Property Flashcards

Question

Different types of leases?

Answer 1

· There are also assured shorthold tenancies, which are common for letting out houses and flats on a six- or twelve-month basis. The tenant will pay a market rent for the house or flat. Although residential conveyancers will become familiar with these types of leases, they are not the primary focus of this course. · Commercial leases are common, and can be for all kinds of different uses. For example, a commercial lease might relate to an office block, a factory, a warehouse or a shop, whether on the high street or in a large shopping centre. · Unlike the residential long lease, a commercial leases is usually for a relatively short term (say, up to 15 years), and a market rent will be payable. In this respect it is similar to an assured shorthold tenancy, but in most other respects it is very different.

Answer 2

* The reversion is the interest that the landlord holds subject to the lease. At the end of the lease term, the property reverts to the landlord.

Answer 3

**The term commencement date is the date on which the lease term (say 5 years) starts.** · The term commencement date may be the date of completion of the lease (when it is dated and becomes legally binding), but may also be before or afterwards. · It is common for the term commencement date to be earlier than the lease is dated. A landlord may want all of the leases to start at the same time for simplicity. Note that if the term started in the past (whether a week ago or a year ago), the tenant is not generally expected to pay rent for the period they haven’t used! · The term may also start after the lease is dated. This is called a reversionary lease. These may, for example, be used when the parties want to extend the letting in advance of the expiry of the current lease.

Answer 4

· If the term of the lease is “from and including” a certain day of the year, the term expires on the day before that day of the year in the relevant year (more common in practice). · If the term of the lease is “from” a certain day of the year, the term starts the day after that day, and so expires on that day of the year in the relevant year (less common in practice).

Answer 5

· If the tenant is unsure about the commitment of a lease term, and the landlord is unwilling to grant a shorter term, a break clause can offer a compromise solution. * Note that if the lease does not include a break clause, in general neither landlord nor tenant can bring the lease to an end before the end of the fixed term without the agreement of the other. · A break clause can be a landlord break (meaning only the landlord can exercise it), a tenant break (meaning only the tenant can exercise it – the most common type), or a mutual break (either party can exercise it). · The break clause may specify a date (eg, the fifth anniversary of the term commencement date) or it may be a rolling break (eg, any time after the fifth anniversary of the term commencement date). · Key word: anniversary is used in leases to mean the same day of the year. For example, the fifth anniversary of 8 September 2030 would be 8 September 2035.

Answer 6

two categories: either a short lease with a market rent; or a long lease with a ground rent.

Answer 7

· Commercial leases are usually short leases (up to 15 or 20 years) with a market rent (also known as rack rent). A premium (lump sum) is not usually charged on the grant of a commercial lease.

Answer 8

· Residential leases may be long leases (say 99 or 999 years) with a ground rent (that may be a low sum, say £150 per annum or even a peppercorn each year). · The first person to buy the property will pay a premium (say £200,000) to the landlord for the grant of the lease.

Answer 9

· The rent is usually expressed as a yearly figure (eg, £80,000 per annum) but payable quarterly. · The year is divided into approximate quarters, which may run from the traditional quarter days(in bold), based on religious festivals, as follows: * 25 December to 24 March * 25 March to 23 June * 24 June to 28 September * 29 September to 24 December * These are still commonly used, but some leases now adopt the modern quarter days being 1 January, 1 April, 1 July and 1 October. · Although the quarters under neither system are the exact same length, the rent is usually divided equally (so if the rent is £80,000 per annum, £20,000 would be payable for each quarter) * Rent is usually due in advance on the quarter day – for example, on 25 March for the whole period up to and including 23 June * However, the lease needs to state if the rent is payable in advance (which an FRI lease will) - if the lease is silent, the rent is payable in arrears. This is more often seen in a residential long lease. · The lease will set out how the rent is to be paid (usually by standing order) and whether VAT is payable on it. · The lease will usually describe other payments such as contributions to the insurance premium and service charge as “rent”. The reason for this is covered in the element on termination of leases. The rent proper is often referred to as the “annual rent” or “yearly rent”.

Answer 10

· There is no implied right for the landlord to be able to increase the rent. An FRI lease of 10 years or more will usually contain a rent review clause as an institutional investor will want to ensure that their rents are keeping up with the market. * **Stepped rent** – the lease may set out, for example, a yearly rent of £25,000 for the first two years, a yearly rent of £30,000 for the next two years, and so on… * **Turnover rent** – the rent may be calculated based on the tenant’s turnover at the property. This is mostly commonly seen with retail leases (eg, shops). * Index-linked rent – the rent is increased by reference to an agreed measure of inflation, such as the retail prices index. * **Open market rent review** – this is the most common type of rent review adopted by FRI leases, and involves ascertaining the rent based on comparable premises and certain principles.

Answer 11

· Commercial leases almost always have an “upwards only” rent review. This means that the rent can only increase. If market rents have fallen on the date of the rent review, the rent stays the same. · Typically the rent review clauses will give the landlord and tenant the opportunity to agree the new rent between themselves. If they cannot agree, then the lease will set out a mechanism for a specialist valuer to be engaged to determine the new rent. · The valuer will consider: * The rent payable for comparable premises (ie, premises of similar size and location) plus * The terms of the hypothetical lease – an imaginary lease based on the actual lease but assuming certain matters and disregarding others

Answer 12

· From the starting point of the actual lease (and premises), the rent review provision instructs the valuers on assumptions (matters to assume) and disregards (matters to be disregarded). The hypothetical lease differs therefore from the actual lease (and premises).

Answer 13

· The basic assumptions enable valuation to take place: * the premises are vacant and available (as otherwise a prospective tenant would not be interested!) * there is a willing landlord and a willing tenant

Answer 14

* Disregards generally operate to ignore what the tenant has done voluntarily, and not as an obligation of the lease. * The rationale is that the tenant should not be penalised with a higher rent if, for example, the tenant has improved the premises for its own use. * · The effect of the tenant’s occupation on the rent. * Yes. The premises will be worth more to the tenant than a new prospective tenant, as the tenant has the convenience of not having to move. · Goodwill attached to the tenant’s business. * Yes. Say the tenant is a restaurant business. If successful, the tenant will make that location more valuable to other restaurant businesses. It is unfair for the tenant to be penalised with a higher rent for this. · Tenant’s improvements (other than as obliged under the lease) * Yes. If the tenant voluntarily improves the property, then it is unfair to the tenant if this is used to increase the rent, and unfair to the landlord if it limits the rent.

Answer 15

· The tenant has complied with all its covenants under the lease. * Yes. If the tenant, say, lets the premises fall into disrepair, it should not be rewarded with a lower rent. · The landlord has complied with all its covenants under the lease. * No. Say that the lift in an office block never works. This would affect the rent that tenants would pay. From the tenant’s perspective, the assumption is unfair, as the landlord is not suffering the consequences of its inaction. · On the terms of the actual lease other than the rent payable. * Yes. If the actual lease, for example, has clauses that are very restrictive on the tenant’s use of the property, the tenant is stuck with those and should not have to pay a higher rent as if those clauses do not exist. · The term of the hypothetical lease is the term remaining of the actual lease. * Maybe! This is a tricky point, and can depend on the particular market, and whether prospective tenants favour short or long lease terms. Say that 5 years are left at rent review, and prospective tenants want 5 year leases. This would work against the tenant who initially took a 10 year lease. · If damaged or destroyed, the premises have been repaired or rebuilt. * Yes. This is because the lease will usually have detailed provisions for what happens in this instance (including suspending the rent). It would be unfair on the landlord if the tenant continues to pay a decreased rent as if the premises have been destroyed once they have been rebuilt!

Answer 16

· Once the parties have agreed the new rent, or failing that, the new rent has been determined by a valuer, the new rent is documented in a rent review memorandum. This is a short document (usually a single page) that records the new rent, is signed by the landlord and tenant and is kept with the lease for future reference. · If the rent review is before the 5th anniversary of the term commencement date, the tenant may have to pay further Stamp Duty Land Tax or Land Transaction Tax (as this is calculated on the first five years’ rent). · If the rent review is on or after the 5th anniversary of the term commencement date, the tenant will not have to pay further SDLT or LTT. · If the new rent has only been agreed some time after the rent review date set out in the lease, the new rent is backdated to the rent review date. This means that the tenant will have to pay an additional sum plus interest at a rate set out in the lease (this should not be a punitive rate of interest).

Answer 17

· The Code aims to make commercial lease negotiations fairer and more transparent

Answer 18

· The Code applies to RICS members and RICS regulated firms * If the other party is a RICS member/firm, this should be considered by the other firm even though they are not a RICS member/firm

Answer 19

· The Code concerns itself with negotiations and heads of terms, and is divided into mandatory requirements and good practice. * Mandatory requirements are indicated by the word “must”. RICS members and regulated firms must follow them. * Good practice is indicated by the word “should”. RICS members and regulated firms must follow them unless there are exceptional circumstances (and they may need to be justified to the RICS). * Although the Code’s introduction states that it is concerned with the process rather than the outcome, the section on good practice does concern itself with what lease provisions should and should not be included in the lease.

Answer 20

· The mandatory requirements include the following: * Lease negotiations must be approached in a constructive and collaborative manner * An unrepresented party must be advised about the existence of the Code and recommended to seek professional advice * The landlord (or its letting agent) is responsible for ensuring that heads of terms compliant with the Code are agreed before the draft lease is circulated * It is also mandatory to prepare written heads of terms, stating that it is subject to contract. The Code specifies certain areas which must be covered in the heads of terms. These include: · extent of the premises · length of term and break rights · rent and rent review (including basis for rent review) · repairing obligation · rights to assign (transfer to a new tenant) or underlet the lease · permitted use of the property (and whether tenant can change it) · rights to alter the property and any obligations to put the property back in its original state

Answer 21

· The rest of the Code (which is much more detailed) indicates good practice. As RICS members and regulated firms are obliged to follow good practice unless there is justification not to, it is likely that the provisions of the Code will become standard in time. · Some specific areas of concern are listed below: * Premises * The heads of terms should clearly define the demise, provide a lease plan and refer to all the rights that the tenant will need for its use of the premises (eg, the right of access to the premises, water and electricity, etc). * Length of term, renewal rights and break rights * The heads of terms should clearly specify the length of term and any break rights. * The Code sets out basic conditions to exercising the break that are acceptable; others may be included but must be specified in the heads of terms. (This is an area where landlord-weighted drafting of the lease can make it very difficult for a tenant to exercise the break.) * Rent and rent review * The heads of terms should clearly state the initial rent, frequency of payment (eg, quarterly) and whether VAT will be charged. They should also state whether there is a rent-free period (for example, the tenant may not have to pay rent for the first three months while they are fitting out the premises for their purposes). * If the landlord intends to review the rent, then the tenant should be advised how (eg, market rent, turnover, etc) and how often (eg, every fifth year). * Landlord’s title * The landlord should be responsible for obtaining any consent needed to grant the lease (such as from a superior landlord, mortgagee or any other third party). * Repairs * The tenant’s repairing obligation should be appropriate to the length of the term and the condition of the premises. (An extreme example might be that it would be unfair to ask a tenant on a 6 month tenancy to take a full repairing obligation of premises that are badly dilapidated!) * If the tenant gives a qualified repairing obligation (ie, limited to the initial state of the premises), a schedule of condition should be required. * Where the premises are newly built, the tenant should be given appropriate protection against inherent construction defects. * Insurance and damage * The lease should suspend the rent if the premises are damaged by an insured risk (unless the damage is due to something the tenant has done or not done) or an uninsured risk. * Other provisions of the Code will be considered alongside the relevant elements.

Answer 22

* SDLT must be paid within 14 days of "the effective date". This is usually completion, but will be earlier if the tenant goes into occupation * E.g. if tenant occupies the lease prior to completion they must pay sdlt 14 days from the date the undertenant went into occupation of the warehouse.

Answer 23

· grant of lease transactions commonly do not need an exchange, and there are then just two stages: * Pre-completion * Post-completion

Answer 24

* Landlord’s solicitor’s tasks: · Take instructions · Prepare draft lease and, if relevant, agreement for lease (ie, if there is to be an exchange) · Deduce title (and check that lender will consent to letting) and respond to any queries on title * Look for mortgages, covenants (especially restrictive covenants), that the landlord has full legal title and the power to grant the lease · Answer pre-contract enquiries · Once agreed, engross the agreement for lease, obtain landlord’s signature, and send counterpart to tenant’s solicitor · Documents likely to send to tenant’s solicitor: * Official copy entries of the registered freehold title, * replies to CPSE.1 and CPSE.3 enquiries, * a draft agreement for lease, * a draft lease and * written consent from their lender to the letting. * Tenant’s solicitor’s tasks: · Take instructions · Review draft lease and agreement for lease and amend as required * Need to make sure everything is ok – everything is prohibited unless said otherwise in lease · Investigate title and raise any queries on title * Pre-contract searches and enquiries · Raise pre-contract enquiries and searches · Arrange for tenant to sign counterpart lease

Answer 25

means to print a copy for signature (a copy that is ready to be signed) (eg, on good quality paper and bound). The original of a lease or an agreement for lease is executed by the landlord; the counterpart is executed by the tenant.

Answer 26

· The landlord’s solicitor will draft the lease based on the heads of terms. The solicitor may use a generic precedent lease (eg, Practial Law or Encyclopaedia of Forms & Precedents). Alternatively, if there have been past lettings on the landlord’s estate, the solicitor may have a part-completed lease which just needs to be tailored to the individual letting. · The tenant’s solicitor will go through the lease and amend anything that is onerous or unfair to the tenant, or simply to try to balance it more in favour of the tenant.

Answer 27

· An agreement for lease will often not be needed, in which case the parties’ solicitors will simply complete once the tenant’s solicitor is happy with their title investigations and the form of the lease is agreed. · However, an agreement for lease is needed where the parties want to commit to completing the lease, but either are not yet ready, or there are conditions that need to be satisfied. * E.g. when something needs to be repaired to mitigate an uninsured risk · Similarly with the draft lease, the tenant’s solicitor will review the agreement for lease and amend any provision they feel appropriate in favour of the tenant.

Answer 28

· The landlord’s solicitor will deduce their freehold title, and the tenant’s solicitor should investigate it. The tenant’s solicitor should ensure that the landlord has title to grant the lease, and will also need, for example, to consider any freehold covenants as they will also bind the tenant (even if the lease states something different). · The tenant’s solicitor will raise CPSE1 enquiries (as does a buyer’s solicitor in a commercial freehold transaction) but will also raise CPSE3 enquiries which are specific to the grant of a lease. · The tenant’s solicitor should raise the same searches as they would if they were buying the freehold. · In general the tenant’s solicitor should ideally exercise the same care over their investigations with a leasehold transaction. In practice, the tenant may agree with their solicitor that the cost of full investigations are not justified for a very short lease with limited repair and other obligations. In this case, the tenant’s solicitor should ensure that the tenant is advised of the risks.

Answer 29

* the landlord’s solicitor and tenant’s solicitor exchange in similar manner as for a freehold contract (usually adopting Law Society B) * no deposit is usually payable * the agreement for lease may set a fixed completion date, but more likely will set out what conditions need to be satisfied and by when for completion to take place * the agreement for lease will usually have a draft of the agreed form of lease annexed to it, so it can only be exchanged once the terms of the lease have been agreed

Answer 30

* Landlord’s solicitor’s tasks · Prepare original (what the landlord executes) and counterpart lease (what the tenant executes), obtain landlord’s signature to original and send counterpart to tenant’s signature · Prepare and send completion statement, detailing the money due on completion (eg, any apportioned annual rent, service charge and insurance rent) * Tenant’s solicitor’s tasks · Arrange for tenant to sign counterpart lease · Obtain funds from client needed to complete as per completion statement · Raise pre-completion searches

Answer 31

· The landlord’s solicitor prepares a completion statement. This can be a tricky calculation, as the solicitor must apportion the yearly rent, insurance rent (ie, contribution to the insurance premium) and service charge (for a lease of part) on a daily basis. · Usually, the yearly rent will be paid quarterly. Although both the traditional and modern quarters are not exact quarters of the year, generally the rent is split as if they are. Therefore, for a rent of £80,000 plus VAT, a sum of £20,000 plus VAT will be paid each quarter. · Apportionment involves counting the number of days for which the tenant is going to occupy in the current quarter, and calculating an appropriate proportion of the yearly rent (and other sums treated as rent). One method is to multiply the number of days by the daily rate, which is found by dividing the yearly rent by 365 (or 366 in a leap year). · As with a freehold transaction, pre-completion searches are carried out. The appropriate search is an OS1 search with a lease of whole, an OS2 search with a lease of part. · If the lease is not registrable, then an OS3 search could be used. This does not confer priority but will check that the landlord is free (or not) to grant the lease.

Answer 32

* the tenant’s solicitor sends the landlord’s solicitor the completion monies * Would ask the landlord solicitor to hold the money to order until completion * the landlord’s solicitor and tenant’s solicitor agree over the telephone to complete and date the executed leases that they are holding * the landlord’s solicitor and tenant’s solicitor send the completed original and counterpart to each other

Answer 33

· Landlord’s solicitor’s tasks * Send summary of main provisions of lease to client · Tenant’s solicitor’s tasks * Arrange to submit SDLT or LTT return and pay appropriate SDLT or LTT if necessary * 14 days from completion of grant * Register lease if necessary * Form AP1 and certified copy of the lease including prescribed lease clauses, consent from the lender and SLDT5 (need to prove you paid SDLT)

Answer 34

* If a lease is registrable, then an OS1 (lease of whole) or OS2 (lease of part) search should have been carried out before completion to give priority. * The tenant applies to register the lease using form AP1 (if the landlord’s title is registered) or FR1 (if the landlord’s title is unregistered). * A certified copy of the lease may be scanned and submitted electronically. * If the landlord’s freehold title is charged, then a letter of consent from the lender will also be needed. * On completion of the application, the tenant’s solicitor will receive two official copies (the new leasehold title and the updated landlord’s title) · Note that if the tenant is a company, then usually the lease will not be charged, and so there is no need to register the transaction at Companies House.

