Formatives 1

Question 1

Whilst investigating the registered title of a freehold commercial property (the ‘Property’), the buyer’s solicitor has come across the following entry on the Proprietorship Register:
‘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.’

Which one of the following options is the best advice the buyer’s solicitor should now give to the buyer?

1. The buyer will need to take out a restrictive covenant indemnity policy to cover possible past or future breaches of the covenants on the title to the Property.
2. The buyer will need to do a Central Land Charges search to check whether any restrictive covenants have been registered against the seller as a d(ii) land charge.
3. The buyer will need to give the seller an indemnity covenant in the contract.
4. The buyer will need to ask the seller to give the buyer an indemnity covenant in the transfer (TR1).
5. The buyer will need to give the seller an indemnity covenant at completion if the Standard Commercial Property Conditions are incorporated into the contract.

Answer 1

Correct answer: 5)

This entry on the Proprietorship Register indicates that there is a positive covenant in the Charges Register and states that the seller gave an indemnity covenant in respect of complying with it when they bought the Property.

SCPC (Standard Commercial Property Conditions - incorporated into contracts for the sale of commercial property) 6.6.4 means that if the seller gave such an indemnity covenant (as here), the buyer will have to give an indemnity covenant to the seller when they purchase the Property (to continue the indemnity covenant chain). The buyer’s indemnity covenant will be given in the Transfer at completion.

Question 2

A solicitor acts for a lender. The lender lends 80% of the purchase price to a buyer of a registered commercial property.
The loan is to be secured by a first legal charge. The buyer agrees not to deal with the property without the Bank’s consent.

Which entries will the lender’s solicitor want to see on the Land Registry official copies on completion?

1. A restriction against dealings and the lender’s charge in the charges register.
2. An a restriction against dealings in the charges register and the lender’s charge in the proprietorship register.
3. A restriction against dealings in the property register and the lender’s charge in the charges register.
4. The lender’s charge in the charges register.
5. A restriction against dealings in the proprietorship register and the lender’s charge in the charges register.

Answer 2

Correct answer: 5)

Charges such as mortgages are recorded in the charges register and any entries restricting the current proprietor’s ability to deal with the property are recorded in the proprietorship register.

Question 3

A buyer is buying an unregistered property.
The epitome of title contains a conveyance made by deed, dated 28 January 1976, which contains the following clause:
“The Purchaser with the intent and so as this covenant shall be binding… hereby for themselves and their successors in title covenants with the Vendors and their successors in title that the Purchaser will use the Property only as a residential dwelling.”

Will the buyer be bound by this covenant?

1. The buyer will be bound if the positive covenant was registered as a C(iv) land charge against the name of the original covenantor.
2. The buyer will only be bound if the restrictive covenant was protected by a chain of indemnity covenants.
3. The buyer will be bound if the restrictive covenant was registered as a D(ii) land charge against the name of the original covenantor.
4. The buyer will be bound if the restrictive covenant was registered at the Land Registry.
5. The buyer will be bound if the positive covenant is registered as a D(ii) land charge against the buyer’s name.

Answer 3

Correct answer: 3)

If a restrictive covenant in unregistered land is registered at the Central Land Charges department as a D(ii) land charge against the name of the original covenantor, it will bind the purchaser of the land.

Question 4

The registered title to a property contains a restrictive covenant ‘not to use the property for any purpose other than as a single private dwelling house.’ The property is currently used as a private residence.

The buyer, who is a doctor, wishes to use the property as a surgery after completion.

Which one of the following options is the best advice to give to the buyer?

1. Use of the property as a doctor’s surgery would be a future breach of the restrictive covenant and the seller should pay for any restrictive covenant insurance policy.
2. Use of the property as a doctor’s surgery would be a future breach of the restrictive covenant. An application to the Upper Tribunal (Lands Chamber) is not possible, as they will not assist a person who intends to commit a future breach of a restrictive covenant.
3. Use of the property as a doctor’s surgery would be a future breach of the restrictive covenant and, as a first option, the buyer should try to obtain (at the buyer’s cost) a restrictive covenant insurance policy.
4. Use of the property as a doctor’s surgery is not a breach of the covenant as long as the doctor lives in the house and the surgery is an ancillary use.
5. Provided that the buyer obtains planning permission for the surgery, this will put the Person with Benefit on notice, and they cannot then object to the breach if they do not object within the planning permission consultation stage.

