How to acquire Real Estate in the U.K.
In this article we explain the aspects of the purchase of property from a practical point of view in the U.K.
A. Terminology for new buyers
“Exchange of contracts“
This is the point in the transaction when you become legally bound to purchase the property and the Seller becomes legally bound to sell to you. You will probably have called in to see us to sign the Contract several days before exchange. Signing the Contract does not commit you to purchase, but exchange of Contracts does. It is normally carried out over the telephone, in a conversation between the respective solicitors.
“Completion date”
This is the date (normally some two to four weeks after exchange of Contracts) when the Seller has to physically move out of the property and you are able to move in on payment of the balance of purchase price i.e. purchase price less deposit paid on exchange of Contracts. You should try and agree the date with the Seller via the Estate Agents. You should not make any firm commitments; e.g., booking removals or handing in Notice on any rented property, until Contracts are exchanged and the completion date is known.
“Deposit payable on exchange of contracts”
This term gives rise to frequent confusion. The deposit here is not, as in an HP agreement, the difference between the cash sum that you are injecting into the transaction and the purchase price, but is a fixed percentage (10%) of the purchase price regardless of whether you are having a 95% or 100% mortgage. This deposit is passed by us to the Sellers Solicitors. It is quite common for deposits of considerably less than 10% to be accepted by Sellers, but there will be a Clause in the Contract which states that if you default the full 10% deposit will become payable by you.
B. Purchase
1. Mortgage
There are various mortgage products available on the market that you should compare. We do have an in-house Financial Services department and if you require advice on the suitability of any particular product please let us know.
2. Contract
When you instruct us, we will ask the Sellers Solicitors to forward a draft Contract to us and ask you for monies on account of the Local Authority Search fee and our costs. As soon as we receive the draft Contract, we will use a copy of the plan from the Contract to submit the Local Authority search. Nothing more can be done by us until we receive the draft Contract, but if you are obtaining a mortgage you can avoid delay by ensuring that your application is processed quickly.
3. Local authority search
This consists of a list of questions about the property that are submitted to the Local Authority. The questions cover such matters as road improvement/schemes affecting the property, what sewers serve the property, what orders or notices affect the property and so forth. The time taken for Local Authorities to process the search varies, but is generally between two to four weeks. IT IS IMPORTANT TO NOTE that the search does not reveal any applications or proposals there may be to develop adjoining land or buildings. If this is a matter that concerns you, then please enquire direct with the Planning Department of the Local Authority. Some alterations to adjoining property may not need planning consent and will therefore be unknown to the Local Authority. Only enquiries of the land owners concerned will yield information of such developments, so if you are concerned as to the possibility of building works taking place nearby you should contact the Planning Department direct or even the owner of adjoining properties direct. The Search does not answer drainage enquiries. We will obtain a Drainage Report from the Water Authority.
4. Property information form and fixtures and fittings schedule
Most Sellers Solicitors now deliver with the Contract replies to a standard set of enquiries, together with a Fixtures, Fittings and Contents Form showing the items to be included in the sale and left at the property. Where this is not the case then we will have to raise such enquiries ourselves and send them to the Sellers Solicitors. Sometimes additional enquiries have to be raised in any event. The Contract will probably contain a Clause in which you acknowledge that you are not relying upon any statements made, except those made in writing by the Sellers Solicitors and contained in the replies to the enquiries. If you have been given any information by the Seller or the Sellers Estate Agents whose is important to you, please let us know well before Contracts are exchanged so that we can obtain written confirmation.
5. Survey
Unlike the purchase of goods from a shop there is no implied warranty that the property is in good condition. It is your responsibility as Buyer to ensure that the property is sound and free from defects and that it suits your purpose. Most Lenders offer a differing range of surveys from a simple valuation to a full structural survey. You should enquire of them to see what is on offer. We would advise that you consider whether to have an independent survey or whether to rely on the Lenders valuation. The Lender requires the property as security for its loan that may be considerably less than the market value of the property. Thus even a building in poor state of repair may still represent adequate security for the Lender, but might not be what you require. You should not rely on a Lenders Valuation Report in deciding whether to proceed with the purchase. You should obtain a more detailed report on the condition and value to enable you to make such a decision.
6. Inspection
We will not actually see the property and therefore rely upon you to report to us any unusual features or obvious defects or discrepancies and this must, of course, be done before Contracts are exchanged. You should ensure by your own inspection that the boundaries on site accord with the title plan which we will show to you before exchange of Contracts. If you are buying the property for any particular purpose or because of any particular advantage that the property might have, then you should inform us in writing so that we can check that such purpose or advantage can be legally enjoyed. In order that we can deal with these points we shall ask you to complete a short questionnaire about the property.