Answer 35

* With a freehold or long leasehold (say 999 years) where a premium is paid, it is quite simple to take that premium as the basis of the SDLT or LTT calculation. * It is a little more complex with a short lease with market rent payable. The first step is to calculate a lump sum equivalent of the rent over the years it is payable, called the Net Present Value (NPV). * This calculation uses a complicated formula, but both HM Revenue & Customs and the Welsh Revenue Authority offer an online calculator that can be used. The NPV, once calculated, forms the basis of the SDLT or LTT calculation.

Answer 36

* SDLT is assessed on the NPV, and different percentage rates apply to the slices of the total purchase price. · Up to £150,000, there is no SDLT payable. · Over £150,000 up to £5 million, SDLT of 1% is payable · Over £5 million, SDLT of 2% is payable * SDLT is rounded to the nearest pound.

Answer 37

* LTT is also assessed on the NPV, and different percentage rates apply to the slices of the total purchase price. The rates are currently different from SDLT: · Up to £225,000, there is no LTT payable. · Over £225,000 up to £2 million, LTT of 1% is payable · Over £2 million, LTT of 2% is payable * Unlike SDLT, LTT is not rounded to the nearest pound.

Answer 38

· The tenant is responsible for keeping their demise in full repair – if they have a lease of part, then the landlord will recover the costs of repairing any common areas from the tenants collectively · The landlord will normally insure the property, but will recover the costs of doing so from the tenants in the form of insurance rent · If there are any services, then these will be paid for by the tenant by way of service charge. · Although the landlord will meet their own costs of finding a tenant and granting a lease, any costs during the lifetime of the lease (such as applying for consents) are met by the tenant. · It will tightly control alienation, whom the lease can be assigned or sublet to · It will contain upwards only rent reviews * In typical investment properties, such as shopping centres, industrial estates and office blocks, the landlord will want the leases to be in FRI form. The landlord’s solicitor will usually draft the lease heavily in favour of the landlord, with the expectation that the tenant’s solicitor will negotiate it back in the tenant’s favour. * This negotiation will depend on the bargaining strength of the parties, and whether the market at the time favours landlords or tenants. If the landlord has struggled to fill a unit, then they are more likely to be amenable to letting some points go to the tenant. * In shopping centres and retail parks, there will usually be a tenant who will bring customers to the site regardless of the other shops available; for example, M&S. If a landlord can sign a retailer like this up to an agreement for lease, then other retailers will have the confidence to follow. * It is therefore very important for the landlord to secure such a tenant, which is known as the anchor tenant. An anchor tenant will be aware of this, and will have a stronger negotiating position than other tenants to negotiate their lease.

Answer 39

* The FRI lease aims to maximise the income stream from investment property. However, the FRI lease will only achieve this if the tenant is in a position to pay the rent and comply with its obligations. This ability is referred to as the tenant’s covenant strength. * In a similar way that a bank will do a credit check before offering you a loan or mortgage, a landlord will carry out checks on prospective tenants to ensure that they are good for the obligations they are undertaking. * A well-established company with good references from the bank and other landlords is likely to be acceptable. A newly started company with no assets to its name will not.

Answer 40

· A rent deposit (documented by a rent deposit deed). This is usually between three and six months’ rent. If the tenant falls behind with rent or other obligations, the landlord can dip into the fund. · A guarantor. In the case of a company, this could be a personal guarantee from the directors or a guarantee from a parent company. In either case, the guarantor will then need to be assessed for their covenant strength.

Answer 41

* Once the property agents have agreed the terms of the lease, then they will send heads of terms to the landlord’s and tenant’s solicitors. * The landlord’s solicitor will draft the lease and send it to the tenant’s solicitor. There will likely be a precedent lease already prepared for other lettings on the property, and this will be used as the base, making the necessary changes.

Answer 42

* Unlike in freehold transactions, where it is usual to have a contract, in the grant of a commercial lease, it is only usual to have an agreement for lease where there is a good reason to do so. * Agreements for lease are used when the parties want to bind themselves to granting/taking the lease, but are not yet ready to do so. For example, if a retail park is being developed, then the landlord will find retailers early on, and they will enter into agreements for lease. The terms will be that the landlord will finish building the development, and the tenant will complete the lease once the retail park is ready for them to move into. * There is not usually a deposit payable, because there is not usually a premium payable on a commercial lease. However, the agreement for lease will be exchanged in similar fashion to a contract for the sale of freehold land. * The agreement for lease will contain a final form of the draft lease, so will only be exchanged once the lease negotiations have been finished.

Answer 43

* The landlord’s solicitor will send a completion statement showing the rent, insurance rent and service charge (if appropriate) payable on completion. These figures may be apportioned if the tenant’s lease starts part way through a quarter. In other words, if the tenant is due to pay rent only for the third month of the quarter, then they would pay a third of the full quarter’s rent. * The lease itself is usually prepared as an original (to be executed by the landlord) and a counterpart (to be executed by the tenant). The parties will need to return the executed leases to their respective solicitors. * On completion, the landlord’s solicitor acknowledges receipt of the completion monies, and they agree to date and send each other the executed original and counterpart lease. The tenant therefore holds the original lease executed by the landlord, and the landlord holds the counterpart lease executed by the tenant.

Answer 44

* The landlord’s solicitor will send the money to the landlord or their agents. Institutional investors will likely also want a standard summary or short form report setting out the important terms. Otherwise, the landlord’s solicitor can raise their bill, and their work is finished. * The tenant’s solicitor, however, now has to attend to payment of Stamp Duty Land Tax and registration of the lease. This should not be complicated if the landlord’s title is registered, as it almost always would be.

Answer 45

* Privity of estate exists between any current landlord and current tenant of the property and lasts only for the period while the lease is vested in the tenant.

Answer 46

* The LTCA 1995 changed the principle of original tenant and original landlord liability for ‘new leases’. The original landlord and the original tenant are no longer liable for the leasehold covenants for the full duration of the lease term. * Upon assignment of a new lease, the LTCA 1995 provides for the automatic transmission of the benefit and burden of the covenants to the new owner of the reversion / the lease. * The only exception is that the benefit and burden of covenants which are expressed to be personal will not pass to a third party.

Answer 47

this is an ‘excluded assignment’ and the defaulting tenant will not be released from its obligations under the terms of the lease.

Answer 48

- Privity denotes the legal relationship between two or more parties to a contract. When a landlord grants a lease to a tenant, the arrangement is a contract, and privity of contract exists between them. The terms of the lease are enforceable under the rules of contract law. - All the terms, regardless of their nature, can be enforced by the original landlord against the original tenant and vice versa.

Answer 49

- A lease is not only a contract. Provided the formalities are complied with, a lease gives the tenant a legal estate in the land. - Where the landlord and the tenant are each owners of a legal estate in the same property, there is said to be privity of estate between them. - Privity of estate exists between any current landlord and current tenant of the property and lasts only for the period while the lease is vested in the tenant. - Upon assignment of either the lease or the reversionary interest, privity of contract will remain between the original landlord and the tenant, but there will no longer exist privity of estate between them. This is because the leasehold or freehold estate has passed upon assignment from the original contracting party to their successor in title. Consequently, privity of estate will now exist between whomever is the current landlord and tenant. - When the tenant assigns its interest to a successor in title, there is no contractual relationship between the landlord and the new tenant (the assignee) - privity of estate exists but no privity of contract. - Likewise, where the landlord sells its reversionary interest, there is no contractual relationship between its successor in title (the reversioner) and the tenant - privity of estate exists but no privity of contract.

Answer 50

- All leases created before 1 January 1996 (‘old leases’) (the date when the Landlord and Tenant (Covenants) Act 1995 (‘LTCA 1995’) came into force) are governed by the old system of rules. - - In old leases, the liability of the original landlord and the original tenant continues for the full duration of the lease term. This is the case even after an assignment of either the reversion (landlord’s interest) or the lease (tenant’s interest). This means that the original tenant and the original landlord of an old lease remain liable for the covenants they entered under the lease long after the leasehold/reversionary interests have been sold or given away to others. - This continuing liability of the original contracting parties led to both absurdities and hardships for the original parties. For example, many original tenants were held liable for rent payments or for the costs of repairs years after they had assigned their leases. - Privity of contract means the original landlord and tenant are liable for breaches of covenant by their successors for the entire lease duration. The impact of this is greatest for tenants. - Privity of estate allows the tenant covenants that ‘touch and concern’ the land in an old lease to be enforceable by and against successor landlord and tenants.

Answer 51

- The LTCA 1995 made some fundamental changes to the running of leasehold covenants on assignment of a lease / the reversion. In relation to a lease granted on or after 1 January 1996, these new rules govern whether an assignee of the reversion or the lease can sue or be sued for a breach of covenant. - LTCA 1995, s 3 provides for the automatic transmission of the benefit and burden of all landlord covenants to the new owner of the reversion, and of the benefit and burden of all tenant covenants to the assignee. - This means: · when a tenant assigns a lease, the assignee acquires the benefit and burden of all the covenants in the lease. · when a landlord assigns the reversionary interest, the incoming landlord acquires the benefit and burden of the covenants. * The only exception to this rule in LTCA 1995, s 3(6) is for those covenants which are ‘expressed to be personal to any person’. The benefit and burden of covenants which are expressed to be personal will not pass to a third party. - ‘Expressed to be personal’ is not defined in the LTCA 1995, but it appears to mean that the covenant is expressly stated to be between two named parties to the lease. - Under LTCA 1995, s 23(1) the parties remain liable for the breaches which occur during their period of occupation.

Answer 52

- An assignee of the lease becomes liable from the date of assignment for all covenants in the lease under LTCA 1995, s 3 (other than those expressed to be personal). - It makes sense that a landlord will seek to enforce any breach of covenant against the current tenant; the current tenant should be easy to locate and the landlord may be able to obtain an equitable remedy, such as specific performance. - However, should the assignee be unwilling or unable to comply, the landlord may look to other parties for compensation in respect of breaches of covenant committed by a subsequent assignee. - If the outgoing tenant has been automatically released from its obligations under the lease on assignment under LTCA 1995, s 5, it will not be liable. However, if the outgoing tenant has provided an authorised guarantee agreement (‘AGA’) under LTCA 1995, s 16 on assignment, the landlord could sue the former tenant who is guaranteeing the obligations of their immediate successor.

Answer 53

An AGA is the guarantee by an outgoing tenant of the obligations of the incoming assignee. It can be required by the landlord as a condition of giving its consent to an assignment of a new lease.

Answer 54

- The presence of an AGA provides the landlord with a choice. It could sue the current tenant and may be able to obtain an equitable remedy, such as specific performance. If the current tenant is not worth suing, the landlord could sue the outgoing tenant who is acting as guarantor for the assignee**.** · Exception for new leases - If the landlord sues the former tenant under the AGA, its remedy is limited to damages because the former tenant is not in control of the premises anymore. Such damages may be extensive. - The former tenant may be able to recoup damages paid out on behalf of a defaulting assignee using an indemnity. - Under an AGA a tenant can only be required to guarantee the obligations its immediate successor, when that successor assigns then that AGA must fall away · But only if the assignment was made with the tenants consent * Without the landlord’s consent the AGA does not fall away when the next assignment happens

Answer 55

- Under a new lease, an outgoing tenant should ensure that their assignee enters into an express indemnity covenant on assignment whereby the assignee agrees with the assignor to pay the rent and to perform all the covenants for the remainder of the lease. The former tenant may then sue the assignee for breach of the indemnity covenant and recoup the damages paid to the landlord. - Alternatively, in the absence of an express indemnity covenant, the assignor could claim an indemnity at common law under the rule in Moule v Garrett (1872) LR 7 Exch 101. - The former tenant has the benefit of a quasi-contractual course of action under the rule where if one person is compelled to pay damages because of the legal default of another, the former is entitled to recover those damages from the defaulting party. This means that a former tenant can theoretically sue directly a subsequent assignee in respect of breaches committed by that assignee. (This rule can only be used to take action against assignees, and not sub-tenants.) - These methods of indemnity are of limited practical value. If the assignee in possession were worth suing, the landlord would have sued it in the first place! The outgoing tenant ought to make sure that it assigns to a financially sound and trustworthy assignee.

Answer 56

- When there is a sublease in place, there is no direct relationship between the (head) landlord and the subtenant. The landlord is not the direct landlord of the subtenant. This means that the landlord, who is usually the owner of the land, might not be able to enforce the covenants in the head lease directly against the subtenant, the occupier of the land. - Despite the lack of direct relationship, LTCA, s 3(5) allows restrictive covenants in new leases to be enforced against any owner or occupier of the premises. - However, landlords will not be able to enforce directly against a subtenant any positive covenants. - The effect of this is as follows:  Any tenant (whether the original tenant or an assignee) knowing they are responsible for breaches of the subtenant is likely to include a provision in the sublease in which the subtenant covenants to observe and perform the covenants contained in the head lease. This makes it easier for the tenant to control the actions of the subtenant and it indirectly protects the landlord;  If the landlord forfeits the head lease, the sublease is also automatically terminated, subject to a claim for relief. The threat of this should be a strong incentive to a subtenant to observe the covenants in the head lease. · In addition, a prudent landlord will, as a condition of consent to the subletting, insist on any subtenant of the property entering into direct covenants with it to observe and perform the covenants in the lease. This will create a contractual relationship between the landlord and the subtenant, enabling enforcement of the covenants based upon the law of contract.

Answer 57

- For an old lease, the outgoing tenant remains liable, but the incoming tenant only becomes liable if it gives a direct covenant to the landlord. - For a new lease, the outgoing tenant is released from liability unless it enters into an authorised guarantee agreement. The incoming tenant automatically becomes liable.

Answer 58

* Assignment means the existing tenant passing the lease to a new tenant.

Answer 59

* A qualified covenant against assignment is automatically upgraded to a fully qualified covenant, and it is also implied that the decision whether to grant consent is made within a reasonable time. o Reasonable time is days and weeks but not months

Answer 60

- TR1 and - Licence to assign.

Answer 61

the landlord becomes the landlord of the assignee

Answer 62

* The new tenant is now entitled to exclusive possession of the premises, and is obliged to pay the rent and perform the other tenant covenants. * The assignor is no longer entitled to use the premises, and generally need not pay the rent or perform the other tenant covenants. However, the assignor may still have liability for them, as we will see.

Answer 63

- A tenant may want to assign the premises if they no longer need them for the purposes of their business or cannot afford to keep paying the rent (perhaps following a rent review). - If the premises are right for the assignee, conversely, they may be only too happy to take the lease. - If the lease is silent, then the tenant is free to assign. In practice, a commercial lease will likely require that before assignment, the tenant apply to the landlord for consent. The landlord will want to be able to vet potential assignees. - A tenant’s covenant against assignment may be drafted as absolute, qualified or fully qualified. - An absolute covenant means that assignment is not allowed. A commercial lease will usually contain an absolute covenant against assignment of part of the premises. The landlord will not want a letting split into parts, which creates various problems (that are beyond the scope of this course).

Answer 64

- A tenant’s covenant against assignment of whole may be qualified, meaning that assignment is only allowed with the landlord’s consent. - However, s19(1)(a) of the Landlord and Tenant Act 1927 converts a qualified covenant into a fully qualified covenant, meaning that the landlord must act reasonably if deciding to withhold consent. This restricts the landlord’s discretion. - Furthermore, s1 of the Landlord and Tenant Act 1988 goes a step further, and states that the landlord must give its decision on consent within a reasonable time. - Again, note that statute affects different provisions differently. Alienation is the area where the law comes down most heavily in favour of the tenant. This is because it is unfair to bind a tenant to the lease and premises where there is a willing and suitable prospective tenant to take over. - Case law suggests that a “reasonable time” is dependent upon circumstances but should be measured in days or weeks instead of months.

Answer 65

· The would-be assignee’s proposed use of the premises may be reasonable grounds to withhold consent. For example, in a shopping centre, the landlord may have a policy on mixing different types of shops. If the prospective assignee’s proposed use does not fit this, then it may be reasonable to withhold consent. · The landlord cannot withhold consent on grounds not related to the landlord/tenant relationship, such as a personal dislike of the prospective tenant or their business. Nor can they discriminate on grounds of race, sex or disability. · It is likely reasonable to withhold consent if the landlord has justifiable concerns about the assignee’s ability to pay the rent; for example, if the tenant cannot produce satisfactory references. Another example would be if the assignee is newly incorporated and cannot produce accounts. · If the landlord does not act reasonably in withholding or delaying consent, then the tenant may be able to claim damages (including costs for agents and solicitors). · The landlord will, however, have various concerns regarding assignment. A commercial lease, therefore, will contain: * circumstances that the parties agree will be reasonable grounds for withholding consent and * conditions that may be imposed on assignment. · Both conditions and circumstances are recognised by s19(1A) Landlord and Tenant Act 1927. If valid, they provide the landlord with specific grounds on which consent may be reasonably withheld. · Example: a lease’s assignment covenant includes a circumstance that all yearly rent is paid up to date, and a condition that the assignee provides a guarantor of the rent and other obligations. The landlord may reasonably withhold consent to the assignment if the tenant is behind with rent or if the assignee refuses to provide a guarantor.