Answer 4

Correct answer: 3)

Where there will be a future breach of the restrictive covenant on the part of the buyer, the first remedy that the buyer should consider is a restrictive covenant indemnity policy which the buyer should pay the cost of.

Question 5

A restaurant operator is expanding its business and acquires the freehold of a registered property which is currently used as a shop. The restaurant operator will be changing the use of the property from a shop to a restaurant (both uses are within class E) and will also be carrying out significant internal building works.

Which one of the following best sets out the necessary consents needed for the restaurant operator’s plans?

1. Planning permission is required for both the change of use (unless it falls within ‘permitted development’ under the GPDO) and the internal building works. Building regulations approvals are not required.
2. No planning permissions will be needed although building regulations approvals for the works will be required.
3. Neither planning permissions nor building regulations approvals are required for the planned change of use and works.
4. Planning permission is not required for the change of use but it is required for the internal building works. Building regulations approvals are also required for the internal building works.
5. Planning permission is required for the change of use although not for the internal building works. Building regulations approval is not required either.

Answer 5

Correct answer: 2)

Under s55(2) TCPA 1990 the internal building works do not constitute development and so planning permission is not required for them.

The change of use of the property, from a shop to a restaurant, where both uses are within the same use class is not a material change of use and so does not constitute development, so planning permission is not required for the change of use.

Building regulations approvals are required for works carried out and cover safety matters such as structural integrity. They are a separate consent from the planning permissions.

Question 6

A buyer is buying an unregistered freehold property. The buyer’s solicitor has undertaken a review of the title deeds to the property and notes that the property benefits from a right of way granted by deed over neighbouring land.

Which one of the following statements best explains the next step the buyer’s solicitor should take?

1. The buyer’s solicitor will need to undertake a search of the central land charges register to check whether the right of way has been registered as a land charge.
2. The buyer’s solicitor will need to apply to the Land Registry for a caution against first registration against the neighbouring land.
3. The buyer’s solicitor will need to agree a deed of variation with the owner of the neighbouring land to ensure the right of way is appropriate for your client’s needs.
4. The buyer’s solicitor will need to undertake a SIM search to check whether or not the neighbouring land is registered.
5. The buyer’s solicitor will need to undertake a highways search to ensure the right of way has been adopted.

Answer 6

Correct answer: 4)

A SIM search will inform you whether or not the neighbouring land is registered. This is important as this will determine whether or not the easement will bind it.

If the neighbouring land is unregistered then the easement will continue to bind the neighbouring land whilst it remains unregistered.

If the neighbouring land is registered, however, the easement needs to have been registered on the charges register of the neighbouring land’s title in order for it to bind its current owners.

Question 7

A buyer intends to buy a registered freehold in the countryside, and wants their solicitor to check whether a public footpath crosses the property.

In which search would the solicitor expect to find the answer?

1. Search of the index map result
2. The commons registration search result
3. The replies to standard enquiries of the local authority
4. The property register of the official copies
5. The central land charges search result

Answer 7

Correct answer: 3)

There is a question to the local authority at enquiry 2.2 asking if there are any public right of ways (which would include footpaths) that abut or cross the property.

Question 8

A solicitor acts for the buyer of a commercial property by a river in Cheshire. The property includes five acres of the surrounding open agricultural land. The property is within an area where historic pumping of brine took place.

The solicitor has already received: replies to CPSE, local authority search (including appropriate optional enquiries), highways search, drainage search, chancel repair search and index map search.

Which other searches should the solicitor carry out?

1. Desktop environmental search, waterways search, Cheshire Salt search and commons registration search only.
2. Waterways search and commons registration search only.
3. Phase 1 and 2 environmental surveys, Cheshire Salt search and commons registration only.
4. Phase 1 environmental survey, Cheshire Salt search and commons registration only.
5. Desktop environmental search and waterways search only.

Answer 8

Correct answer: 1)

The environmental search should usually be carried out, but particularly here as it will give basic flooding information relevant in the proximity of a river.

The waterways search is necessary here to give information on responsibility for the maintenance of the river bank.

The Cheshire Salt search is necessary to check the risk of subsidence from brine working.

