or extensions you will need to consider if the sewers pose any problems. You will not look to be building an extension over a drain running behind you property. Sometimes the Water Company prohibits building within a certain distance of pipe work.
Repossession
Repossessed properties have their benefits. They are often competitively priced and there are no chains. However, they often need expenditure. You should check, in particular, the wiring, plumbing and heating systems whenever possible. If you do not you buy with the risk that defects exist.
Empty Properties
If properties are empty or have been unoccupied for over 30 days there will be no or limited insurance cover on them. As it is sometimes the case that buyers are to be responsible for insurance from exchange be aware that risks for which there would normally be insurance may not be covered and you would have to bear the cost of problems arising. To mitigate against possible cost you could for example arrange to have the property’s water system drained-down, or through us to alter the arrangements so the property is at the seller's risk until completion. We shall await your instructions, if any.
New Properties
When you buy a new property it may be that the property has not been built when you make your offer. The contract will include a provision that the property must be built to all the appropriate standards but will not specify a date by which it will be completed.
Normally the developer will issue a notice when it believes the property is being finished and support this with a copy of the Cover Note issued by the National House Builder Council or similar. You will be required to complete within a specified time - normally 7 to 14 days after the notice. Estimated dates may be given to you, but are not binding. Our experience has shown that these estimated dates could be rescheduled many times causing stress and anxiety to buyers. You have to accept that position if you proceed with the transaction.
Development contracts usually state that you cannot delay completion because matters of a minor nature relating to the construction are outstanding. This includes the laying of paths, drives, turfing and fencing for example. There is scope for disagreement on the meaning of ‘minor’. Basically, if the items outstanding do not make the property uninhabitable they will probably be considered minor in nature.
Joint Ownership
If there are more than one of you buying the property it may be held jointly by you in one of two ways i.e. as joint tenants or as tenants in common. Set out below are the principal differences between the two and, when replying, could you specify the way in which you want the property to be held? The Transfer will automatically be drafted to provide that the buyers hold as joint tenants but it can be amended as required.
- Joint Tenants - hold the property in equal shares with provision that on the death of the first joint owner their share is automatically transferred to the survivor. This is the way in which, matrimonial properties are generally held between husband and wife. On this basis, when the transfer has been signed you will own the property both jointly and equally.
- Tenants in Common - May similarly hold the property in equal shares although this is not always the case. Each Tenant in Common’s share remains the property of his/her estate following death and will pass under the terms of his/her will or by the intestacy rules if no will has been made. This situation is often used by people purchasing property jointly for commercial reasons or where they contribute in unequal proportions towards the purchase price and agree that on the sale of the property the net proceeds should be distributed in accordance with their contribution.
If either of you have children by previous relationships, we shall need to consider the issue of joint ownership in greater detail. If this applies to you, please let us know.
Persons who 'move in' or 'live with' the owner
Please be aware that legal problems can arise when people start living together. For example, are the non-owning parties lodgers or a tenants? The difference can cause serious problems. Further, if the incomer contributes regularly towards the home owner’s mortgage payments or pays for repairs or improvements to the property, a trust may be created or other legal rights acquired by them.
For such rights to exist there should be a clear intention to infer joint ownership with evidence that the claimant acted to their detriment in reliance on a belief that they were, or would become, entitled to a beneficial interest in the property.
It is important therefore that before the new property is bought you give careful consideration to such matters and if necessary seek further guidance from us.
We shall be pleased to assist with matters arising out of the information we have given above and before we embark upon any work we shall, of course, discuss with you the additional legal costs.
Chains
Chains of transaction, i.e. your seller is also buying another property at the time he is selling to you, create difficulties because inevitably someone waits for another to be ready to exchange. However a possible problem, far worse, is that you may be forced to breach your purchase contract if your buyer fails to complete with you on the dated set for completion in the exchanged contract. The only safeguard is to separate your sale and purchase, not to synchronise them as is normally the case. This will obviously pose practical problems such as temporary accommodation and storage costs.