Answer 66

- Landlord’s solicitor · Takes instructions · Confirms receipt of application, sets out any requirements · If client wishes to proceed in principle, drafts licence to assign and sends to tenant’s solicitor - Tenant’s solicitor · Takes instructions · Applies for consent · Prepares draft contract (if applicable) and deduces title. Forwards licence to assign to assignee’s solicitor. · Answers pre-contract enquiries. · Once agreed, engrosses the contract, obtains tenant’s signature and sends engrossment to assignee’s solicitor. - Assignee’s solicitor · Takes instructions · Assists tenant’s solicitor if anything needed for consent. · Reviews draft contract (if applicable) and investigates title. Reviews and reports on lease. Reviews the licence to assign. · Raises pre-contract enquiries and searches. · Arranges for assignee to sign contract.

Answer 67

- The tenant’s solicitor will usually apply to the landlord for consent early on in the transaction, as the whole transaction hinges on this being successful. - The landlord’s solicitor will ask the tenant’s solicitor to give an undertaking for costs. The tenant’s solicitor will want to ensure that they are in funds (ie, have money in client account from the client to cover the undertaking). - The undertaking will typically cover the landlord’s solicitor’s and surveyor’s costs in considering the application. It will be capped at a certain amount (say up to £850 plus VAT for each of the solicitor’s and surveyor’s costs). - Once the undertaking has been provided, the landlord’s solicitor will draft a licence to assign (this will be covered in a separate element). Although a short document, both the tenant’s solicitor and assignee’s solicitor may have amendments that they wish to make, so it may take time for all three parties (landlord, tenant and assignee) to agree its final form.

Answer 68

An undertaking for costs is a promise by a solicitor to pay costs. Breach of the undertaking may lead to disciplinary action by the Solicitors’ Regulation Authority, and as a solicitor is an officer of the court, their undertaking is also enforceable in the courts.

Answer 69

- The tenant’s solicitor will draft a contract if it is intended to exchange (for example, if the parties are anxious to bind themselves to the assignment subject to the landlord’s consent). - The tenant’s solicitor deduces title by providing official copies for the leasehold title, or if it is not a registered interest (ie, a term of 7 years or less), then the landlord’s title. In either case, a copy of the lease will be provided to the assignee’s solicitor. - The assignee’s solicitor will review the draft contract and amend if they feel appropriate in the assignee’s interests. The landlord is not normally a party to this contract. - An important difference between the grant of lease and assignment procedure is that whereas a new tenant will have the opportunity to negotiate the lease, an assignee generally takes the lease as it is. - Only in rare instances (eg, if the landlord would prefer to have the assignee over the tenant) might the landlord agree to vary the lease (this would require a deed of variation).

Answer 70

- The tenant’s solicitor will deduce their leasehold title, and the assignee’s solicitor should investigate it. If the lease is unregistered, this would include investigating the landlord’s title, but if the lease is registered, then the assignee’s solicitor can rely on the leasehold official copies. - The assignee’s solicitor will raise CPSE1 enquiries (as does a buyer’s solicitor in a commercial freehold transaction) but will also raise CPSE4 enquiries which are specific to the assignment of a lease. - The assignee’s solicitor should raise the same searches as they would if they were buying the freehold. - In general the assignee’s solicitor should ideally exercise the same care over their investigations with a leasehold transaction. In practice, the assignee may agree with their solicitor that the cost of full investigations are not justified for a very short lease with limited repair and other obligations. In this case, the assignee’s solicitor should ensure that the assignee is advised of the risks.

Answer 71

- On exchange of a contract for assignment o the tenant's solicitor and assignee's solicitor exchange in similar manner as for a freehold contract (usually adopting Law Society B) o no deposit is usually payable for assignment of a rack rental lease (for an assignment of a long residential lease, a 10% deposit would be usual, just like for a freehold) o the contract may set a fixed completion date, or may specify that completion is conditional (eg, on the landlord’s consent)

Answer 72

- Landlord’s solicitor · Engrosses licence to assign in triplicate (three copies), arranges for landlord to execute one copy - Tenant’s solicitor · Arranges for tenant to execute one copy of the licence to assign · Prepares and sends a completion statement detailing the money due on completion (eg, any apportioned annual rent, service charge and insurance rent) · Responds to requisitions on title · Approves deed of assignment and arranges for tenant to execute - Assignee’s solicitor · Arranges for assignee to execute one copy of the licence to assign · Obtains funds from assignee needed to complete as per completion statement · Raises requisitions on title · Raises pre-completion searches · Drafts deed of assignment

Answer 73

- The tenant’s solicitor prepares a completion statement for the assignee. This involves calculating what proportion of the rents due under the lease are attributable to the tenant and the assignee. - - As with a freehold transaction, pre-completion searches are carried out if the lease is registered. The appropriate search is an OS1 search of the whole of the tenant’s leasehold title. Note that it does not matter here if it is a lease of part or whole, as it is not the landlord’s title being searched. - The landlord will prepare the licence to assign in triplicate, as each of the landlord, tenant and assignee will want a signed copy at its completion. - The assignee will draft the deed of assignment. If it is a registered lease, this will be in form TR1, as for a registered freehold. If the tenant’s solicitor is happy with the draft, then they will arrange for the tenant to execute it. The landlord is not involved in this.

Answer 74

o the assignee’s solicitor sends the tenant’s solicitor the completion monies o the landlord’s solicitor, tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the licence to assign o the tenant’s solicitor and assignee’s solicitor agree over the telephone to complete and date the deed of assignment

Answer 75

· Arranges to submit SDLT or LTT return and pay appropriate SDLT or LTT if necessary · Registers assignment if necessary · Sends formal notice of assignment to landlord’s solicitor

Answer 76

* Underletting involves the tenant creating an underlease to the undertenant o The tenant takes a landlord role – but their landlord is the superior landlord o Undertenant is likely paying market rent if this is a residential property

Answer 77

* A qualified covenant is converted by statute to a fully qualified covenant with the additional requirement that the landlord make its decision in a reasonable time.

Answer 78

* After underletting, the tenant remains liable to the landlord for its covenants. * After underletting, the undertenant is liable to the tenant for its covenants, but will generally be required to give the landlord a direct covenant, as otherwise it is not liable directly to the landlord.

Answer 79

* The underlease must be for a shorter term than the lease itself, even if only a day shorter otherwise it would be an assignment.

Answer 80

- If the lease is silent, then the tenant is free to underlet. However, a commercial lease will impose a requirement of consent, and will want to vet prospective undertenants. Underlettings of part may be permitted if it is practical to separate the premises.

Answer 81

- A tenant’s covenant against underletting of whole may be qualified, meaning that underletting is only allowed with the landlord's consent. - As with assignment (see the relevant element), a qualified covenant against underletting is automatically converted to a fully qualified covenant and the decision must be made within a reasonable time. - A commercial lease may contain an absolute covenant against underlettings of part, except for a permitted part (such as the floor of an office building in the previous example), and a fully qualified covenant against underlettings of the whole or a permitted part. - The considerations for what constitutes reasonable withholding of consent are similar to that for assignment. The landlord is equally concerned with the ability of the undertenant to pay the rent and perform the obligations of the lease as in certain instances the undertenant may become the direct tenant of the landlord. - Unlike assignment, lease covenants regulating underletting do not talk in terms of conditions and circumstances on which consent may be reasonably withheld. The transaction is somewhat less risky for the landlord in that the tenant remains primarily liable for observing the covenants under the lease. - However, the landlord is able to restrict the underletting, and will normally do so in a commercial lease. These restrictions are concerned with what would happen if the undertenant becomes the direct tenant of the landlord. - Typically the lease will prevent the tenant from underletting the premises:  together with property that do not belong to the landlord  on payment of a lump sum (as doing so likely means that the tenant is not paying a full market rent)  with a rent free period beyond what is normal in that market · and may require that the underlease: * is at a rent no lower than that in the tenant’s lease (but this makes it difficult for the tenant to underlet in a falling market) * contains covenants no less onerous than in the tenant’s lease

Answer 82

- At common law, privity of contract is the ability of the original parties to a contract to enforce the obligations against each other, even after the contract has been assigned. · Privity of contract exists between the landlord and the tenant. · It also exists between the tenant and the undertenant. · However, it does not exist between the landlord and the undertenant.

Answer 83

- By contrast, privity of estate is the ability of the landlord and tenant for the time to enforce the provisions of a lease against each other. However, not all obligations are enforceable under privity of estate. · Privity of estate exists between the landlord and the tenant. · It also exists between the tenant and the undertenant. · However, it does not exist between the landlord and the undertenant.

Answer 84

- As there is neither privity of contract nor privity of estate between the landlord and the undertenant, the landlord is not able to enforce covenants against the undertenant. · The landlord will therefore usually want the undertenant to covenant directly with the landlord. · A direct covenant can be given by the undertenant to the landlord in the licence to underlet (for detail, see the element on licences to assign and underlet). · There is no equivalent of an authorised guarantee agreement for underletting, as the tenant remains liable to the landlord in any case.

Answer 85

- Landlord’s solicitor · Takes instructions · Considers application to underlet · If landlord is happy in principle to give consent, requests undertaking for costs and issues draft licence to underlet to tenant’s solicitor - Tenant’s solicitor · Takes instructions · Applies for consent to underlet · Prepares draft lease and, if relevant, agreement for underlease (ie, if there is to be an exchange) · Reviews draft licence to underlet and sends copy to undertenant · Deduces title and responds to any queries on title · Answers pre-contract enquiries · Once agreed, engrosses the agreement for underlease, obtains the tenant’s signature and sends counterpart to undertenant’s solicitor - Undertenant’s solicitor · Takes instructions · Reviews draft lease and agreement for lease and amends as required · Reviews draft licence to underlet · Investigates title and raises any queries on title · Raises pre-contract enquiries and searches · Arranges for undertenant to sign counterpart lease

Answer 86

- As with assignment, the tenant’s solicitor will usually apply to the landlord for consent early on in the transaction, as the whole transaction hinges on this being successful. - The landlord’s solicitor will require the tenant’s solicitor to give an undertaking for costs before beginning work. Once the undertaking for costs is in place, the landlord’s solicitor will prepare the draft licence to underlet. - The landlord’s solicitor will also want to see the draft underlease to ensure that it will comply with the tenant’s obligations under the lease.

Answer 87

- The tenant’s solicitor will need to draft the underlease. - Unlike a freehold owner granting a lease, a tenant granting an underlease is usually very limited in what provisions they can offer. For example, the tenant’s lease will usually require the underlease to contain obligations no less onerous than the tenant’s (eg, if there is a full repairing covenant in the lease, there must also be a full repairing covenant in the underlease). - The underlease may be a full form lease, which will look similar to the tenant’s own lease, or it may be a lease by reference, which incorporates sections of the tenant’s lease by reference (eg, it may define the “tenant’s covenants” as the tenant’s covenants in the tenant’s lease, and then contain a covenant for the undertenant to observe the tenant’s covenants). - The term granted by the underlease must be less than the remaining term of the tenant’s lease, even if only one day less.

Answer 88

- As with a grant of lease, it is not always necessary to have exchange at all. If exchange does take place, then the tenant’s solicitor will draft an agreement for underlease. - As with an agreement for lease, this may set the completion date in the future and may make the completion conditional on various matters. - They may exchange an agreement for underlease conditional upon the landlord’s consent, allowing them to complete as soon as the landlord is ready to give it.

Answer 89

- The undertenant’s solicitor should generally carry out the same investigation of title, searches and enquiries as the tenant’s solicitor in a grant of lease (see the element on grant of lease procedure). - However, one important difference is that rather than the landlord deducing its freehold title, the tenant will need to deduce its leasehold title as follows: o if the lease is over 7 years, then the tenant need only provide an official copy of its registered leasehold title; o if the lease is 7 years or under, then the tenant will need to provide an official copy of the landlord’s freehold title together with a copy of the lease. - As with the grant of lease, it is possible that the undertenant may not want their solicitor to do full scale investigations if it is a short term letting.

Answer 90

- Between the tenant and undertenant - On exchange of an agreement for underlease: o the tenant's solicitor and undertenant’s solicitor exchange in similar manner as for a freehold contract (usually adopting Law Society B) o no deposit is usually payable o the agreement for lease may set a fixed completion date, but more likely will set out what conditions need to be satisfied and by when for completion to take place o the agreement for underlease will usually have a draft of the agreed form of underlease annexed to it, so it can only be exchanged once the terms of the underlease have been agreed

Answer 91

- Landlord’s solicitor · Engrosses agreed form of licence to underlet and circulates for execution · Obtains landlord's execution to licence to underlet - Tenant’s solicitor · Prepares original and counterpart underlease, obtains tenant’s signature to original and sends counterpart to undertenant for signature · Prepares and sends a completion statement, detailing the money due on completion (eg, any apportioned annual rent, service charge and insurance rent) · Obtains tenant’s execution to licence to underlet - Undertenant’s solicitor · Arranges for undertenant to sign counterpart underlease · Obtains funds from client needed to complete as per completion statement · Raises pre-completion searches · Obtains undertenant’s execution to licence to underlet

Answer 92

- A completion statement will be prepared, just as with a grant of lease. Note that it is the rent under the underlease that is payable, however, not the rent under the tenant’s lease. - The underlease will likely require an appropriate sum from the undertenant for service charge and insurance rent to cover the corresponding obligations of the tenant. - If it is an underletting of the whole of the tenant’s interest, then an OS1 search is carried out against the tenant’s registered leasehold title. If it is an underletting of part of the tenant’s interest, then an OS2 search is carried out against the appropriate part of the tenant’s registered leasehold title. · Updates your official copies and gives you a priority period - Where the underlease is not registrable, an OS3 search may be carried out against the tenant’s interest to check whether any adverse entries have been made since the date of the last copy of the tenant’s title register. It would not be appropriate to carry out a search with priority against the landlord’s freehold interest, as the underlease is not granted out of the freehold.

Answer 93

- On completion of the underlease o the parties’ solicitors agree to date and complete the licence to underlet o the undertenant’s solicitor sends the tenant’s solicitor the completion monies o the tenant’s solicitor and undertenant’s solicitor agree over the telephone to complete and date the executed underleases that they are holding o the tenant’s solicitor and undertenant’s solicitor send the completed original and counterpart underleases to each other

Answer 94

- Tenant’s solicitor · Sends notice of underlease to the landlord’s solicitor - Undertenant’s solicitor · Arranges to submit SDLT or LTT return and pay appropriate SDLT or LTT if necessary · Registers underleases if necessary

Answer 95

· Landlord’s consent to assignment or underletting is documented in a formal deed being a licence to assign or licence to underlet respectively

Answer 96

* Because most long leases do not require landlord's consent to an assignment.

Answer 97

- Common to both licence to assign and licence to underlet · Consent for limited time (say 3 months) and limited to specific transaction · Tenant agrees to pay landlord’s costs * Covenant · Assignee or underlessee covenants directly with the landlord to observe lease obligations (not necessary in a licence to assign a new lease, but landlord may request anyway)

Answer 98

· Tenant guarantees assignee’s performance of tenant obligations (authorised guarantee agreement) – licence to assign new lease only · Tenant not released from outstanding obligations – licence to assign new lease only (not necessary for old leases or underlettings) · The draft licence to underlet will have a draft of the underlease attached

Answer 99

- Following an assignment, the assignee, and following an underletting, the tenant, will be required to give the landlord formal notice within a month that the transaction has been completed. - There will usually be a fee for the landlord’s solicitors receipting this notice. - For a long residential lease, it is often the case that the lease may be freely assigned (eg, on a sale of the house or flat), or underlet on short tenancies, without landlord’s consent. · For a long residential lease they would likely pay a large sum and nominal rent - However, there will usually be a requirement to give notice of dealing for assignments of the lease. This is mainly so that the landlord for the time being knows to whom they should address the ground rent demands!

Answer 100

- Assignment and underletting are not the only forms of alienation. There are other ways in which the tenant may be able to deal with their interest. - Charging the lease · A tenant may create a charge over their lease, just as a freeholder owner charges their interest to a mortgage lender. · A commercial tenant may do this as part of a floating charge over their business generally. The bank taking the charge will want the benefit of the lease if taking the business into administration. · A residential leaseholder will do this when taking a mortgage. - Share occupation · A tenant may want to share occupation with a third party without creating an underlease. · Usually a commercial lease will allow sharing with group companies. · This is because from the landlord’s point of view, they can regard the tenant and its group companies as one entity – the landlord can still enforce the covenants against the tenant.

Answer 101

- The Code has various requirements on alienation. Some important ones: o Lease should allow tenants to assign or underlet the whole of the premises with the landlord’s consent not to be unreasonably withheld or delayed o Leases should allow tenants to share with group companies without consent. o Leases should allow tenants to charge the lease to a bank or reputable lending institution without consent (with a limited exception). * Licence will also contain a covenant for the tenant to undertake the landlord’s cost

Answer 102

eases that are dated on or after 19 June 2006 which are granted out of registered land and are compulsorily registrable (see 7.8.3) must contain a standard set of clauses (‘prescribed clauses’) at the beginning of the lease, or immediately after any front cover sheet and/ or front contents page. The prescribed clauses are a summary of the important details in the lease and bring together, in one place, all the information that the Land Registry needs in order complete registration. This saves time for the Land Registry which will prepare the register entries to complete registration of the lease from the information in these clauses.

Answer 103

the lease starts with the words ‘This lease’, followed by the date of its grant and the names and addresses of the parties. Where the lease is created out of a registered title, the document will carry the usual Land Registry heading (county and district, landlord’s title number, brief description of the property, and date) at the top of its first page.

Answer 104

definitions are required to avoid having to repeat detail. Definitions will appear with a first capital letter.

Answer 105

these give the tenant rights over other land to enable them to use the leased property more effectively, eg a right to use roads, car parking spaces or an area for loading/unloading.

Answer 106

these are rights in favour of the landlord over the leased property, such as a right to enter to do repairs to service media and other parts of the building.