The commons search is necessary for the open land.

Question 9

A farmer built a new cattle shed over ten years ago. The farmer did not seek planning permission (as would be required), but instead deliberately concealed it with bales of hay until last week.

What action might the local authority take against the farmer?

1. The local authority is time barred from taking enforcement action.
2. The local authority is time-barred from taking statutory action, but can apply for an injunction for the planning breach.
3. Nothing if the farmer has protected their position with indemnity insurance.
4. The local authority can apply for a planning enforcement order.
5. The local authority must now give retrospective consent.

Answer 9

Correct answer: 4)

Fidler v Secretary of State for Communities and Local Government [2010] EWHC 143 (Admin) confirms that in this situation, the time limit does not start to run until the deliberate concealment is removed.

Question 10

You act for the buyer of a registered commercial property. The buyer intends to undertake a significant extension to the property following completion.

The seller told the buyer during a viewing of the property that an application for planning permission to build a similar extension was refused by the local authority two years ago.

Which search / enquiry would you undertake to confirm the position?

1. Seller’s replies to CPSEs
2. Land Charges Department search
3. A local authority search (CON29)
4. The local land charges search (LLC1)
5. The CON29O

Answer 10

Correct answer: 3)

The CON29 search shows all applications for planning permissions granted, issued, refused or pending. The LLC1 search will only show planning permissions that have been granted (with conditions).

Question 11

A solicitor acts for the buyer of a commercial property. The buyer instructs the solicitor that the seller and the buyer have agreed between them that the seller will carry out some repairs to the roof before the completion date.

Which one of the following best represents the steps that the buyer’s solicitor should now take in connection with the contract?

1. There is no need for a special condition as the verbal agreement of the seller is sufficient.
2. The buyer’s solicitor should draft a special condition in the contract specifying that the seller must carry out the repairs to the roof of the property before the completion date to the reasonable satisfaction of the buyer.
3. A special condition would not be required, as the seller is obliged to transfer the property in good repair.
4. The special condition is not required as the SCPC confirms that the property is sold in the state it is in at the date of the agreement between the parties.
5. The buyer’s solicitor should draft a special condition in the contract specifying that the seller must carry out the repairs to the roof.

Answer 11

Correct answer: 2)

Question 12

A VAT registered business is selling a freehold commercial building to a bank. The seller has exercised the option to tax the building.

The bank makes only exempt supplies for VAT purposes in the course of its business.

Which one of the following most accurately sets out the position with regards to any VAT chargeable in respect of the sale?

1. The sale will be subject to VAT at 20% which will be irrecoverable by the bank.
2. The sale will not be subject to VAT.
3. The sale will be subject to VAT at 20% which the bank can recover by offsetting it against the 0% VAT chargeable on the goods and services it supplies, leading to a payment by HMRC to the bank.
4. The sale will be subject to VAT at 20% which will be recoverable by the bank.
5. The sale will be subject to VAT at 0%.

Answer 12

Correct answer: 1)

The option to tax a commercial building made by a VAT registered business seller means VAT is chargeable on the sale at 20%. The bank only makes exempt supplies (VAT is not chargeable on the goods and services it supplies) so the bank cannot recover the VAT it paid (input VAT) by offsetting it against output VAT it charges on goods and services it supplies since the bank cannot charge output VAT.

Question 13

A solicitor is acting for the buyers of a property. The seller is Mark Arthur. The seller’s solicitor confirms that Philip Arthur recently died. The official copies contain the following entry:

Proprietor(s): PHILIP ARTHUR and MARK ARTHUR of 35 Yewdale Road, Leeds, LS3 8QP

RESTRICTION: no disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.

Which one of the following statements best explains what the buyer’s solicitor needs to do in respect of this entry in the Proprietorship Register?

1. They do not need to do anything, the right of survivorship will apply so Mark Arthur can sell as a sole proprietor.
2. They do not need to do anything as Philip Arthur has died so the restriction is no longer relevant.
3. They do not need to do anything, this is for the seller’s solicitors to deal with.
4. They need to ensure another trustee is appointed to pay the purchase money to, so the restriction will not apply.
5. They need to see a certified copy of the death certificate and then Mark Arthur can sell as a sole proprietor.