7. Life insurance policies
You must ensure before Contracts are exchanged, your proposal for life assurance / insurance (if applicable) has been accepted by the Insurance/Assurance Company without having to have any medical examination. You must make certain that the life policy cover will commence on EXCHANGE OF CONTRACTS since the Contract will still be enforceable even if you die between exchange of Contracts and completion. Quite often we have to give details of the Policy to your Lender before they will release the Mortgage monies and it is vital to avoid delay and the penalties, which you will incur if you are in breach of Contract because of the delay, for you to arrange for us to receive this information in good time.
8. Buildings insurance
Except where the property is Leasehold and the Lessor/Management Company insure (See Leasehold Section below) Lenders like to insure the property themselves. This is the most convenient solution from your point of view, but not necessarily the cheapest and you are entitled, in most cases, (unless Buildings Insurance forms part of an overall “package”) to arrange your own Buildings Insurance. You will, however, have to comply with the requirements of your Lender which usually involves sight of insurance cover details and the payment of an administration fee and it is vital that you comply with these requirements and let us have the appropriate information promptly when requested. Most Contracts still provide that the risk in the property passes on exchange of Contracts rather than on completion and you must therefore get your Buildings Insurance cover to start at the date of exchange of Contracts. If you are buying a property without a Mortgage you should, of course, arrange for cover to commence from exchange of Contracts unless advised otherwise by us. If you are arranging your own insurance you must ensure that we receive a copy of the policy schedule before completion.
9. Identity/property details
All Lenders now require that we verify your identity. When you call to sign the Contract please bring with you your passport so that we may verify your identity. Please note that we are obliged to report to the Lender any discrepancy between the Contract documentation and the Mortgage offer details and in particular any allowances or discounts set against the purchase price. We have to obtain your permission before doing this, but if you refuse to give it we are not allowed to act for you. It is essential that disclosure is made to the Lender prior to exchange of Contracts. Not disclosure could result in the Mortgage offer being withdrawn or in a revised Mortgage offer being issued. This could affect your decision to proceed or could cause delay that might put you in a breach of Contract situation if Contracts have been exchanged.
10. Occupiers
Any persons over the age of seventeen who will not actually be on the Mortgage Deed, but will be living at the property after completion must sign the Lenders Form confirming their consent to the Lenders Mortgage. They usually have to sign it in front of a Solicitor. If it is signed in front of us then they will be advised of their right to obtain independent legal advice should they so wish. You must make sure that they will be available to sign the forms.
11. Guarantors
If there will be a person who is entering into a Guarantee with the Lender that the Mortgage will be repaid, then it will probably be a requirement of the Lender that such Guarantor signs the Guarantee Deed before an independent Solicitor having taken legal advice from such Solicitor. It is essential that you seek their confirmation that they are willing to act as Guarantor and that the Guarantee is signed prior to exchange of Contracts.
12. Tenure of property
The property will either be Freehold or Leasehold. If it is Leasehold, please also refer to the Leasehold Section below. Most flats are leasehold.
13. Points to note
Between exchange of contracts and completion
* If you will be away between exchange and completion, please let us know before we exchange Contracts so that appropriate arrangements can be made. You should, as a matter of routine, let us know when you are able to be away and for how long.
* Balance of monies due to complete: As soon as we have the appropriate figure, we shall let you know the balance required from you. We require the monies to be received from you preferably by Bankers Draft two working days before completion or a Building Society cheque three working days before completion. If you wish to pay by your own personal cheque then we require this ten working days before completion. The balance required will include our fees and Stamp Duty and Land Registry fees. We are not allowed by your Lender to complete until we have received this money. If you are buying and selling and there are monies due back to you, we will take our fees and disbursements from this money.
* Keys: These are usually collected from the Agents or direct from the Sellers. Please discuss this with the Sellers well before the completion date and remind the Sellers just before the completion date. The keys will not normally be released to you until the monies have been received in the Sellers Solicitors Bank Account. The monies are sent by the telegraphic transfer system, but even so there as sometimes a delay so you should not expect to be receiving the keys much before 1.00p.m. the day of completion. If the property is empty you might want a key between exchange of contracts and completion for cleaning, decoration etc. Your Seller does not have to agree to this and if they do it will probably be on the basis that you pay a full 10% deposit and sign an undertaking to be responsible for all services used and damage caused to the property. If you want us to ask for a key, let us know well before exchange.