Answer 107

This is where a tenant occupies the property with the permission of the landlord on the terms that the tenancy may be terminated by either party at any time. So, it is different from a fixed- term tenancy (which is for a specific fixed period) and a periodic tenancy (which is one that runs from one period to another). A tenancy at will is indefinite and might last any number of days, weeks or years. They are not often used for commercial properties as they are too uncertain, but tenancies at will can occur where the parties are not expecting them, eg where a tenant remains in occupation at the end of the formal lease, or where the parties want to create an informal agreement, such as a tenancy between family members.

Answer 108

* There must be disrepair first, before the tenant can be in breach of covenant to repair. The physical condition of the property must have deteriorated from some previous physical condition (Post Office v Aquarius Properties Ltd [1987]). * This is a problem if the building is brand new and will inevitably deteriorate from its original pristine condition. However, the property need not be kept in perfect repair: ‘It need only be put into such a state of repair as renders it fit for the occupation of a reasonably minded tenant of the class likely to take it’ (Esher LJ in Proudfoot v Hart [1890]). * Works of renewal or improvement go beyond repair. Repair is restoration by renewal or replacement of parts of a whole, not renewal or replacement of the whole (Lurcott v Wakeley [1911]). It is a question of fact and degree and the work that the tenant has to carry out depends on the age and nature of the property at the date of the lease. * A repairing covenant does not oblige the tenant to give back to the landlord a property that is ‘wholly different’ from that leased to them, but it can oblige the tenant to remedy an inherent defect in the design and/ or construction of the building if that is the only way to effect the repair (Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980]). The tenant should beware of repairing covenants with additional wording. A covenant to ‘keep’ a building in repair also means ‘put’ it into repair, even if that involves the tenant putting the building into a better state of repair than when they entered into the lease. A covenant to ‘keep the property in good condition’ is more onerous than a plain covenant to keep it in repair. It can mean that the tenant is obliged to carry out some works, even though there is no actual disrepair (Welsh v Greenwich LBC [2000]).

Answer 109

Often this covenant is to pay a sum reserved as rent (the ‘insurance rent’), which includes the premium for the buildings insurance policy and an associated policy covering the landlord for loss of the annual rent (ie the income stream) during any period where the tenant is unable to use the building following the occurrence of an insured risk.

Answer 110

Often this is expressed as a covenant to use the insurance proceeds to reinstate the property (rather than an absolute obligation to reinstate even if the proceeds are insufficient). Ideally, a tenant would like this extended to include an obligation for the landlord to make good any shortfall in the insurance proceeds from its own resources as there will have been a failure to insure the property to its full reinstatement value. There may also be a provision to deal with the situation where reinstatement is impossible. Many leases provide for the insurance monies to be retained by the landlord, whose building it is, but a tenant in a strong negotiating position (or when it is a long lease for which the tenant has paid a premium) may have agreed that the proceeds will be passed over to the tenant who has been paying the premiums, or that the proceeds will be shared between landlord and tenant proportionate to their respective interests in the building.

Answer 111

In the absence of an express term to the contrary, rent will continue to be payable even if the property is rendered unusable. The tenant should therefore ensure that the lease provides for the payment of rent to be suspended during any period that the property cannot be occupied following damage by an insured risk. The landlord will normally be happy to allow such rent suspension, as they can insure against loss of rent in such circumstances. However, usually such insurance is limited in duration (often to three years) and the landlord may attempt to limit the rent suspension accordingly.

Answer 112

Unless the lease states otherwise, if the building is totally destroyed, the doctrine of frustration will only apply in exceptional circumstances. Therefore, the lease will often give the landlord the right to terminate the lease should reinstatement prove impossible. The tenant should try to ensure that they have the same right, particularly where the rent suspension is time- limited. The tenant should be able to terminate the lease if the property has not been reinstated by the end of the rent suspension period; otherwise they will be paying rent for a property they cannot use, as well as the rent on alternative premises.

Answer 113

A tenant which has obtained prior authorisation to make the improvements by using the s 3 statutory procedure is entitled to claim compensation for improvements at the end of the term that ‘add to the letting value of the holding’ under s 1 of the Landlord and Tenant Act 1927, provided the claim is made within certain statutory time limits. In practice, these provisions are rarely used. Tenants usually obtain consent to carry out the alterations without using the s 3 statutory procedure, and in any event most leases contain a tenant’s covenant to remove all alterations and reinstate the premises at the end of the term (so there are no improvements left in respect of which to claim compensation).

Answer 114

implies into any qualified covenant (not to assign without the landlord’s consent) that it be deemed to be subject to a proviso that such consent is not to be unreasonably withheld. The effect, therefore, is to convert a qualified covenant into a fully qualified covenant.

Answer 115

this allows for the landlord and the tenant to agree in advance conditions and circumstances in which it would not be unreasonable for the landlord to refuse consent. Conditions are often that the assignor agrees to give an authorised guarantee agreement (‘AGA’ – see 8.4) for the assignee and/ or that the assignee agrees to provide guarantors. Circumstances can include that the assignor is up- to- date with the rent and/or that the assignee is of sufficient financial strength to enable it to comply with the tenant’s covenants in the lease. The effect is that such pre-agreed conditions and circumstances are deemed reasonable.

Answer 116

this means that where there is a qualified covenant on assignment (whether the proviso that consent is not to be unreasonably withheld is express or implied by statute) and the tenant has made a written application for consent, the landlord must within a reasonable time: a) give consent, except in a case where it is reasonable not to give consent b) serve on the tenant written notice of its decision whether or not to give consent specifying in addition: i) if the consent is given subject to conditions, those conditions, ii) if the consent is withheld, the reasons for withholding it.

Answer 117

(a) The purpose of a fully qualified covenant against assignment is to protect the landlord from having its premises used or occupied in an undesirable way, or by an undesirable tenant or assignee. (b) A landlord is not entitled to refuse its consent to an assignment on grounds which have nothing whatever to do with the relationship of landlord and tenant in regard to the subject matter of the lease. (c) It is unnecessary for the landlord to prove that the conclusions which led it to refuse to consent were justified, if they were conclusions which might be reached by a reasonable person in the circumstances. (d) It may be reasonable for the landlord to refuse its consent to an assignment on the ground of the purpose for which the proposed assignee intends to use the premises, even though that purpose is not forbidden by the lease. (e) In general a landlord is bound to consider only its own relevant interests when deciding whether to refuse consent to an assignment of a lease. However, it would be unreasonable for a landlord not to consider the detriment which would be suffered by the tenant if consent were to be refused, if that detriment would be extreme and disproportionate in relation to the benefit gained by the landlord. (f) Subject to the above propositions, it is, in each case, a question of fact, depending on all the circumstances, whether the landlord’s consent to an assignment is being withheld unreasonably.

Answer 118

1. Lease negotiations must be approached in a constructive and collaborative manner. 2. Any party not represented by an RICS member or other property professional must be advised of the existence of the code and must be recommended to obtain professional advice. 3. Transaction terms must be recorded in writing, subject to contract and must summarise specified details as a minimum. The specified details relevant to the terms and conditions considered in this chapter are: ∘ identity and extent of the premises, together with any special rights to be granted ∘ length of term including details of any renewal or break rights ∘ amount of rent, frequency of rent payments and frequency and basis of any rent review ∘ liability for payment of insurance premiums ∘ ability to assign, underlet, charge or share the premises ∘ repairing, permitted use and alterations obligations. The landlord is responsible for ensuring that heads of terms containing the specified provisions are agreed before the draft lease is sent to the tenant’s solicitor for approval.

Answer 119

* The identity of the property should be clearly defined, a lease plan should be provided and the tenant should be granted all necessary rights for the intended use of the property * The length of term and any break provisions should be stated * Leases should allow either party to start the rent review process. Tenants should be made aware of the method or formula for review where appropriate to allow time to take professional advice * Leases should contain standard provisions for assignment of whole, underletting of whole or part (where appropriate) charging and sharing with group companies * Repairing obligations should be appropriate to the length of the lease and the condition of the premises * Controls on alterations and change of use should be no more restrictive than are necessary to protect the value of the property and any adjoining or neighbouring premises of the landlord.

Answer 120

Once the solicitors have agreed the form of lease/ underlease and carried out all the pre- contract steps, they should be ready to complete the grant of the lease. In leasehold transactions it is quite common to by- pass the contract and proceed straight to completion by granting the lease itself. It takes a long time to negotiate a commercial lease and the parties are already financially committed, so to avoid further costs the parties may go straight to completion. A contract, usually called an ‘agreement for lease’, will be useful where there is going to be a delay between agreeing the lease/ underlease and actually granting it but one (or both) of the parties requires the other to be bound into the transaction. Where an agreement for lease is required, it is drafted by the landlord’s solicitor in the same way that the seller’s solicitor drafts the contract in the case of the sale of a freehold property. The particulars of sale must state that the property is leasehold and give details of the term to be vested in the tenant. Incumbrances affecting the superior title must be disclosed (as these will affect the tenant in the same way as they would affect a buyer of the freehold) and the agreement should provide for an indemnity to be given in the lease/ underlease in respect of future breaches of any covenants affecting the title. In other respects, the contract will be similar to that prepared on a freehold transaction. Standard Condition 8.2 (SCPC 11.2.3) provides for the lease/ underlease to be in the form annexed to the draft contract, and for the landlord to engross the lease/ underlease and supply the tenant with the engrossment at least five working days before the completion date.

Answer 121

Before drafting the lease/ underlease, the landlord’s solicitor will need to investigate the client’s title to ensure that the client is entitled to grant it, to anticipate any problems with the title and draft any agreement for lease. Where the property is subject to an existing mortgage, the mortgage will frequently contain a prohibition or restriction on the borrower/ landlord’s ability to grant a lease of the property so the lender must be contacted and its permission obtained before the transaction proceeds. In the case of a lease, a tenant will want the landlord to deduce title to the freehold interest. This is particularly important where a premium is to be paid for the grant of the lease, where the property is being offered as security for a loan or where a tenant is paying a significant rent. Unless the freehold is already registered, the absence of the freehold title will usually prevent the tenant from obtaining an absolute leasehold title on the subsequent registration of the lease. Even when the freehold title is registered with absolute title, the tenant will still want to see whether there is anything on the freehold title which will bind the new leasehold title. Although most landlords are happy to deduce their title, under the general law a tenant is not entitled to call for deduction of the freehold title unless the transaction is the grant of a lease for a term of more than seven years. Where this is the case and there is to be an agreement for lease, SC 8.2.4 (SCPC 11.2.4) requires the landlord to deduce such title as would enable the tenant to obtain registration with an absolute title at the Land Registry. If the landlord’s title is registered, the tenant will be able to check the landlord’s title under the Open Register rules in any event. In the case of an underlease, if the headlease is registered with absolute leasehold title, there will be no need to see the title to the freehold. Where the headlease is unregistered: * the general law entitles the undertenant to call for the headlease and all subsequent assignments under which the headlease has been held for the last 15 years * under the general law, the undertenant is only entitled to call for deduction of the freehold title where the transaction is the grant of a lease for a term of more than seven years. The requirement to provide details of the freehold may cause problems to a headtenant if it did not call for the deduction of the freehold title when it took the headlease. If unable to comply, the headtenant will need to exclude this requirement by a special condition in the contract.

Answer 122

(a) draft agreement for lease (if applicable); (b) draft lease/ underlease; (c) evidence of the freehold/ headlease title; (d) copies of any relevant planning consents; and (e) evidence of the lender’s consent to the grant of the lease/ underlease (where relevant). The tenant’s or undertenant’s solicitor will want to undertake the same searches and enquiries as if the client were buying the freehold (see Chapters 3 and 5). There will normally be some additional queries relating specifically to a lease. For example, the tenant will want to see details of the landlord’s insurance policy When reporting to the client, the solicitor should explain the tenant’s obligations under the lease/ underlease and the danger of losing the lease through forfeiture for breach of covenant

Answer 123

The usual condition of granting consent is that the undertenant is to enter into a direct covenant with the head- landlord to perform the covenants in both the underlease and the headlease. The direct covenant usually excludes the headlease covenants to pay rent and only applies in so far as the headlease covenants relate to the underlet property. Ordinarily, there is neither privity of contract nor privity of estate between a head- landlord and an undertenant and, therefore, the head- landlord is unable to sue an undertenant in respect of any breaches of the terms of the headlease. The direct covenant creates a contractual relationship which enables the head- landlord to sue the undertenant for any breaches of either the headlease (other than for non- payment of rent) or the underlease. (However, the head- landlord will need to obtain a new direct covenant on each and every assignment of the underlease from the proposed assignee.)

Answer 124

The key provisions in the licence to underlet are the consent of the head- landlord to the grant of the underlease and the direct covenant from the undertenant to the head- landlord. The licence is also likely to contain an obligation on the part of the headtenant to pay the head- landlord’s costs for approving the underletting and granting the licence.

Answer 125

On completion, in addition to matters relevant to a freehold transaction, the landlord will receive: (a) the counterpart lease/ underlease executed by the tenant/ undertenant; (b) any premium payable for the grant (less any deposit paid on exchange of contracts); (c) an apportioned sum representing rent payable in advance under the lease/ underlease. The landlord should give to the tenant: (a) the lease/ underlease executed by the landlord; (b) if not already done, properly marked or certified copies of the freehold title deeds (unregistered land only); (c) where relevant, a certified copy of the consent of the landlord’s lender to the transaction. On the grant of an underlease, the parties must also ensure that, on or before completion, the head- landlord has given its consent to the grant of the underlease, usually in the form of a licence to underlet

Answer 126

A land transaction return must be submitted to HMRC on the grant of a lease in the usual way. In the case of the grant of a lease, SDLT is potentially chargeable both on any capital sum being paid (referred to on the grant of a lease as a ‘premium’) and on the amount of the rent. * In the case of non- residential property, the SDLT payable on any premium is calculated on the same basis as for the consideration on the sale of freehold land (see 1.6.1(b)). * In relation to the rental element, a complex formula is used to identify the Net Present Value (‘NPV’) of the rent and SDLT is then calculated using this figure. Calculating the NPV consists of working out how much rent is payable in total over the term of the lease (including any VAT) and then discounting rental payments to be made in future years by 3.5% per annum to compensate for the fact that future rent received will have a lower value than rent received today. * SDLT is chargeable on the VAT inclusive amount of the premium and the rent so it is necessary to determine if VAT is chargeable because the landlord has opted to tax the property.

Answer 127

LTT is charged on the leases of non- residential property in a similar way to SDLT, ie on the premium and on the rental element using the NPV of the rent. * The LTT payable on any premium is calculated on the same basis as for the consideration on the sale of freehold land (see 1.6.1(d)), except that the 0% band for premiums extending to £150,000 is not available where the ‘relevant rent’ exceeds £9,000. The rate of 1% will apply instead. Relevant rent is usually the highest rent payable in any year across the entire term of the lease. The land transaction return and payment must be submitted to the Welsh Revenue Authority within 30 days of completion of the grant of the lease.

Answer 128

The lease/ underlease is normally prepared in two identical parts, the lease and counterpart. The lease is executed by the landlord and the counterpart by the tenant. On completion, these are exchanged so that each party has a copy of the lease signed by the other in case of subsequent dispute. As with the transfer deed in the case of the sale of freehold land, a top copy (or engrossment) of the lease/ underlease and counterpart will need to be made and it is these that the parties will sign. The landlord will sign the lease itself in readiness for completion and the counterpart should be sent to the tenant’s solicitor for execution by the tenant (at least five working days before contractual completion date if SC 8.2.5 or SCPC 11.2.5 apply). A lease is a legal estate in land and must be created properly according to the correct legal formalities. The requirements for execution of a deed are dealt with in 5.3. Most leases provide that rent is payable in advance, not in arrears. Unless completion takes place on a day when rent under the lease/ underlease falls due, a proportionate amount of rent calculated from the date of completion until the next rent payment day will be payable by the tenant on completion and this should be agreed in advance.

Answer 129

* Under the SCs, either party may rescind the contract by notice if the consent has not been given three working days before the completion date or if, by that time, consent has been given subject to a condition to which the buyer reasonably objects. Although this allows contracts to be exchanged before the landlord’s consent is obtained, it gives rise to uncertainty as to whether the transaction will complete. Where the timing of completion is important (eg where there is a dependent transaction), it is safest not to exchange until the landlord’s consent has been obtained. Otherwise the assignment may fall through when the landlord refuses consent, whereas the dependent transaction would still be binding. *The SCPCs provide that if the landlord’s consent has not been obtained by the completion date, completion is postponed until five working days after the assignor notifies the buyer that consent has been given. The contract may not be rescinded until six months have passed since the original completion date. Either party can then rescind by serving notice on the other. Again, if timing of completion is important, it is safest not to exchange until the landlord’s consent has been obtained.

Answer 130

The purpose of a licence to assign is for the landlord to give consent to the assignment of the lease by the assignor to the assignee. If the assignment were to take place without that consent, the assignor may be committing a breach of the tenant’s alienation covenants in the lease: the assignor may not be released from liability under the tenant’s covenants (see 9.2.2) and the lease itself could be liable to forfeiture (see 9.5). The draft licence to assign is** produced by the landlord’s solicitor **and sent to the assignor’s solicitor who coordinates with the assignee’s solicitor to amend or agree the draft. If the assignor and assignee are to enter into covenants in the licence then all three (ie landlord, assignor and assignee) will be parties to the licence, which must be in the form of a deed. Often the licence will be prepared in triplicate, so that on completion each party receives a signed and dated part. Any guarantors of the assignee or assignee will be required to join in.