Answer 13

Correct answer: 4)

This restriction tells us Mark and Philip are beneficial tenants in common and prevents a sale by a sole owner. This means a sale by Mark alone is not permitted and would not be registered by the Land Registry. A second trustee needs to be appointed in order to comply with the restriction. This will overreach Philip’s beneficial interest, which will have passed under his estate because the right of survivorship will not have applied on his death.

Question 14

A company is buying a commercial property. Contracts were exchanged last Friday with completion to take place next Friday. The contract incorporates the Standard Commercial Property Conditions (Third Edition) (‘SCPC’).

The storage area to the rear of the property was destroyed by fire last night.

What is the correct advice to give to the company?

1. The company will have to pay for the damage because the buyer bears the risk between exchange of contracts and completion.
2. The company will have to claim on its insurance once it buys an insurance policy which starts on completion.
3. The seller will have to pay for the damage because it bears the risk between exchange of contracts and completion.
4. The seller will have to claim on its insurance which it has to maintain until completion.
5. The company and the seller will have to share the cost of repairing the damage as the law is silent as to who bears the risk.

Answer 14

Correct answer: 1)

Question 15

A company is buying a registered property for £550,000. A bank is providing the company with a mortgage of £300,000 and is taking a first ranking fixed charge over the property.

Which post-completion steps should be taken to protect the bank’s charge?

[Note: ‘within X days of the creation of the charge’ is the same as ‘in the period of X days starting the day after the day of creation of the charge’]

1. Register the charge at Companies House within 21 working days of the creation of the charge and at the Land Registry within 30 days of the OS1 search.
2. Register the charge at Companies House within 21 days of the creation of the charge, and at the Land Registry within two months of the creation of the charge.
3. Register the charge at the Land Registry within 21 working days of the creation of charge, and tick the MR01 box on the AP1 for the Land Registry to attend to registration at Companies House.
4. Register the charge at Companies House within 21 days of the creation of the charge, and at the Land Registry within 30 working days of the OS1 search.
5. Register the charge at Companies House within 21 working days of the creation of the charge and at the Land Registry within two months of the creation of the charge.

Answer 15

Correct answer: 4)

This shows the correct timescale for both Companies House and the Land Registry.

Question 16

A company is buying an unregistered freehold property from a woman. The company is funding the purchase with a loan from a bank. The company and bank have separate legal representation.

Contracts were exchanged 21 days ago and completion will take place in 7 days.

Which one of the following searches should the company’s solicitor carry out before completion?

1. A Central Land Charges Search on Form K15 against the woman’s name for the period of her ownership.
2. A Central Land Charges Search on Form K15 against the company.
3. An OS1 search against the property in the name of the company.
4. An OS1 search against the property in the name of the bank.
5. A bankruptcy search on Form K16 against the woman.

Answer 16

Correct answer: 1)

While the other options might sound plausible they are each incorrect. On a purchase of unregistered land, the transfer to the buyer must complete within the 15 working day ‘protection period’ in the Central Land Charges Search made against the name of the current seller. The 15 working day protection period in any pre-exchange Central Land Charges Search on K15 made against the current seller would have expired and therefore the search needs to be renewed before completion.

Question 17

A solicitor is acting on the sale of a property mortgaged to a bank.

The property is in negative equity, meaning that the sale proceeds are insufficient to repay the balance outstanding on the loan.

How should the solicitor handle this issue?

1. They should not provide an undertaking to the buyer’s solicitor to redeem the existing mortgage in the Law Society’s recommended form until the seller gives written confirmation to transfer the shortfall to their client account in cleared funds on or before completion.
2. The solicitor should not provide an undertaking to redeem the existing mortgage in the Law Society’s recommended form until they are holding the shortfall in their firm’s client account in cleared funds.
3. The solicitor cannot act for the seller in connection with the sale of the property until they are holding the shortfall in their client account in cleared funds.
4. They cannot exchange contracts for the sale of the property until they are holding the shortfall in your client account in cleared funds.
5. They should not exchange contracts for the sale of the property until the seller gives written confirmation to transfer the shortfall to their client account in cleared funds on or before completion.