* Services: You must arrange with the appropriate bodies direct to take over the respective services and have any meters read on completion. It is advisable to take your own meter readings on completion and if possible have these agreed with the Sellers.
* Please telephone us after 10.30 a.m. on the morning of completion so that we can confirm whether your transaction has been completed.
After completion
* Locks: It is advisable to change locks on all of the exterior doors of the property.
* Payments: Do not forget to arrange to pay your Mortgage and Council Tax and Water Rate and complete the appropriate Direct Debit or Standing Order Form should you wish to make payment by that method.
* Post: If you continue to receive post addressed to your Seller and you have not been given a forwarding address or the Seller has not made any other arrangement to collect post, all post received should be marked “Gone Away – Return to Sender” and put back in a Post Box.
C. Sale
1. Deeds
We will require your Deeds to enable us to draw up the Contract for sale and not much can be done without them. If you have a Mortgage the Deeds will be with your Lender and if you let us know their name and address and your account number with the Lender we can then request the Deeds. It is important that you let us have this information as soon as possible.
2. Property information form/enquiries before contract
We will send to you a Property Information Form that contains an agreed set of questions for you to answer and then return to us along with any relevant documents so that we may send this to the Buyers Solicitors with the draft Contract. Sometimes on receipt of the draft Contract the Buyers Solicitors will raise additional enquiries over
and above those on the Property Information Form and we will have to refer these to you also. We will also send to you a Fixtures and Fittings Form for you to complete.
3. Contract
On receipt of your Deeds we will prepare the draft Contract and send this to your Buyers Solicitors, together with a copy of the replies to the Property Information Form, the Fixtures and Fittings Schedule and any other relevant documents. In very many cases it will therefore be unnecessary for your Buyers Solicitor to raise any further enquiries. Once the Contract has been approved by the Buyers Solicitors we will arrange for you to sign this and you will probably be asked to either call and sign the Contract or return the Contract to us by hand and in either case to bring with you sufficient documentation to satisfy the identity requirements set out in the accompanying Identity Note.
4. Transfer deed
You will be asked to sign this before completion in readiness for handing over on completion. All property owners must sign this individually. You cannot ask anyone else to sign on your behalf. We must have the Transfer back in our possession before the completion date. If time is short, we recommend you deliver it to us by hand. If you will be away between exchange and completion, you must let us know before we exchange Contracts so that appropriate arrangements can be made. Leasehold Properties: If your property is Leasehold, please read the section on Leasehold Property below.
5. Points to note
Removals
You must arrange to have all furniture and all persons out of the property no later than the time specified in your contract (usually by 2:00p.m.) on the completion date. You must not only clear the property but also the garage, gardens and any outbuildings.
Meters
Before completion you must arrange to have the gas, electricity and water meters read. If there is a telephone you must also inform the telephone company so that they may take the appropriate action.
Keys
You must arrange to hand over all of the keys on completion. If Agents are involved, hand a set of keys to them the day before completion and leave all other keys locked in the property ready for the new owners when you depart. If no Agents are involved you must make the arrangements direct with the new Buyers. Under no circumstances should you hand the keys to the Buyers until we have told you that the money has been received by us or that arrangements have been made for this to come to us. If you do not supply keys to all the locks your buyer could seek to recover from you the cost of installing new locks, etc.
Standing orders/Direct debts
Do not forget to cancel these.
Redirection of mail
You should inform all who need to know of your new address and arrange for redirection of mail with the Post Office. If you do not inform your Buyers of your new address (and you may not wish them to know this) any mail they receive for you will be returned to the sender. If you are not buying a new property simultaneously, do not forget to give us your new address and contact numbers.
D. Leasehold property
1. Lessor / management company
Because the property is Leasehold there will be a Lessor to whom Ground Rent is usually paid.
2. Service/maintenance charge
It is also likely that the Lessor or a Management Company formed specifically for the purpose will maintain and repair the main structure of the building, including the exterior, and insure this. The cost of this will be recovered from the Lessees by way of a service or maintenance charge.
3. Management company
This is the Management Company referred to above. It is comprised of the Lessees of the block who will either be shareholders with a Share Certificate or Members depending upon the type of company. Sometimes the Management Company is also the Lessor.
Please provide details (names and addresses) of the Lessor, Management Company or Managing Agents as quickly as possible. If you have never been asked to pay rent or service charges, please let us know.