Answer 131

A typical licence to assign will contain the following components: (a) The landlord grants consent to the assignor to assign the lease to the assignee. Often this consent will be time- limited (eg three months) because the landlord has no control over when the assignment takes place and the assignee’s financial position can change in a short time. The landlord would not want to be bound to consent to an assignment if the assignee’s financial position has deteriorated since the references and accounts were checked. (b) If the lease was granted on or after 1 January 1996, the assignor will typically give an authorised guarantee agreement to the landlord (see 8.4.4 below). (c) If the lease was granted before 1 January 1996, a direct covenant by the assignee to the landlord to observe and perform the covenants in the lease for the remainder of the term (see 8.4.3 below). (d) the assignor agrees to pay the landlord’s legal and professional costs.

Answer 132

The relationship between the landlord and the assignee will depend on whether the lease is an ‘old lease’ granted before 1 January 1996, or a ‘new lease’ granted on or after that date (see 9.2). An assignee of an old lease is liable under the doctrine of privity of estate for all the covenants in the lease which ‘touch and concern’ the land, but only for as long as the lease remains vested in the assignee. The landlord will therefore seek to extend the liability of the assignee by requiring it, as a condition of the landlord’s consent, to enter into a direct covenant to observe the covenants in the lease for the remainder of the term of the lease, thereby creating privity of contract between the landlord and the assignee. This direct covenant is usually contained in the licence to assign. An assignee of a new lease is also liable for breaches of covenant committed while the lease is vested in them (although they are liable during that time for all of the tenant covenants, not just those that touch and concern the land). However, on a future assignment of the lease, the Landlord and Tenant (Covenants) Act 1995 automatically releases the assignee from all the tenant covenants of the tenancy. If the landlord requires a direct covenant from the assignee, then this covenant should be limited to the period the assignee is actually the tenant, not the remainder of the entire term. To compensate the landlord for this loss of privity of contract for the whole of the term, statute allows the landlord to require that the assignor enters into an authorised guarantee agreement instead.

Answer 133

(a) guaranteeing that the assignee will perform the tenant’s covenants in the lease, including the covenant to pay rent (b) promising to perform such covenants if the assignee does not (c) indemnifying the landlord for the assignee’s failure to pay rent or to observe the other covenants (d) promising to take a new lease if the liability of the assignee is disclaimed on insolvency. The AGA should provide that the assignor’s liability does not extend beyond that of the assignee (ie it is more limited than may be the case for an old lease), so that on the assignee being released from liability on a further assignment of the lease, so is the assignor.

Answer 134

The assignor’s solicitor should investigate title in the same way as for the purchase of a freehold property. The superior freehold title should be checked as part of this process as well as the leasehold title, as any covenants or easements affecting the freehold will also bind the leasehold interest. Any potential problems should be identified and all relevant incumbrances disclosed in the draft contract. The assignor’s solicitor should always provide the assignee’s solicitor with a copy of the lease and any licence permitting assignment to the current and previous tenants. As to whether the superior freehold title should also be deduced: (a) If the assignor’s lease is registered with absolute title, the assignor’s solicitor will be able to obtain and provide the assignee with official copies of the register and the title plan in the usual way. Since the title to the lease is guaranteed by the Land Registry, there is no need for the assignee to investigate the title to the freehold. (b) If the lease is registered with good leasehold title, there is no guarantee of the soundness of the freehold title and so, although not entitled under the general law to do so, the assignee will try to insist on deduction of the freehold title. Without deduction of the freehold title, the lease may be unacceptable to the assignee and/ or any lender. If the freehold title is registered, either party could make a search under the open register rules. Otherwise the freehold title will be deduced by the method used for unregistered land (see 2.4). The provision for deduction of the freehold title must be dealt with by special condition in the contract because neither set of standard conditions require the assignor to deduce the freehold title. (c) If the assignor’s lease is unregistered, under the general law the assignee is entitled to call for the lease and all assignments under which that lease has been held during the last 15 years, but not for evidence of the freehold title. Without deduction of the freehold title, unless the freehold is already registered with absolute title, the assignee will only obtain a good leasehold title on registration of the lease at the Land Registry following completion, which may be unacceptable to the assignee and/ or any lender. If the freehold title is registered, either party could make a search under the open register rules. Otherwise the freehold title will be deduced by the method used for unregistered land (see 2.4). The provision for deduction of the freehold title must be dealt with by special condition in the contract because neither set of standard conditions require the assignor to deduce the freehold title. The assignee’s solicitor will need to investigate title and consider the terms of the draft contract. The terms of the lease should be checked to ensure that they will be acceptable to the assignee and any lender (see Chapter 6). Of particular importance is the length of the residue of the term, the permitted user, the rent and whether the landlord’s consent to the assignment will be required (see 8.3 above).

Answer 135

The assignee’s solicitor should make the same enquiries and searches, for the same reasons, as on a purchase of a freehold property (see Chapter 3). In addition, the assignee’s solicitor should ask to see the insurance policy relating to the property and the receipt for the last insurance premium due. The assignee should also ask to see a copy of the receipt for the last payment of annual rent due under the lease to check that the assignor is not in breach of the lease; if there are any outstanding breaches the landlord will be able to enforce the breach against the assignee. Where the lease has only a short period left unexpired, that the buyer may choose not to carry out some or all searches, as the risk does not justify the cost involved.

Answer 136

In order to transfer legal title to an estate in land, it is necessary to do so by deed. In the case of an assignment of a lease, the transfer deed is sometimes called a ‘deed of assignment’, but this document has the same effect and function as any other transfer deed. The transfer deed is usually prepared by the assignee’s solicitor. In the case of the assignment of a registered lease, irrespective of how long it has left to run, the form prescribed under the Land Registration Rules 2003 is a TR1. If the lease is unregistered, the assignment of a lease exceeding seven years in length will lead to compulsory first registration and so a TR1 will normally be used, although it is possible to use a deed of assignment similar in format to a conveyance of unregistered land. The deed of assignment format will always be used for the assignment of a lease for seven years or less as the assignment will not trigger first registration.

Answer 137

If an assignor is in breach of a repairing covenant in the lease, the lack of repair could involve them in liability to the assignee after completion under the covenants for title which will be implied in the transfer deed. This is because, where the assignee sells with full or limited title guarantee, the covenants for title include a promise that the assignee has complied with the tenant’s covenants in the lease, including repair. However, the principle of caveat emptor makes it the assignee’s responsibility to check the physical state of the property and the assignor should not be expected to make any promises about it. The conflict between the promise implied by the covenants for title and caveat emptor is resolved by modifying the covenants for title to exclude references to repair. This is covered in both sets of standard conditions in the contract, but there must be an express modification of the implied covenants for title in the transfer deed itself. A suggested form of wording is as follows: The covenants set out in section 4 of the Law of Property (Miscellaneous Provisions) Act 1994 will not extend to any breach of the tenant’s covenants in the lease relating to the physical state of the property. Panel 9 of a TR1 contains space to insert this wording, but it could also be inserted in panel 11 (additional provisions).

Answer 138

For the assignment of old leases granted before 1 January 1996, an indemnity covenant from the assignee to the assignor is implied except where, for unregistered leases, value is not given by the assignee for the transaction. In the latter case, an express indemnity covenant will be inserted into the transfer deed if required by the contract, and this is provided for by both sets of standard conditions. For the assignment of leases granted on or after 1 January 1996, the assignor will usually be automatically released from future liability on the assignment and so will not require an indemnity. However, if the assignor is to remain liable (eg under the terms of an AGA), an express indemnity covenant should be included in the transfer deed. Again, both sets of standard conditions entitle the assignor to insert an indemnity in such circumstances.

Answer 139

An official search of the registers of the leasehold title (OS1) should be carried out to check for any new entries and to gain a priority period within which to register the transfer

Answer 140

Another land charges search should be made against the name of the assignor to check that no adverse entries have been made since the pre- exchange land charges search on all the previous estate owners was made and to ensure that the priority period of 15 working days covers completion of the assignment

Answer 141

The circumstances in which company searches should be carried out are set out in 5.4.3 and apply equally to leasehold transactions.

Answer 142

The landlord’s solicitor will supply the engrossments (or ‘top copies’) of the licence, which must be by deed if it contains covenants. Where the assignee is to give a direct covenant to the landlord, the licence is usually drawn up in at least two parts, the landlord executing the original licence (which will be given to the assignor on completion for onwards transmission to the assignee) and the assignee executing the counterpart (which will be given to the landlord to take effect on completion). The assignor’s AGA can be contained in the licence (in which case a third part will be needed) or created as a separate deed, in either case to take effect only on completion of the assignment.

Answer 143

The assignor will usually have paid rent in advance. Unless completion takes place on a day when the annual rent become due under the lease, it will be necessary for the instalment to be apportioned on completion, so that the assignee reimburses the assignor for the period from completion until the next rent day. There may also be other outgoings for which the assignor wants to claim reimbursement, such as the insurance premium. The assignor should supply a completion statement which shows the amounts due and explains how they have been calculated. Copies of the receipts or demands on which the apportionments are based should also be supplied with the completion statement, so that the assignee can check the apportioned sums.

Answer 144

(a) the lease (b) the transfer deed (TR1 or deed of assignment, as appropriate) (c) the licence to assign executed by the landlord (d) evidence of the freehold title in accordance with the contract (lease not registered or not registered with absolute title) (e) evidence of discharge of the assignee’s mortgage (f) copies of duplicate notices served by the assignor and its predecessors on the landlord in accordance with a covenant in the lease requiring the landlord to be notified of any dispositions (g) insurance policy (or copy if insurance is effected by the landlord) and receipt (or copy) relating to the last premium due (h) receipt for rent (and other outgoings for which the assignor wishes to claim reimbursement).

Answer 145

(a) money due in accordance with the completion statement (b) duly executed counterpart licence to assign (c) a release of deposit (only likely where the assignee is paying a premium). Section 45(2) of the LPA 1925 provides that, on production of the receipt for the last rent due under the lease, an assignee must assume, unless the contrary appears, that the rent has been paid and the covenants performed. The assignee’s solicitor should inspect the receipt on completion (and also receipts for any other apportioned outgoings).

Answer 146

SDLT/ LTT is payable only on any purchase price charged by the assignor, and is due at the same rates using the same procedure as for the sale of freehold land (see 1.6.1). No SLDT/ LTT will be charged on the rent as it will have been paid when the lease was granted.

Answer 147

Where the lease is already registered at the Land Registry, an application for registration of the transfer to the assignor should be made within the priority period given by the pre- completion OS1 search. This is irrespective of the length of time left on the lease: once registered, the lease continues to be registered until it expires.

Answer 148

An unregistered lease which, at the date of the transfer to the assignee, still has over seven years of the term unexpired will need to be registered at the Land Registry within two months of the assignment or will be void in respect of the legal estate. An application for registration with absolute title can be made where the assignee can produce satisfactory evidence relating to the superior title. In other cases, only good leasehold title can be obtained. If the freehold title is already registered, the lease will be noted against the freehold title. In other cases, the assignee may consider lodging a caution against first registration against the freehold title, in order to protect their interests against a subsequent buyer of the freehold. If the lease has seven years or less unexpired, it is incapable of registration with separate title.

Answer 149

Where the lease provides that notice has to be given to a landlord of an assignment (which is a standard provision), the notice should be given in duplicate accompanied by the appropriate fee set out in the lease. The landlord should be asked to sign one copy of the notice as acknowledgement of receipt and return the receipted copy to the sender to be kept with the title deeds.

Answer 150

· A lease ends by effluxion of time when the contractual term ends. · A fixed term tenancy which does not have security of tenure will expire at the end of the contractual term. The landlord can require the tenant to vacate the premises, and if the tenant refuses, the landlord can treat the tenant as a trespasser. · If the landlord consents to an unprotected tenant remaining in occupation, the tenant is not holding over, but would be treated as a ‘tenant at will’. · If the landlord accepts rent, then the tenancy at will may be converted to a periodic tenancy. A landlord needs, therefore, to exercise care.

Answer 151

· A break clause ends a lease early.  A break clause generally requires positive action by a party to end the lease. · A fixed term tenancy may contain a break clause, which allows the lease to be ended before the end of the contractual term. · If the tenant exercises a break, then it is effective with a protected tenancy. · However, if the landlord exercises a break (either a landlord only or mutual break clause), it only operates to bring the contractual term to an end. The tenant may still hold over. Therefore, if a landlord’s break clause is to be effective, a lease that would otherwise be protected must be contracted out.

Answer 152

· A notice to quit is used to end a periodic tenancy, and the notice period depends on the period of the lease.  Notice to quit for a periodic tenancy means either the landlord or tenant giving notice that they intend the tenancy to end.  For a protected tenancy, a landlord’s notice to quit will end the periodic tenancy, but the tenant can hold over. · A periodic tenancy cannot be contracted out, but of course not every periodic tenancy will qualify as a protected tenancy (eg, a non-commercial tenancy or a service tenancy). · **A notice to quit gives the other party a specific date on which to vacate, which must expire on the first day or the last day of the tenancy period.** · For example, if the tenancy runs from the 15^^th^^ day of each month to the 14^^th^^ day of the next month, then the notice period may end on either the 14^^th^^ or 15^^th^^.  It’s inclusive – if it includes a certain date it would end the day before

Answer 153

· Unless there is a tenancy agreement that specifies otherwise, the notice period required depends on the period of tenancy:  Weekly – four weeks (residential) or one week (other tenancies)  Monthly – one month  Quarterly – one quarter  Yearly – six months

Answer 154

· If the periodic tenancy is a protected tenancy, then the landlord may still serve notice to quit, but it will only end the periodic tenancy itself. The tenant will be entitled to hold over. · The tenant may also serve notice to quit if it wishes to leave the premises. This is effective whether the tenancy protected or not. · Therefore, a landlord wishing to recover possession from a protected tenant under a periodic tenancy will need to serve a hostile section 25 notice supported by one or more of the statutory grounds. · This must follow the notice requirements of s25 (ie, 6 to 12 months’ notice of the termination date) but may double as a notice to quit provided it also, for example, ends on the first or last day of the period. Alternatively, a separate notice to quit may be served. · Note that although the tenant of a protected periodic tenancy can hold over, it cannot serve a section 26 notice.

Answer 155

· A fixed term tenancy may be brought to an end earlier than the end of the contractual term provided both landlord and tenant agree. The tenant gives up its leasehold interest to the landlord

Answer 156

* An express surrender * A surrender by operation of law

Answer 157

where the tenant gives up its leasehold interest to the landlord by deed.

Answer 158

is where both landlord and tenant have behaved in a way that indicates that the tenancy is no longer in existence. For example, the landlord accepts the keys from the tenant with an understanding that the tenant is leaving the premises permanently. * CONDUCT!!!!!!!!!!!

Answer 159

· A premium may be payable for the surrender, but the direction will likely depend who has most to gain. A premium paid by the tenant to give up its interest is known as a reverse premium.

Answer 160

· Either an express surrender by deed or a surrender by operation of law are effective even if the tenancy is protected. · If, as sometimes happens, there is an agreement to surrender a protected tenancy in advance of the deed, however, there is a procedure similar to contracting out which must be followed.

Answer 161

· A merger happens when either the tenant acquires the landlord’s superior interest (the opposite to a surrender), or a third party acquires both. This would happen whether the tenancy is protected or not.

Answer 162

* Damages * Action in debt * Gurantor and rent deposit * * Commercial rent arrears recovery (CRAR) * * Specific performance * * Injunction

Answer 163

· A tenant’s covenants are enforceable as a matter of contract between the parties, and the landlord can bring proceedings in the court to claim for damages.  Damages are brought in to claim for breach of lease · The measure of damages is to put the landlord back into the position they would have been were it not for the breach of covenant. · Court proceedings can be costly and protracted, and the landlord may not be able to recover its costs. · There are particular issues relating to damages for breach of the repairing covenant.

Answer 164

· The measure of damages is to put the landlord back into the position they would have been were it not for the breach of covenant.

Answer 165

· A landlord can issue court proceedings to recover a debt, such as unpaid rent, service charge or insurance rent.

Answer 166

· An action for debt is limited to rent due in the six years before the issue of proceedings. Any earlier outstanding rent is irrecoverable.

Answer 167

· If the landlord had concerns about the covenant strength of a tenant or assignee at the time of the grant or assignment, the landlord may have obtained a guarantor or rent deposit from the tenant. · The landlord can rely on the contractual terms of a guarantee to claim its losses from the guarantor. · A guarantee will typically cover all the tenant’s obligations, so that the landlord is not limited to pursuing unpaid rent, but also any breach of the tenant’s covenants. · The landlord can draw on a rent deposit (usually limited, say to six months’ rent) if there are any arrears. · The tenant will be required to top up the deposit after a withdrawal. If the breach is an isolated occurrence, this can provide a useful cushion while preserving the landlord/tenant relationship.

Answer 168

· Commercial rent arrears recovery (CRAR) is a self-help remedy (similar to the old common law remedy of distress which it replaced on 6 April 2014). · Self-help remedies have the advantage of being generally cheaper and quicker than court proceedings.

Answer 169

o **the premises are purely commercial** (it cannot be used, for example, where the premises comprise a shop and residential flat) o **a minimum of seven days’ principal rent is owed** (it can’t be used to recover service charge or any other sum reserved as ‘rent’ but does include VAT and interest) o the l**ease has not been forfeited**

Answer 170

o the landlord **must appoint an enforcement agent who either has the required certificate from the court or is exempt from the requirement** (eg, a police officer) o **Seven clear days’ notice** must be given of the intention to enter the tenant’s premises (clear days exclude Sundays and bank holidays) o T**he notice must include certain details**, such as the amount of the debt and how to repay it, details of the power being used to enforce the debt, and contact details for the enforcement agent o **If the notice expires without repayment of the debt, the enforcement agent can enter the premises and take control of goods belonging to the tenant up to the value of the debt owed.** o The l**andlord must serve a further seven clear days’ notice if it intends to sell any of the seized goods**.

Answer 171

· Both injunctions and specific performance are equitable remedies. Aside from the cost issue of court proceedings, equitable remedies are discretionary. Their use as a remedy against tenant breaches is limited.