Another solution is to arrange bridging finance. This is a loan that enables you to buy the new property pending your being able to resolve the difficulties on your sale (or to resell it). You will have to budget for the cost of setting up of the loan and its continuing interest (which will be high). We may be able to assist you in arranging bridging finance.
Unless we hear from you to the contrary we shall assume that you want to synchronise the sale and purchase matters.
Damage to the property between Exchange of Contracts and Completion
Most Contracts provide that the Seller must transfer the property in the same physical state as it was at the date of the exchange of Contracts (except for fair wear and tear). This means the risk stays with the Seller until actual completion.
A Buyer can withdraw if at any time before completion the property is no longer usable in the same way that it was at the time the Contract was made.
However the Seller is not obliged to insure. It is a matter for him. Naturally it is prudent that he does so.
The Seller can also withdraw if the property has become unusable where the damage was such that he could not reasonably have insured against it or could not legally make good the damage occasioned.
Contamination
Is the land you propose to buy contaminated? The chances are you do not know. Parliament has enacted legislation as a result of environmental concerns, with the result that owners of land which is contaminated could be liable to pay the costs of its clean up. This could run into thousands of pounds. It all depends whether or not there is a harmful substance that poses a significant risk of injury to living organisms or property. Initially, the polluter must pay and clean it up. If the polluter cannot be found it will be the task of the owner.
You could have an analysis of the soil undertaken. Alternatively, you may know that the property has been used for agricultural purposes only and therefore feel fairly safe that there will be no contamination with which to contend. Certainly most of the country is not contaminated and the chances are that former agricultural or arable land will be safe. However no one could have a 100% guarantee.
We will carry out an Environmental Search against the property and disclose this to you before exchange of contracts. This will provide you with a range of relevant information and useful telephone numbers to call to discuss concerns or seek further detail. There may be information revealed which should be referred to your surveyor for comment before you exchange contracts. For example the property may be built on a former industrial site or in the vicinity of a landfill site. This may cause you concern from a health point of view for yourself and your family. It may also concern you as to how a buyer might view things when you come to sell. It may be a health and wealth issue!
Targeting a Completion Date
If you have a preference for a completion date please let us know. Whether or not the date is possible will depend on:
- Whether it is realistic;
- What others in the chain want?
In our experience, those clients who insist on particular dates have the greatest anxiety and experience the most stress.
Whilst it is usual to have 2 to 4 weeks between exchange and completion it is sometimes the case that contracts are exchanged just days before or even on the same day as completion. As it is only at exchange that one can have any certainty that completion will occur on the agreed date you might have very little time to make arrangements or find that you have to cancel them at the last minute.
Access
The normal rule is that buyers cannot have access to the property until completion other than for viewing. If you wish to have access for cleaning, fitting carpets, decorating etc. please note that whilst a request can be made there is no guarantee that it will be granted. We advise clients not to allow access as it is not worth the problems that can (albeit in the minority of cases) arise as a result.
Completion
At completion the property should be in the same state as when contracts were exchanged. Where possible you should check the property very early on the day of completion to ensure that it is all satisfactory. We shall assume it is unless you contact us to the contrary. Please note that we shall attempt to complete or start the completion by 9.30am on the day so you will have to contact us by that time to stop it proceeding, if there is a problem.
Wills
As you are buying a property it is prudent to make or review your Will. If you are married with children you could leave this world with devastating consequences for your family as a result of dying intestate (without a Will).
Tax
It is possible that your transaction will involve taxation issues that could be very important to you and potentially costly. If you have an Accountant or Tax Advisor it is important that you discuss the matter with him/her for appropriate guidance.
Below is some basic tax advice that may be applicable to your transaction:-
- Capital Gains Tax
- Inheritance Tax
- Value Added Tax
We hope the above has been helpful and useful. Please let us know of any matters (whether or not they are referred to above) which cause you concern and we shall do all we can to assist you.