4. Receipts
Even where the rent is very small receipts have to be produced to Buyers Solicitors and these Solicitors will also require receipts and details of the service/maintenance charge.
5. Apportionments
Ground Rent and Service/Maintenance Charge have to be apportioned up to the date of completion and an allowance made to the Buyer if sums have not been paid or, if the sums have been paid for a period after completion, then the Buyer has to contribute over and above the purchase price. One problem concerns excess service charges that are not known until some months after the end of the service charge year that could be an even longer period after the date of completion and in respect of part of which the liability should be that of the Seller. One solution is for the Sellers Solicitor to retain an agreed sum to cover the possible liability of the Seller.
6. Officers of the management company
If the Seller is a Secretary or Director then they should take steps formally to resign their Office. If you have a share in the company this will need to be transferred to your Buyers. If you hold a Share Certificate please forward it to us.
E. Property under construction
If you are buying a property under construction the following additional points also apply.
You will normally be expected to exchange Contracts within a given time limit and you might even be expected to exchange Contracts conditionally upon your obtaining a satisfactory mortgage or exchanging Contracts upon the sale of your present property. We shall advise you if this is the case.
The Contract will be heavily weighted in favour of the Developer and normally no amendments to the Contract or draft Transfer documentation are allowed by the Developer unless there is an obvious mistake.
You will be presumed to have seen and have accepted the detailed plans and specifications held by the Builder and you must make arrangements to see these and ensure that they are satisfactory. You must also compare them with the Site and any plans which we send or show to you and let us know BEFORE CONTRACTS ARE EXCHANGED if there are any discrepancies.
The Developer/Builder may depart from the detailed plans and specifications either by design or by accident. He may do within reason so and you will not be entitled to compensation.
The Developer will probably not be bound by anything that has been said to you or contained in any advertising literature. If you are relying on anything that has been said to you or is contained in any such literature, you must let us know before Contracts are exchanged and ask us to obtain confirmation from the Developer.
If the Developer is offering you an incentive (for example a contribution towards the deposit, a furnishing allowance, or carpets and curtains, etc.) you must advise us, and also your Mortgage Lender, immediately.
1.Completion
Completion will only take place once the property has been built. Developers are usually careful not to commit themselves to any sort of building time scale. Thus you will have no control over when the property is ready and when you can then move in. If the property is nearly completed, it is sometimes possible to get the Developer to agree a fixed date for completion. If you are also selling a property, the uncertainty as to a completion date can cause problems. Your Buyer may not agree to be uncertain of completion date, which your Developer is offering and in these circumstances you may well have to agree a fixed completion date on your sale, but still retain the uncertain completion date on your purchase and make sure that you have some alternative temporary accommodation to move to if the two completion dates cannot be coincided. You should raise this question as early as possible with your Buyer.
You should liaise with the Site Office regarding time scales, but remember that any date they indicate is an estimate only and should not be relied upon unless agreed at exchange.
2. NHBC
In most cases a new building will be covered by a Guarantee/Insurance Policy issued by the National House Builders Council which is an independent body. You will receive an explanatory leaflet relating to this.
When the property is physically finished you will normally be given an opportunity to inspect it. You must do this and list any defects and give a copy of these to the Site Foreman. The Contract will probably provide that completion may not be delayed as a result of minor defects or omissions. These should be corrected by the Developer after completion. What the Developer means by minor and what you consider that word to mean are sometimes two entirely different matters. If you are obtaining a Mortgage and the Lender’s Surveyor considers the house is completed then you will have to accept the defects or omissions as “minor”.
Normally you will not be able to have the keys until the Developers Solicitors have received the monies in their Bank Account. The keys are usually collected from the Site Office.
If any defects subsequently arise and are covered by the NHBC Guarantee/Insurance Policy you must observe strictly the procedure set out in the NHBC explanatory leaflet.
F. Coinciding a sale and purchase
1. The chain
If you are buying and selling then instead of being at the end of the chain you will be a part of it and thus very dependent upon both your Buyer and your Seller being ready to proceed so as to enable you to proceed. A chain can only move as quickly as the slowest member (unless someone is prepared to break it and move into temporary accommodation) so despite the fact that you may be ready to exchange on your sale and purchase and may well have been in to sign the Contracts in readiness for exchange, other members of the chain may not be in a similar position. Unfortunately, therefore, you will have to wait until all of the other members are ready. We will do all that we can to keep you informed as we are as anxious as you to complete as quickly as possible. However, delays are often unavoidable. We suggest you liaise closely with the Estate Agents.