Answer 172

· Specific performance is an order to the tenant to do something that it has not done. · Specific performance has been granted for a tenant to put premises in repair, but this was an exceptional case (the lease did not provide other alternatives). · Otherwise, specific performance will rarely be available to a tenant, particularly for a breach of repair.

Answer 173

· An injunction is an order to the tenant not to do something. · The landlord may be able to get an injunction, for example, if aware that the tenant intends to assign the lease unlawfully. · However, the landlord is unlikely to get an injunction against an assignment that has already taken place.

Answer 174

* Breach of repair on leases of: * the lease is for a term of seven years or more; and * there are at least three years of the term left to run; o If so, the tenant has 28 days to serve a counter-notice. This means that the landlord must get leave from the court before proceeding (and this is not easy). o CAN ONLY BE SERVED IF THERE IS A BREACH OF REPAIR

Answer 175

– must fall within the forfeiture clause in the lease – do not need a s146 notice  For any other breaches, the landlord must serve a section 146 notice detailing the breach and giving the tenant a reasonable time to remedy the breach before proceeding to peaceable re-entry or proceedings for forfeiture.

Answer 176

When there is a forfeiture clause in the lease and according to the terms of that clause. These usually include if the rent is unpaid when due (or following a grace period), if the tenant breaches other obligations, and if the tenant suffers an ‘insolvency event’.

Answer 177

* For non-payment of rent, the landlord can proceed to peaceable re-entry of the premises or issuing proceedings for forfeiture.

Answer 178

* For any other breaches, the landlord must serve a section 146 notice detailing the breach and giving the tenant a reasonable time to remedy the breach before proceeding to peaceable re-entry or proceedings for forfeiture.

Answer 179

· If the landlord acts in a way that acknowledges the continuing existence of the lease, the landlord risks losing the right of forfeiture. · An implied waiver of the right of forfeiture can arise if: o the landlord does some unequivocal act recognising the continuing existence of the lease; o with knowledge of the breach in question; and o communicates that act to the tenant. · The intention of the landlord is irrelevant.

Answer 180

* A tenant, and others deriving an interest from the lease, may apply for relief from forfeiture as soon as the landlord takes action to forfeit. * Relief from forfeiture is a discretionary remedy, and if granted, restores the forfeited lease and aims to put the parties back in the position they would have been if the forfeiture had not taken place.

Answer 181

· Forfeiture is the right of the landlord to re-enter the premises and take them back from the tenant. It brings the lease to an end before the contractual term (or during any period of holding over). · The threat of forfeiture may spur a tenant into compliance with its obligations, but in a difficult rental market, a tenant who breaches some of its obligations may be better than no tenant at all!

Answer 182

· Forfeiture is not an automatic right, and is only permitted insofar as the lease provides for it.

Answer 183

· Forfeiture can cause embarrassment to a tenant’s business. Typically the landlord will arrange for a bailiff to attend the premises in the early morning and change the locks, and put a notice on the door. · Any staff, customers or tradespeople will not be able to enter the premises. The tenant will likely want to minimise the damage to their business’s reputation by settling the debt and regaining access to the premises. · Forfeiture can be achieved by peaceable re-entry, ie, by simply instructing the bailiff as above. There is a risk that the tenant may legally challenge this if it has not been carried out lawfully or if the tenant’s stock, equipment or belongings are lost, damaged or stolen. · Alternatively, the landlord can apply to the court for an order for forfeiture. This costs more and takes longer than peaceable re-entry. However, it makes it more difficult for the tenant to challenge the forfeiture on the grounds of lawfulness.

Answer 184

· Once and for all breach  If a breach is a ‘once and for all breach’, once the landlord waives the right of forfeiture, it will never be able to regain it for that breach. · Examples include: o non-payment of rent o an unlawful assignment or underletting o an insolvency event * Continuing breaches · Other breaches are ‘continuing breaches’ meaning that each day that the breach continues, the landlord regains the right of forfeiture. · Examples: o failure to keep the premises in repair o breach of the user covenant o failure to comply with an insurance obligation · Example: a tenant has let the premises fall into disrepair. The landlord may, for example, accept rent from the tenant. As it is a continuing breach, each day that the tenant fails to repair the premises, the landlord has a new right of forfeiture

Answer 185

· If forfeiture is for non-payment of rent, then the tenant will normally be able to get relief from forfeiture by settling all rent arrears and landlord’s costs.

Answer 186

* If the tenant has a lease with a term of 7 years or more, and there is still 3 years or more to run, it has 28 days to serve a counter-notice, which means that the landlord must seek leave from the court to continue with forfeiture.

Answer 187

* The best remedy for the landlord is a self-help clause (Jervis v Harris clause) in the lease.

Answer 188

o Specify the breach o Require remedy o Demand compensation

Answer 189

· Similarly with forfeiture, a landlord cannot issue proceedings for damages for a repairing obligation until it has served a section 146 notice, and given the tenant 28 days to serve a counter-notice. · A further difficulty with damages is that even if the landlord gets through the counter-notice hurdle, the measure of damages is the loss of value to the landlord’s reversion, not the cost of putting the premises into full repair.

Answer 190

o enter the property o carry out any repairs o recover the cost of doing so from the tenant. · There is no need for the landlord to serve a section 146 notice (and therefore no opportunity for the tenant to serve a counter-notice). · The cost of carrying out the repairs is treated as a debt to the landlord, not damages, and therefore it can be recovered in full.

Answer 191

 Must be in the lease for it to be applicable

Answer 192

· Advantages – reasonably simple, amount of debt is clear if rent has not been paid, can separate debt from ongoing landlord/tenant relationship · Disadvantages – court action which is potentially costly and time consuming · Use/limitations – any sum owed under the lease, whether principal rent or, eg, service charge

Answer 193

· Advantages – quick and efficient, no need to involve court · Disadvantages – care must be taken to observe proper procedure · Use/limitations – limited to principal rent, not other sums treated as rent

Answer 194

· Advantages – quick and efficient, no need to involve court. Threat of forfeiture might be sufficient. · Disadvantages – risk that tenant will not comply and may lose tenant (whether this is a problem will depend on the market) · Use/limitations – depending on the lease, may extend to other sums treated as rent

Answer 195

 Advantages – not many!  Disadvantages – section 146 notice required, if lease qualifies, tenant may be able to serve counter-notice. Damages limited to reduction in value of landlord’s reversion. * Drop in value of the landlord’s interest  Use/limitations – if tenant serves counter-notice, the court will only give leave to continue in exceptional grounds (eg, repair is needed urgently)

Answer 196

 Advantages – not many!  Disadvantages – section 146 notice and counter-notice considerations similar as per damages  Use/limitations – as per damages

Answer 197

 Advantages – quick and efficient, no need to involve court. Landlord recovers full cost of repairs.  Disadvantages – landlord must take care not to exceed powers (eg, carrying out repairs that go beyond the repairing obligation)  Use/limitations – must be provided by the lease

Answer 198

 Advantages – may be only option  Disadvantages – rarely granted unless exceptional circumstances (such as lease without forfeiture or self-help clause)  Use/limitations – discretionary remedy – last resort

Answer 199

 Advantages – may be helpful in separating issue whilst preserving landlord/tenant relationship  Disadvantages – may be protracted and costly, no guarantee of recovering costs  Use/limitations – any breach that can be compensated in financial terms

Answer 200

 Advantages – may be effective in persuading tenant to comply with obligations  Disadvantages – section 146 notice required, risk of losing tenant  Use/limitations – probably not appropriate for minor breaches

Answer 201

 Advantages – not limited to financial, eg, obliged tenant to comply with obligation  Disadvantages – discretionary remedy, difficulty to persuade court to grant it  Use/limitations – cannot be used for continuing obligations (eg, an obligation to keep shop premises open each day)

Answer 202

 Advantages – not limited to financial, ie, may stop tenant from proposed breach  Disadvantages – discretionary remedy – difficult to persuade court to grant it  Use/limitations – might be used for an intended breach of user clause, or an intended assignment or underletting

Answer 203

 Advantages – guarantor may have better means to comply with obligations  Disadvantages – may end up in certain instances with guarantor taking overriding lease and becoming tenant (may be a disadvantage or advantage depending on circumstances)  Use/limitations – there must be a guarantor!

Answer 204

 Advantages – former tenant may be in better position to comply with obligations  Disadvantages – as with guarantor  Use/limitations – there must be a former tenant with an old lease or a new lease and authorised guarantee agreement

Answer 205

 Advantages – quick and efficient. Can help ride over tenant cash flow problems  Disadvantages – limited to certain number of months’ rent. Relies on tenant topping up rent deposit once used  Use/limitations – generally only covers rent

Answer 206

· To have security of tenure, there must be a tenancy occupied by the tenant for the purposes of a business

Answer 207

· A tenancy includes a fixed term lease or a periodic lease, but does not include a tenancy at will or a licence to occupy · Certain types of tenancy, such as agricultural and service tenancies, are excluded

Answer 208

· The parties can agree to contract out fixed term tenancies, but not periodic tenancies

Answer 209

· The requirements of contracting out are a warning notice, a declaration or statutory declaration (depending on whether 14 days’ notice has been given) and that the procedure is referred to in the lease to be contracted out

Answer 210

· a charity shop · a tennis club for members only · residential use that furthers the tenant’s business (eg, accommodation for medical school students or a lease of a shop, part of which could be used for residential purposes)

Answer 211

· Sunday school sessions provided free of charge by an individual · A tenant of a house taking a small number of lodgers without profit

Answer 212

* Agricultural tenancies (as they have their own statutory regime) * Mining leases * Service tenancies (a lease granted as part of a tenant’s employment, eg, a security guard’s flat) * Fixed term tenancies of six months or less (but can become protected if the tenant has been in occupation for twelve months or more, whether through successive tenancies or if the tenancy is renewable beyond six months)

Answer 213

· S38A of the Landlord and Tenant Act 1954 allows the parties to agree to exclude a fixed term lease from the security of tenure provisions. · Assessment tip: Note that only fixed term leases can be contracted out. A periodic tenancy that qualifies for security of tenure cannot be contracted out.

Answer 214

* The Landlord and Tenant Act 1954 used to require a court order be obtained to any contracted out tenancy. * From June 2004, a much simpler two-stage procedure has been in place, not requiring a court order. However, it must be strictly observed. * The landlord must serve a warning notice on the tenant in a prescribed form. This details the consequences of contracting out the security of tenure provisions. * It must be served before the parties complete the lease. * The tenant must provide a declaration in prescribed form to the landlord before completing the lease. * If lease completion is at least 14 days from the date of the warning notice then this can be a simple signed declaration. * If lease completion is less than 14 days away, then the tenant must provide a statutory declaration (declared before an independent solicitor). * The lease must contain reference to both the notice and declaration (or statutory declaration) of contracting out. * If the procedure is not correctly carried out, or not correctly referred to in the lease, the likelihood is that the lease will enjoy security of tenure.

Answer 215

· The tenant of a protected tenancy is entitled to remain in occupation (hold over) at the end of the contractual term. · The tenant of a non-protected tenancy is not entitled to remain in occupation after the end of the contractual term, and if the tenant stays in the premises after the landlord has asked them to leave, they may be treated as a trespasser. · The tenant of a protected fixed term lease may leave at the end of the contractual term. · The landlord may serve a section 25 notice which will indicate whether the landlord intends to offer a renewal lease or oppose the renewal. · The tenant may serve a section 26 notice which requests a renewal lease, or a section 27 notice which indicates the intention to leave the premises.

Answer 216

· The tenant of a protected tenancy is entitled to remain in occupation (hold over) at the end of the contractual term.

Answer 217

* The landlord’s options are to: · forfeit the lease if there has been a breach of the tenant’s covenants and the lease allows this · serve a section 25 notice, which may indicate an intention to recover the premises or offer a renewal lease  Note that the security of tenure provisions do not prevent the landlord from forfeiting the lease if, for example, the tenant is in arrears with rent, and the lease allows for it. This is covered in the elements on termination of leases.

Answer 218

* simply to vacate the premises at the end of the contractual term * to surrender the lease with the landlord’s agreement * for a periodic tenancy, serve notice to quit to bring the tenancy to an end * serve a section 26 notice to request a new tenancy * serve a section 27 notice to leave the premises · As surrender and notice to quit also apply to non-protected tenancies,

Answer 219

* The landlord may serve a section 25 notice specifying a date of termination no earlier than the end of the contractual term, and no less than six months and no more than 12 months from the date of the notice.

Answer 220

* The section 25 notice may be friendly * The section 25 notice may be hostile

Answer 221

meaning that the landlord will not oppose the renewal of the tenant’s lease. It will propose the rent to be paid and principal terms of the new tenancy.

Answer 222

meaning that the landlord will oppose the renewal of the tenant’s lease. The landlord can only do this on certain statutory grounds, and must specify on which ground or grounds the landlord intends to rely.

Answer 223

* Peace of mind – the landlord wants the tenant to be tied to a further term and therefore the landlord’s rental income will be guaranteed. * In a rising market, to enable a market rent to be fixed for the renewal tenancy. · A lease may contain a rent review on the last day before the end of the contractual term. This is designed to ensure that the tenant pays a market rent during the period of holding over. Even if this is done, the rent will stay the same during the period of holding over, so this is only a limited solution.

Answer 224

 persistent and serious breach by the tenant of a repairing obligation  persistent delay by the tenant in paying rent  serious and persistent other breaches of covenants by the tenant  the landlord offers suitable alternative accommodation  the landlord intends to demolish or reconstruct the premises or carry out substantial construction work which require possession  the landlord intends to occupy the premises for itself * There is another ground, but it is rarely used in practice and is unlikely to come up in an assessment.  A mandatory ground means that if the landlord establishes the ground, the court must grant possession to the landlord.  A discretionary ground means that even if the landlord shows the ground, it is down to the court’s discretion. · The grounds can also be categorised into compensatory and non-compensatory, which unfortunately follows a different pattern. · If the ground relies on no fault of the tenant (eg, the landlord needs to carry out work), then the tenant may be entitled to compensation. This is a compensatory ground. · Conversely, if the ground relies on the tenant’s fault (breach of covenant), then the tenant is not entitled to compensation. This is a non-compensatory ground.

Answer 225

* at 1x the rateable value if the business has occupied the premises for less than 14 years * at 2x the rateable value if the business has occupied the premises for 14 years or more

Answer 226

 Ground (a) – breach of tenant repairing obligation * Evidence will be required of a serious breach. Discretionary, not compensatory  Ground (b) – persistent delay in paying rent * Evidence of length of delay and number of failures to pay rent on time. Discretionary, not compensatory  Ground (c) – other substantial breaches of tenant obligations * Evidence of serious and persistent breaches. Discretionary, not compensatory  Ground (d) – availability of suitable alternative accommodation * Landlord must have made an offer of alternative accommodation suitable to the tenant (with regard to the tenant’s business and goodwill). Mandatory, not compensatory  Ground (e) * Not covered for our purposes  Ground (f) – intention to demolish or reconstruct premises or carry out substantial construction * Firm and settled intention to redevelop, possibly planning permission or construction contract. Mandatory, is compensatory  Ground (g) – landlord intends to occupy premises * Firm and settled intention by landlord who must have owned the reversion for at least 5 years before the date of termination. Mandatory, compensatory yes.

Answer 227

* A tenant need not serve notice if they intend to vacate premises at the end of the contractual term, whether a protected tenancy or not. o However, to avoid any doubt, it would be good practice to notify the landlord of that intention. o Alternatively the tenant may be able to agree with the landlord to surrender the lease during the contractual term.

Answer 228

* A tenant who wishes to renew the lease may serve a section 26 notice. The landlord has two months to serve a counter-notice if the landlord opposes renewal.

Answer 229

* A section 26 notice must be served no less than six months and no more than twelve months before the proposed commencement date of the renewal lease.

Answer 230

* A tenant who wishes to end the lease at any time after the contractual expiry date will need to serve a section 27 notice.

Answer 231

* Section 25, 26 and 27 notices are mutually exclusive, and once one has been served, the others cannot be used.

Answer 232

· Aside from having a protected tenancy, the tenant must have a lease that originally granted a contractual term of more than one year. For a tenancy of a year or less, the tenant cannot start the renewal process, although the landlord can with a friendly section 25 notice. · As with the section 25 notice, there is a minimum notice period of six months, and a maximum notice period of twelve months. However, unlike the section 25 notice, the notice is not to expire on the date of termination, but the proposed commencement date of the renewal lease. · A landlord has two months from the section 26 notice to serve a counter-notice (ie opposing the grant of a renewal lease). As with a hostile section 25 notice, the landlord can only do so on one or more of the statutory grounds.

Answer 233

· A section 27 notice must give three months of the intended termination date, which must be no earlier than the date on which the contractual term ends. · A tenant who intends to leave the premises at the end of the contractual term need not serve any notice. However, to avoid any doubt, it would be good practice to notify the landlord. · The tenant may want to use a formal section 27 notice, in which case the tenant would need to serve it no less than three months before the end of the contractual term. · Once a section 27 notice has been served, the tenant cannot serve a section 26 notice, nor can the landlord serve a section 25 notice.

Answer 234

· Following a section 25 notice, or for a section 26 notice, the earlier of two months after the notice or the service of a landlord’s counter-notice, either party may apply to the court for a renewal lease. · The deadline for applying to court is the termination date specified in a section 25 notice, or the day before the proposed commencement date specified in a section 26 notice. The deadline may be extended by the parties’ agreement in writing. · The parties will try to negotiate the terms of a lease, but if they are unable to reach agreement, the court will determine the contentious terms. · Either party can apply for an interim rent, which will be payable from the earliest date for termination or proposed commencement date that could have been specified in the relevant notice. · The court can give an order for the grant of a new lease or the termination of the existing lease, either of which take effect three months and 21 days from the date of the order.