Answer 17

Correct answer: 2)

A solicitor can act on the sale of a property in negative equity, but care must be taken not to provide an undertaking (nor to agree to provide an undertaking) unless the shortfall is held in cleared funds in client account. Care must also be taken to have the client’s agreement that it is to be used for this purpose, and not demanded back.

A written confirmation from client is not sufficient for solicitor to provide undertaking.

Question 18

A pension fund is buying a registered freehold commercial property. Contracts were exchanged last week and completion is due to take place in 14 days’ time. The property is subject to a standard commercial mortgage in favour of a bank.

Which of the following statements best explains an appropriate next step to take in preparation for completion?

1. Provide an undertaking to the seller’s solicitor to transfer the deposit monies.
2. Undertake a Land Registry priority search using Form OS1.
3. Undertake a Central Land Charge search using form K15 to obtain a protection period.
4. Ensure that the seller has provided replies to the CPSE enquiries and that all issues discovered in the replies have been dealt with.
5. Obtain a redemption figure from the Bank.

Answer 18

Correct answer: 2)

The buyer’s solicitor would need to do this to ensure the buyer benefits from a priority period. The OS1 freezes the register given the buyer a priority period to register the transfer. It also reveals if any changes have been made to the register since the title was investigated pre-exchange.

Question 19

A company is selling its freehold offices. Contracts have been exchanged for completion today at 2 pm. The contract incorporates the Standard Commercial Property Conditions (Third Edition – 2018 Revision) without any amendments and completion.

The buyer contacts the seller to say that they can no longer complete today as planned but can complete before 2 pm a week from today.

What advice could be given to the Seller regarding obtaining compensation for the delay?

1. The Seller can claim compensation and can serve a notice to complete by email on the buyer today after 2pm. The buyer will then have 10 working days, excluding today, to complete.
2. The Seller can claim compensation and can serve a notice to complete by email on the buyer today in advance of 2pm. The buyer will then have 10 working days, including today, to complete.
3. In addition to receiving compensation, the Seller may rescind the contract but is obliged to repay the deposit with accrued interest to the buyer.
4. The Seller can claim compensation from the buyer for each day of delay and can serve a notice to complete by e-mail in advance of 2pm today.
5. The Seller can claim compensation from the buyer for each day of delay including both today and the day completion finally takes place or is deemed to take place.

Answer 19

Correct answer: 1)

This answer reflects the contractual terms prescribed by the SCPC.

• The ten working day period, given to the defaulting party to complete, starts to run the day after the notice to complete has been deemed served.
• The notice to complete can be served at any time on the day of completion once the time for completion has passed. The time for completion is 2pm under the SCPC.
• The compensation is payable for every day of delay so that would include today (the day the buyer was supposed to complete) but would not include the day completion takes place, on these facts, as the buyer will be completing before 2pm. Unless 2pm has passed on the day the buyer completes, the buyer will not have been ‘late’ on that day.
• Finally, the Seller cannot both claim compensation under the SCPCs and also rescind the contract, they can only do one or the other.

Question 20

A client is buying a flat. The Property is currently subject to the seller’s mortgage. The seller will be buying a new house at the same time as the sale.

Which one of the following best describes the position at exchange of contracts?

1. Formula C would need to be used given that it is a chain transaction, but as there is a mortgage, the Code for Completion by Post will need to incorporated into the contract.
2. Formula C must be used, because it is designed for chain transactions, and exchange and completion for all of the transactions needs to be synchronised.
3. Formula A would be used at exchange because there is a chain of transactions and exchange and completion for all of the transactions needs to be synchronised.
4. Formula A would be used on exchange because in a chain transaction, it is easier for all the contracts to be controlled by the same solicitor.
5. The solicitors will use either Formula B with a ‘release of contracts’ or Formula C because there is a residential chain of transactions, and exchange and completion for all of the transactions needs to be synchronised.

Answer 20

Correct answer: 5)

In residential conveyancing you often have a chain of transactions as is the case here. As such the solicitors involved have to ensure that exchange of all the contracts takes place simultaneously (and that all the transactions complete on the same day). Although Formula C was designed for chain transactions, it is rarely used in practice as it is too complicated. The most common method of tying chain transactions together is for each transaction to be exchanged under Law Society Formula B, but for the contract to be ‘released’ to the solicitor who has a related transaction to exchange until that related transaction has exchanged.