2. Deposits
Most Contracts currently allow you to use the deposit received from your Buyer on exchange of Contracts as the deposit on exchange of Contracts on the property, which you are buying. Quite often the deposit received from your Buyer will be less than the full ten percent deposit of your sale price and, usually, therefore, will be an even lower percentage of your purchase price. Sometimes this deposit will not be acceptable to your Seller and you may have to “top-up” the deposit from your own savings.
You will not be able to use your Buyers deposit where the Buyer refuses to allow this or where you are buying a new house and the house has not yet been certificated by the NHBC, which means that the deposit is not guaranteed to be returned if the Builder becomes insolvent. (Happily most new properties are certificated by the NHBC at an early stage). If you cannot use the Buyers deposit then you will have to find the deposit yourself or, alternatively, arrange to borrow this from your Bank or take advantage of a deposit guarantee scheme. This is basically an insurance policy guaranteeing the payment of a sum equal to the deposit to your Seller should you pull out of the transaction after exchange of Contracts. The premium for this policy is, of course, payable by yourselves. If you pull out after exchange using the deposit guarantee scheme, the insurance company can persuade you to repay to them any deposit paid by them to the sellers.
3. Completion or moving date
All the people in the chain will have to move out of their existing property and into the property that they are buying on the date set for completion. The date chosen must be acceptable to everyone in the chain and must be agreed by all before Contracts can be exchanged. Because the monies have to go through the Banking system it must also be a weekday and cannot be a Bank Holiday. We recommend a period of 14 days between exchange and completion and, in the event of a shorter time care, we may be obliged to slightly increase our fees.
G. Buying in Joint names
If you are buying the property in joint names then all of you will have to be on the Mortgage and sign the Mortgage Deed personally. We prefer that you do this at our office and some Mortgage Lenders are insistent that you do so.
Unless you instruct us otherwise in writing then in the Transfer Deed to you a provision will be inserted which will in the case of a dispute between you add weight to any application by any one of you to the Court for an order for sale. If the provision were not inserted then one party could block a sale in a conflict situation thus prolonging and aggravating the conflict. This provision will not guarantee that the Court will order a sale since the Court will take into account the situation of the parties (in particular if they are married) and the circumstances generally.
There are two different ways in which property can be held jointly. It is very important that you understand the difference between the two ways. These are:
Joint tenants.
Here you both have an equal interest in the whole of the property irrespective of your contribution towards the purchase price. If a dispute were to arise between you while you are both still alive then, the property will be sold and the proceeds divided equally between you. In the event of one of you dying the survivor is solely and automatically entitled to the whole of the property regardless of the provisions of the Will or intestacy rules relating to the rest of the estate of the first of you to die.
Tenants in common
Here each of you has an ascertained or ascertainable share in the property. It is desirable that you agree your respective shares before Contracts are exchanged so that these can be recorded either in the Transfer Deed or by a separate Trust Deed which we can prepare for you. In the event of a dispute arising between you while all are alive then the property will be sold and the proceeds divided in accordance with the agreement. If you have not agreed and could not agree, ultimately the Court will be called upon to decide the matter and will base its decision on who contributed what towards the purchase price. In the event of one of you dying the share of that person forms part of the persons estate and devolve according to their Will or the intestacy provisions. If you hold the property in this way, it is very important that you make Wills. We can prepare Wills for you. Please ask for a copy of our Wills leaflet.
It sometimes arises that the Mortgage is in the sole name of one of the Buyers and the property therefore has to be purchased in the sole name, but the other Buyer still has a financial interest. In this case a Trust Deed must be prepared setting out the interest of the Buyer who is not on the Mortgage Deed. This can either be as Joint Tenants or Tenants in Common. The right of the people who are not on the Mortgage or recorded at HM Land Registry as one of the owners of the property, can be protected by a restriction at HM Land Registry to the effect that the property is not to be sold by the registered owner without the consent of the unregistered owner. Please let us know if you want a Trust Deed prepared and we will confirm our charges.
If you are having a Mortgage linked to your life insurance policy or policies and it or they are not assigned to or deposited with your Lender to pay off the Mortgage should one of you die during the Mortgage term, then you should ensure, by way of a Will if necessary, that on the death of the first of you the Policy proceeds will pass to the survivor to enable the Mortgage to be paid off if, of course, that is your intention. We can prepare Wills for you. Please ask for a copy of our Wills leaflet.
Tags: Real Estate U.K.