Answer 235

· The lease renewal process is underpinned by the possibility of either or both parties applying to the court to renew the lease (and fix the terms of the new lease) or, in the case of the landlord, to recover possession. · Either party may apply to the court at any time after service of a section 25 notice, the deadline for applying being the date of termination specified in the notice. · With a section 26 notice, as the parties may only apply after either the landlord has served a counter-notice, or if not, two months have elapsed from the section 26 notice. The deadline for applying to the court is the day before the proposed commencement date of the new lease. The deadline may be extended by the parties agreeing in writing.  If no application is made before the day before the proposed commencement date of the new lease the tenant will have to move out

Answer 236

principal terms of the renewal lease. · The landlord and tenant will usually try to agree the terms of the lease between themselves, and only if they are unable to reach agreement will they ask the court to decide. · The court can grant a term up to 15 years, the rent will be open market rent, and other terms are determined by the court having regard to the terms of the current tenancy and relevant circumstances.  DOES NOT NEED TO BE THE SAME TERMS AS THE EXISTING TERMS

Answer 237

· During the period of holding over and negotiation, the tenant will continue to pay rent as it was last reviewed by the lease. · Either party may apply during this period to the court to fix an interim rent which is based on the open market rent. Unlike a rent review, this is not upwards only, and it may be lower than the last reviewed rent in a falling market. · The interim rent is payable from the earliest date of termination that could have been specified in the landlord’s section 25 notice, or the earliest date that could have been specified as the proposed commencement date in the tenant’s section 26 notice.

Answer 238

· Either tenant or landlord may apply to the court for an order to grant a new lease, even if the landlord opposed the renewal. · If the tenant is not happy with the terms determined by the court, or has simply changed its mind, it has 14 days to ask the court to revoke the court order. If asked, the court must agree, and the tenant will then have no right to renew. · A landlord who is opposing renewal on the statutory grounds, whether by hostile section 25 notice, or following a counter-notice to a section 26 notice, may apply to the court for an order for termination of the existing lease. · This order will bring the existing lease to an end, following which the tenant has no right to remain in occupation. · Both types of order bring the existing tenancy to an end three months and 21 days after the date of the order. (21 days from the date of the order is the time allowed for appeal.) · If the court order is for the grant of a new lease, the new lease will start the day after the termination of the existing lease.

Answer 239

· Both the section 25 and section 26 notice procedures must be conducted between the tenant and the competent landlord. The competent landlord may not be the same person as the immediate landlord to the tenant. · The competent landlord is the first in the chain of landlords, starting with the immediate landlord to own a reversionary interest which is either freehold or a leasehold that will not come to an end in 14 months’ time.

Answer 240

The position with old leases is that the original tenant remains liable for the covenants under the lease for the full term of the lease, regardless of the fact that they may have assigned it to another tenant. So in addition to being able to sue the current tenant in privity of estate, the landlord can also sue the original tenant in privity of contract. The landlord may also be able to sue any intervening tenants in privity of contract if, as is common, the landlord required each incoming tenant to give it a direct covenant on the assignment

Answer 241

With new leases, the original tenant is released from liability for the covenants in the lease as soon as it assigns the lease to another tenant. This is a worse position for the landlord than under an old lease; it means that landlords of new leases cannot always sue the original tenant. To compensate for this loss of control, the landlord is allowed to stipulate, in advance in the lease, certain circumstances and conditions which must be met before the landlord will give their consent to an assignment.

Answer 242

the AGA only lasts for the duration of that assignee’s ownership of the lease and so when the assignee assigns the lease on, the tenant who gave the AGA will be released from it. The assignee (who is now the current tenant) who wants to assign will then need to give an AGA to the landlord on the assignment.

Answer 243

this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes. Security of tenure

Answer 244

i) it has a firm and settled intention to carry out the relevant work (eg that it has obtained the necessary planning permission and the financial arrangements are in place); and ii) it intends to demolish or reconstruct the premises (or a substantial part of them), or to carry out substantial works of construction on the holding or a part of it; and iii) it cannot reasonably carry out the work without obtaining possession (ie the landlord will not succeed if the tenant agrees to allow the landlord access to carry out the work, which can then be reasonably carried out without obtaining possession and without substantially interfering with the tenant’s use).

Answer 245

they have owned their interest for at least five years before the ending of the current tenancy.

Answer 246

* The seller’s title deduces unregistered title by examining the deeds, identifying the root of title and a chain of ownership to the seller, and preparing an epitome of title

Answer 247

* A root of title must be dated more than 15 years ago, deal with both legal and beneficial title, adequately describe the extent of the land and not cast doubt on the seller’s title

Answer 248

* A legal mortgage or sale conveyance is preferable as a root of title, as they will have involved an investigation of title of a further 15 years back in time

Answer 249

 REGISTERED TITLE: * Title shown by official copies and title plan * Official copies neatly categorise property, proprietorship and charges * Title plan shows extent of property * Other deeds and documents extracted on the official copies or filed at the Land Registry * Change of registered proprietor is usually quick at the Land Registry (within a week or two)  UNREGISTERED TITLE: * Title shown by an epitome of title (a schedule of title deeds and documents accompanied by copies of them) * Property description, benefit and burden of rights, and ownership may be distributed amongst multiple documents * May need to trace back to first title document that defines land (subsequent documents may define by reference to earlier documents) * Should have originals of all relevant deeds and documents – if any missing, may cause issues. * First registration may take some months at the Land Registry

Answer 250

o The root of title means that the deed can be relied upon as proving the title.

Answer 251

 must be dated more than 15 years ago and before 1st date of compulsory registration  deals with both the legal and beneficial title to the property * Executed validly o Signed, sealed and delivered by the person in the presence of a witness  adequately describes the extent of the land being conveyed * Scale of title would satisfy this  does not cast doubt on the seller’s title * A link in the chain missing – like if the buyer and seller have very similar names * Or if the names are different o ABCD

Answer 252

* The buyer’s solicitor needs to check that there is a valid root of title and an uninterrupted chain of title up to the seller’s title * The buyer’s solicitor needs to check that each conveyance or deed in the chain of title (including the root itself) is validly executed and stamped

Answer 253

* Validly executed generally means that it is clear that the deed is a deed, and that it has been signed, sealed and delivered

Answer 254

* Validly stamped means that the document bears a Particulars Delivered stamp and either a certificate of title or the appropriate ad valorem stamps

Answer 255

* If a conveyance has not been properly executed or stamped, then the buyer’s solicitor should insist that the seller rectify this at their own expense.

Answer 256

* For a company to validly execute this The seller should have affixed their company seal in the presence of two directors or one director and the company secretary who have both signed the conveyance. The buyer should have executed the conveyance by signing with a witness, sealing and delivering it.

Answer 257

o Even before starting to investigate title, it is worth carrying out an index map search (SIM) of the property – this will reveal:  any registered titles within the boundaries  any pending applications for registration  a caution against first registration, which would need to be investigated further, as the person lodging the caution is claiming some kind of right against the property CHECK THAT THE TITLE IS UNREGISTERED

Answer 258

 must be dated more than 15 years ago deals with both the legal and beneficial title to the property adequately describes the extent of the land being conveyed does not cast doubt on the seller’s title  The buyer’s solicitor should also check that the date of the root of title does not fall after the relevant date of compulsory first registration. If this is the case, the seller should be asked to register the property before proceeding with the purchase.

Answer 259

o The buyer’s solicitor checks that the chain of title is complete from the root of title to the seller’s title. Usually, the buyer in one deed will be the seller in the next. o However, if the buyer has died, then the next deed may name the buyer’s personal representative as seller (and a grant of representation would be needed). o The buyer’s solicitor checks that each deed forming part of the chain of title (including the root of title itself) is validly executed and stamped.

Answer 260

o Conveyance needs to have a certificate of value or be properly stamped with the ad valorem stamp duty o Conveyance should have a Particulars Delivered stamp o If stamp duty is missing, then the buyer’s solicitor should insist that the seller pays the outstanding stamp duty and provides proof that this has been done. o There will be interest and penalties for late payment of stamp duty. o As stamp duty rates and rules varied over the years, the buyer’s solicitor should research the requirements as to any questionable conveyance as at the relevant date.

Answer 261

* The root of title may include a scale plan, or it may refer to a plan in a pre-root document, in which case that document will need to be included in the epitome of title. * The extent of the land conveyed may become complicated if the conveyances in the chain of title do not agree, or if the land has been divided at certain points. * There is usually a plan, but occasionally residential addresses can be identified simply by their postal address, and as long as this is clear (for example if neighbouring properties all have the same footprint) this may be acceptable to the Land Registry.

Answer 262

 C(i) – puisne mortgage  C(iv) – estate contract  D(ii) – restrictive covenant  D(iii) – equitable easement  F – home right

Answer 263

* Historically the search is requested on a Form K15. However, now it is more frequently carried out using the Land Registry’s online portal. * The search is by years of ownership and full name. Care needs to be taken over the possibility that names are spelt differently or middle names omitted. * The search should be carried out against each owner of the land in the chain of title.

Answer 264

a vacating receipt is wording written on to the mortgage deed, or attached to it, confirming that the mortgage has been repaid, and signed on behalf of the lender.

Answer 265

o The seller’s solicitor deduces title, and the buyer’s solicitor investigates title.

Answer 266

 The property register is concerned with the property,  the proprietorship register with ownership and  the charges register with rights burdening the property

Answer 267

the official copies of the register, the title plan and copies of any documents referred to in the official copies

Answer 268

o The buyer’s solicitor investigates the title to ensure that the seller has the right to sell, that the title is adequate for the buyer’s purposes, and that there are no title defects that could affect the value or ability to sell

Answer 269

**Deducing title means the process of proving ownership to a would-be buyer. ** o The seller’s solicitor gets together the title documents, checks them to ensure that the seller is entitled to sell the property, and sends them to the buyer’s solicitor. o The title documents are:  Land Registry official copies of the register  Land Registry title plan  Copies of any documents referred to, but not already extracted in the official copies of the register

Answer 270

describes the property and any rights benefiting the property (eg, covenants or easements)

Answer 271

gives the registered proprietor’s (owner’s) name and address, the class of title and entries affecting ownership

Answer 272

lists rights burdening the property (eg, mortgage, covenants, easements and leases)

Answer 273

 check that the seller has the legal right to sell the property  ensure the property is adequate for the buyer’s intended use  ensure that there are no title defects that could affect the value of the property or the ability to sell in future

Answer 274

* States whether the property is freehold or leasehold. * Describes the property by its address and reference to the title plan (usually ‘edged red’). * The buyer’s solicitor should always send the buyer a copy of the title plan so that the buyer can confirm it agrees with their understanding of the size and location of the land they are buying.

Answer 275

* registration of the burden * adequacy * maintenance * adoption

Answer 276

* To be enforceable, the burden must also be registered against the land over which the right of way passes (the servient land).

Answer 277

* Adequacy may be legal or physical. For example, a right of way by car only would not suitable for a warehouse that requires lorry deliveries. * On the other hand, a right of way for all vehicles does not help if it is too narrow to be negotiated by a lorry, so inspection is advisable.

Answer 278

* Even if the right does not say so, a person using a right of way is obliged in common law to contribute towards its maintenance. * Inspection and enquiries should assess how this is likely to affect the buyer.

Answer 279

* An adopted highway is a public highway maintainable by the local authority at its expense. * If a private road is adopted, then the frontagers are required to pay the costs of bringing the road up to adoptable standard.

Answer 280

: gives the registered proprietor’s (owner’s) name and address, the class of title and entries affecting ownership

Answer 281

o The Land Registry gives each registered title a class of title. o The class of title indicates how satisfied the Land Registry with the registered proprietor’s proof of ownership to the property. o The Land Registry guarantees its titles with compensation, so the class of title is important. o The class of title appears as a subheading of the proprietorship register, not as a numbered entry.

Answer 282

o Title absolute o Qualified title o Possessory title o Good leasehold title

Answer 283

(freehold or leasehold) is the best and most common class of title.  It indicates no issues – the proprietor has satisfied the Land Registry that it is the true and proper owner of the property.

Answer 284

(freehold or leasehold) is where there is a specific defect in the title.

Answer 285

(freehold or leasehold) is granted when the registered proprietor has shown that they have physical possession of the property, but has no title deeds or is claiming through adverse possession (‘squatters’ rights’)

Answer 286

(leasehold only) is granted when the leaseholder cannot provide evidence of the landlord’s title to the land.  It can often be upgraded easily if the landlord’s title has been registered since the grant of the lease.

Answer 287

o If the property has title absolute, then no further action need be taken. o If the property has qualified title, possessory title or good leasehold title, then the buyer’s solicitor:  should report it to their client and explain what it means  check the mortgage lenders’ requirements – they may not accept inferior title classes, or may only accept them with certain conditions being met  consider and advise on obtaining title indemnity insurance to cover risks  consider the possibility of upgrading to title absolute if, for example, missing documents can be located

Answer 288

The registered proprietor is the person or persons named on the proprietorship register

Answer 289

* an individual * a company * a limited liability partnership * any combination of the above up to a maximum of 4 legal persons o The seller is usually the registered proprietor. An exception would be where the seller is the executor of a deceased person’s estate.

Answer 290

o An individual - the proprietorship register will set out the individual’s full name and address for service (ie, where correspondence and notices regarding the property should be sent). o Limited liability partnership (LLP) – the proprietorship register will set out the LLP name, number and registered office address. o The buyer’s solicitor should verify these details with a Companies House search. o Company – the proprietorship register will set out the company name, company number and registered office address. o The buyer’s solicitor should verify these details with a Companies House search. o Co-owners – a combination of individuals, LLPs or companies up to a maximum of four may be registered proprietors. o Generally, all co-owners will be required to sign the contract and execute the purchase deed.

Answer 291

* the price paid or stated value of the land if the seller acquired the land on or after 1 April 2000 (with limited exceptions) * if the registered proprietor gave an indemnity covenant to the transferor on acquiring the property (to observe positive covenants), then it will appear as a numbered entry * Any restrictions on the registered proprietor’s right to sell the property * It woukld be registered whether the current owner gave an indemnity covenant and that the next owner has to oblige by it (because it is an indemnity covenant)

Answer 292

o If co-owners have notified the Land Registry that they hold as beneficial tenants in common, then the Land Registry will add a restriction to the proprietorship register. o No restriction on the proprietorship register - You can assume that the co-owners hold jointly. o Tenancy in common restriction on the proprietorship register - You can assume that the co-owners hold as tenants in common, but be careful that you:  check that it is a tenancy in common restriction, and not another type (eg, a restriction imposed by a mortgage lender to prevent sales without the mortgage being discharged)  are aware the co-owners may change the way that they hold the property and convert from beneficial joint tenants to beneficial tenants in common (and vice versa) at any time during their ownership

Answer 293

a restriction prevents the Land Registry from registering certain dealings (eg sale by a sole owner, mortgaging) against the title unless the terms of the restriction are complied with.

Answer 294

o The right of survivorship applies. The deceased joint tenants interest accrues to the remaining co-owner. o By survivorship, the surviving joint proprietor takes the legal title to the property. The Land Registry will register them as the sole legal owner. o However, if there is a tenancy in common restriction, then the Land Registry will leave it in place unless the owner proves that they have become beneficially entitled to the whole of the property as well.

Answer 295

o Beneficial title - joint tenant  The right of survivorship applies. The deceased joint tenants interest accrues to the remaining co-owner.  By survivorship, the surviving joint tenant takes the beneficial title to the property. * The Land Registry will register them as the sole legal owner, and there should be no restriction against the register. o Beneficial title – tenant in common  The right of survivorship does not apply to an interest that is held as a tenancy in common  The surviving joint proprietor/beneficial tenant in common only takes their share of the property. The other share passes to the deceased person’s beneficiaries under their will or the intestacy rules. The building is not physically divided, but there is a distinct share in the property.

Answer 296

o The buyer’s solicitor needs to be able to satisfy the Land Registry that both legal title and beneficial title has passed to the buyer. o If all co-owners are living/in existence, then they should all be asked to sign the contract and execute the transfer deed. o If a surviving beneficial joint tenant is selling the property, then they should be asked to sign the contract and execute the transfer deed. o They should also provide a certified copy of the deceased joint tenant’s death certificate. o If a surviving beneficial tenant in common is selling the property, then they will need to appoint a second trustee (often their solicitor) to sign the contract and execute the transfer deed with them. o Again, they should also provide a certified copy of the deceased tenant in common’s death certificate.

Answer 297

o The buyer can take the property free from any beneficial interests provided:  the property is transferred by at least two trustees  the purchase price is paid in good faith o The buyer then overreaches the beneficial interests. The Land Registry restriction ensures that this happens.

Answer 298

means the process of transferring the beneficial interests in land to the money that the buyer has paid. This means that the land is freed from beneficial interests, and the buyer does not need to worry.

Answer 299

o Mortgage in favour of a lender  Usually, an undertaking is given on completion to discharge this so that the buyer takes free of mortgage o Leases  These would normally be expected from the agent’s property description, but should always be reported, together with their terms. o Easements  We looked at the benefit of easements in the property register – conversely, the land may be subject to rights of way, rights of light, rights of service media (pipes, cables, etc)  These should always be reported to the client o Covenants (restrictive or positive)  Either restrictive or positive covenants may be listed in the charges register – the important point is that it is their burden, not the benefit.  These should always be reported to the client, with advice on appropriate action.

Answer 300

* A legal mortgage must be created by deed * Legal mortgages must be entered in the charges register, otherwise the mortgagee (the lender) will not have a legal interest, and a buyer would take the property free of the mortgage * The lender usually also requires a restriction in the proprietorship register to prevent the mortgagor (the owner) from selling the property without the lender’s consent.

Answer 301

o The restriction will prevent the property being sold even if subject to mortgage to a third party. o B: Proprietorship register  This register specifies the class of title and identifies the owner. It contains any entries that affect the right of disposal.  Title absolute * (01.07.2005) Proprietor(s): DEAN FISHER and TANYA FISHER of 22 Simpson Street, Redminster, RD2 8QP(01.07.2005) RESTRICTION: Except under an order of the Registrar no disposition by the proprietor of the land is to be registered without the consent of the proprietor of the charge dated 17 June 2005 in favour of Redminster Building Society referred to in the Charges Register. o One entry

Answer 302

o Each mortgage usually takes two entries in the charges register. The first is the date of the mortgage, and the second is the name and address of the mortgagee. o C: Charges register  This register contains any charges and other matters that affect the land. * (01.07.2005) REGISTERED CHARGE dated 17 June 2005 registered on 1 July 2005 to secure the monies including the further advances therein mentioned. (01.07.2005) Proprietor: Redminster Building Society of 28 High Street, Redminster RD6 9AR. o Two entries

Answer 303

o In almost all cases, the parties’ intention is for the property to be sold free of mortgage, but the buyer needs to be certain that this will happen. This means:  checking early on in enquiries that the seller will have sufficient funds to clear the mortgage ensuring that it is a term of the contract (before exchange!) that the mortgage will be redeemed on completion and obtaining an appropriate undertaking from the seller’s solicitor to redeem the mortgage from the proceeds of sale on completion

Answer 304

* The burden of covenants is shown on the charges register.

Answer 305

o If covenants appear on the charges register, it means that the property has the burden of those covenants (if the property has the benefit of an rights granted relating to the covenant then they will appear on the property register). o Covenants appearing on the charges register may be restrictive, positive or unknown. o From the buyer’s point of view, typical problems caused by covenants are:  the existing use of the land is in breach of a covenant  the buyer’s proposed use of the land would be a breach of covenant

Answer 306

o Unlike with restrictive covenants, the appearance of positive covenants in the charges register does not necessarily mean that they are binding on the property. o Again, whether a covenant is positive is dependent upon its effect, not its wording. For example, a covenant “not to allow a fence to fall into disrepair” is a positive covenant as it requires time and money to be spent on maintaining the fence. o The first step, therefore, is to examine whether the positive covenant does affect the property, and this involves considering whether there is a chain of indemnity.

Answer 307

An indemnity covenant in this context means a covenant given by a buyer to seller to observe the positive covenants.

Answer 308

o Unknown covenants could be positive or restrictive. If there are positive covenants, it is very unlikely (but not impossible) that a chain of indemnity exists. o However, the buyer’s solicitor should assume that some of the unknown covenants are restrictive, and take appropriate action. o Whether a covenant is restrictive is dependent upon its effect, not its wording. For example, a covenant “to use the property only as a residential dwelling” is a restrictive covenant.

Answer 309

Subsequent deeds and other title documents may have referred to the conveyance by its description (which is usually the type of document, the date and the parties)

Answer 310

o Where the land’s current use is in breach of the covenant, but no objection has been received, it is simplest to obtain an indemnity insurance policy (usually at the seller’s expense). o Approach the person with benefit (PWB) for consent to the breach of covenant – this is the main route if you cannot obtain insurance and after doing this an insurance company would not insure you o If the covenant meets certain grounds, then an application can be made to the Upper Tribunal (Lands Chamber) to discharge the covenant.

Answer 311

* Pre-exchange (beginning to exchange) * Exchange is when the parties become contractually bound to proceed with the sale/purchase. * Pre-completion (exchange to completion) * Completion is when the buyer’s solicitor pays the balance of the purchase money to the seller and the seller’s solicitor agrees to send the necessary paperwork to the buyer’s solicitor. * Post completion (after completion)

Answer 312

* Buyer decides to buy property, agrees price * Surveyor surveys property and reports on its value and condition * Buyer’s solicitor investigates and reports on title (the complete legal picture of the property) * Only when the buyer is satisfied with the above, will they proceed to exchange o No liability if someone decides to pull out at this stage

Answer 313

o The seller and buyer enter into a contract to sell and buy the property on the completion date o The buyer pays a deposit (usually 10% of the full price) o From this point on, neither of them can pull out without serious financial consequences

Answer 314

* Buyer’s solicitor orders mortgage funds and ensures has full money from client in time for the completion date * (Residential) Seller and buyer book removal vans for completion date if appropriate * Seller ensures that has all necessary paperwork to transfer the property on completion

Answer 315

o the buyer’s solicitors send the purchase price to the seller’s solicitors o the seller’s solicitors agree to send the necessary paperwork to transfer the property to the buyer’s solicitors o the buyer gets the keys o the buyer and seller physically move house

Answer 316

* Post completion, the buyer’s solicitor arranges to pay any SDLT/LTT and register the new ownership at the Land Registry. o Seller’s solicitor pays off the seller’s mortgage and pays balance to seller o Buyer’s solicitor pays Stamp Duty Land Tax (SDLT) or, in Wales, Land Transaction Tax (LTT), and registers buyer as the new owner at the Land Registry  When they become the legally recognised owner

Answer 317

o what the buyer and seller will be doing at each of the three stages of a conveyancing transaction.

Answer 318

o Take instructions o Prepare draft contract o Deduce title  Official copies and the title plan o Answer pre-contract enquiries o Answer queries on title

Answer 319

o Take instructions o Pre-contract searches o Investigate title and raise queries o Report on title o Approve draft contract

Answer 320

o Approve purchase deed o Reply to pre-completion requisitions o Prepare for completion

Answer 321

o Prepare purchase deed o Pre-completion requisitions o Pre-completion searches o Prepare for completion

Answer 322

* The principle means the buyer takes the property as it finds it. · They can withdraw at any point up to exchange of contracts. After exchange, however, they cannot withdraw because they subsequently find a problem with the property.

Answer 323

* Misrepresentation o The seller cannot mislead the buyer by concealing physical defects (such as painting over damp patches) or answering questions dishonestly. o If the buyer has been induced by such conduct or statement to enter into the contract, then they have remedies in common law for misdescription, or under the Misrepresentation Act 1976.  Reliance o In practice, they will probably rely on the sale contract. The standard conditions of sale do not require the buyer to prove that they were induced to rely on the conduct or statement: it is sufficient to prove that there was an error or omission.  Under standard conditions * There are two standard conditions o 1) Residential Property o 2) Commercial Property  Can only rely on this when there is a contract o remedies are only available after the exchange of contracts * Latent encumbrances and title defects o A seller must disclose latent incumbrances and/or any defects in title.

Answer 324

* There is no onus (no obligation) on the seller to disclose patent incumbrances or physical defects in the property, it is up to the buyer to fully investigate them and report to the buyer.

Answer 325

* The title to the property – the Land Registry official copies (if registered) or the deeds (if not). * The seller’s replies to enquiries (whether standard enquiries or the buyer’s solicitor’s own specific enquiries). * Searches (requests for information) from various bodies such as the local authority, the Land Registry and statutory undertakers (eg, water and drainage supply companies). o Gives information about roads and planning * A survey of the property. The surveyor will inspect the property and report on value, structural defects and necessary repairs. They may also flag issues for further investigation by the solicitor (such as physical evidence of rights of way or boundary discrepancies).

Answer 326

is something which is not apparent, or cannot be discovered, when inspecting the property. A seller is under a duty to disclose latent incumbrances of which it is aware or of which it has the means to know, acting reasonably and diligently. It is difficult though to be confident whether an incumbrance is latent or readily discoverable on inspection and so if in doubt it is safest for a seller to disclose the incumbrance.

Answer 327

a matter that brings into question the seller's ownership of the property, or the rights and burdens that affect the property. Typically such defects are a result of missing title deeds, for example if a deed contacting a restrictive covenant has been lost it is unknown how the buyer's use of the property might be restricted.

Answer 328

* Up until the point at which contracts are exchanged, the buyer can walk away from the deal without any legal liability. There is no legal right to recover any costs from the other party. * The buyer could require the seller take steps to remedy the problem before completion. This could be a condition of the sale contract.

Answer 329

· timescale and costs, · surveys, · co-ownership and · tax

Answer 330

* A buyer should always be advised to instruct a surveyor to undertake a physical survey of the property.

Answer 331

o Basic valuation  If a mortgage is being obtained, then the lender will insist on at least a basic valuation * Made for the lender rather than the buyer * As a buyer not that helpful  This is the cheapest option, and the surveyor will give a valuation and identify any major obvious defects  It is intended to ensure that the lender will be able to recover any losses by selling the property, and is not detailed.  A buyer should be advised to obtain a fuller survey o Homebuyer report  This is much more detailed than the basic valuation, and will be suitable for most properties in reasonable condition aged less than 150 years.  Looking at the physical problems o Full structural Survey  This is suitable for any property, but should especially be considered where the property is listed, has had extensive renovations, or where extensive alterations are planned. It is the most expensive option. * If there is anything unusual, it is old or there are suspicions o As a solicitor our job is to advise them to have a survey and what survey is best  But ultimately, it’s the buyer’s choice what survey they have

Answer 332

* The buyer must have sufficient funds to complete the purchase: * Cash to pay the deposit on exchange * The balance of the price on completion * The agreed price for any extras, such as contents that come with the property * Tax (SDLT or LTT, CGT, VAT as appropriate) * The solicitor’s fees, which will be subject to VAT (irrespective of the VAT treatment of the property itself) * The solicitor’s disbursements – such as search fees and Land Registry fees

Answer 333

* The client’s own resources. * A mortgage loan. * Proceeds of any related sale.

Answer 334

* In commercial property the funding options can be more varied and complex. Here are a few examples: o With high value properties, money may be raised from a group of lenders (syndicate) to raise the money and limit their risk exposure. o A public company may raise finance for a purchase by equity finance, ie, selling shares on the stock market to raise capital. o A lender may fund a development whereby the lender will provide the money to the buyer not only buy the land, but to develop buildings on it. The lender will require the power to step in to complete the development if the buyer fails to carry it out.

Answer 335

o Capital repayment mortgage – the borrower repays the capital sum by monthly payments, together with an interest amount added each month. At the end of the term (say 25 years), the loan has been paid off in full. o Interest only mortgage – the borrower only pays the interest on the loan. This means the borrower pays less per month, but the disadvantage is that the capital remains outstanding, no matter how long the loan is in place. The capital will generally only be repaid by the sale of the property. The borrower may, still, however, end up better off as they will have the “equity”, ie, the value of the property (hopefully higher) that is not required for the mortgage.  Interest rate - When the borrower is consider a high risk, the interest rate they will be charged will be higher. This means the cost of the debt for the borrower is higher. This reflects the risk the lender is taking by loaning to the borrower. o Endowment mortgage – in general, these are no longer available in the UK, but you may come across endowment mortgages that clients have taken out in the past. They are interest only mortgages, topped up with a payment that is invested in an endowment policy. The idea is that the policy repays the capital at the end of the term. Unfortunately, many have not performed as expected, leaving borrowers with a shortfall to make up out of their own cash.

Answer 336

o How they will own the property o If there is a conflict of interest

Answer 337

The Law Society Conveyancing Protocol (the ‘Protocol’) applies to residential conveyancing only. The Protocol is designed to standardise the residential conveyancing process; it is a set of instructions to conveyancers as to how to carry out a residential sale and purchase and is accompanied by a series of standard documents issued under the ‘TransAction’ brand. All firms that undertake residential conveyancing and want to be members of The Law Society’s Conveyancing Quality Scheme (‘CQS’) are required to comply with the Protocol, a Client Service Charter and mandatory training and enforcement procedures. Membership of the CQS is essential for any firm wanting to be on the panels of solicitors approved by the residential mortgage lenders to act for lenders where the buyer is taking out a mortgage. The text of the Protocol is available online and provides a useful checklist of the procedural stages in a straightforward residential transaction. The procedures set out in the Protocol reflect what standard practice is in residential conveyancing and, in the residential context, in this manual.

Answer 338

The official copies show the title number to the property and an ‘edition date’, which is the date on which the Land Registry last updated the title (probably on a previous sale or mortgage). They also show the date which is often referred to by conveyancers as the ‘search from date’, the specific date of the official copies showing the entries subsisting on the register at a certain time.

Answer 339

a schedule of all the documents from and including the root up until the present day. The documents should be numbered and listed in chronological order. Attached to the epitome are copies (rather than originals) of each of these documents.

Answer 340

Each title deed should be checked for incumbrances such as easements and covenants. Easements will often appear in a conveyance beginning with the words ‘EXCEPTING AND RESERVING’. These words indicate that on an earlier sale, the seller was reserving an easement of some kind over the land being sold, such as a right of way. The words ‘SUBJECT TO’ also are used to introduce an incumbrance, such as an obligation to pay towards the maintenance of a road. There might also be restrictive and positive covenants the buyers entered into on previous sales

Answer 341

1. There is no memorandum (written record) of severance endorsed on the conveyance of the property to the joint tenants 2. There are no bankruptcy proceedings registered against either of the joint tenants at the Land Charges Registry 3. The transfer by the surviving joint owner to the buyer contains a statement that the survivor is solely and beneficially entitled to the land.

Answer 342

* A report on title will be prepared by the buyer’s solicitor before exchange of contracts

Answer 343

* The report summarises the material facts, identify any issues and, if appropriate, discusses possible solutions * The report will set out what investigations the solicitor has undertaken * The report will state any limitations to the solicitor’s liability and any matters that are not considered * CCS 6.4 requires that a solicitor inform their client fully of material facts to their transaction * CCS 8.6 requires that a solicitor give their client information in a way that they can understand

Answer 344

is the report in which a solicitor reports to its client on the its investigation of title, search results and replies to enquiries. It can take the form of a letter or a standalone document.

Answer 345

* Material facts in respect of the property * Issues and their implications * Solutions available  It will summarise, and put into plain English for the client, the solicitor’s findings

Answer 346

* Interpretation Scope of the review and limitation of liability * Executive summary * Purchase price and other contract terms * The Property Matters benefiting the Property * Matters burdening the Property * Search results * Replies to enquiries * Planning and building regulations * Insurance * Stamp Duty * Land Tax * Conclusion

Answer 347

* The report on title will be addressed to the client and will generally be confidential to that client. It should not be relied upon by anyone else. * The report on title should state that it is based on reviewing the title documents, search results, planning documents and relies to enquiries. It is not the solicitor’s fault, for example, if the report does not identify an issue that should have been revealed in a search but wasn’t. * The report should set out limitations to the solicitor’s liability:

Answer 348

* Usually carried out by the buyer’s solicitor * Seller’s solicitor might carry out searches, for example, if dividing land in plots to different buyers * Lender’s solicitor might carry out searches, particularly for a remortgage with no associated purchase

Answer 349

* Searches usually submitted as early as possible, as some searches can take several weeks

Answer 350

* * “Local search” – enquiries of the local authority (CON29) and search of the local land charges (LLC1) * * Drainage and water enquiries * * Desktop environmental search * * Chancel repair liability * Depending on type of title/seller:  * land charges search (unregistered land)  * search of the index map (unregistered or registered land subject to mineral rights)  companies search

Answer 351

* Standard searches will always be necessary; optional searches will depend on the particular circumstances

Answer 352

* * CON29O (including commons registration search) * * Highways search * * Coal mining search * * Cheshire Salt * * Tin, clay and limestone * * Phase I/Phase II survey * * Flood search * * Utility providers * * Railways – overground, underground, crossrail or HS2 * * Waterways

Answer 353

* Traditionally, searches had to be raised by sending letters or forms to the appropriate institutions. * Nowadays, most solicitors order searches via an online portal. The National Land Information Service act as an intermediary between solicitors and the various institutions. The solicitor will need to register with a ‘channel provider’. Examples are Searchflow, Thames Water Property Searches, Big Property Data and Index. * The solicitor (or a secretary or assistant) inputs the address of the property, and can sketch the boundaries on an Ordnance Survey map. * Some searches will be available almost immediately, but others can still take several weeks.

Answer 354

* The “local search” covers all matters relating to the property within the knowledge/records of the local authority. It comprises three parts which are usually ordered together: 1. Optional enquiries (Form CON29O) 2.Standard enquiries of the local authority (Form CON29) 3.Local Land Charges Search (LLC1)

Answer 355

* Replies to the standard enquiries of the local authority (CON29) will reveal information about the property and its immediate surroundings, such as:  * planning consents, refusals and completion notices  * building regulations  * roads and public rights of way (such as footpaths)  * Environmental notices (including contaminated land notices)

Answer 356

* * Common land and town or village green (land which is designated for communal use is very restricted) * * Road proposals by private bodies * * Areas of outstanding natural beauty and national parks * * Pipelines * * Noise abatement zones

Answer 357

* The local land charges search (LLC1) is a search of the local authority’s register of local land charges * There are 12 parts to the land charges register which will reveal matters such as:  * planning permissions that have been granted  * planning enforcement or stop notices  * article 4 directions (restricting the General Permitted Development Order)  * tree preservation orders  * smoke control orders  * financial charges such as road-making charges  * conservation areas  * listed building status

Answer 358

* Questions about drainage and water specific to the property are dealt with by the relevant water service company for the area. * The search checks matters such as whether foul and surface water from the property drain to a public sewer, and whether the property is connected to a mains water supply. * Form CON29DW enquiries (residential property) or Commercial DW enquiries (commercial property) are submitted to the relevant water company.

Answer 359

* An environmental search should always be considered. This is because an owner may be liable for the costs of cleaning up contaminated land, even if not responsible for the contamination. * Some information is given in the local search, but only whether notices have been served. A desktop search is based on historical records and will indicate if the property has been used for potentially contaminative land uses (for example, industrial). * It also contains information on the likelihood of flooding and susceptibility to natural subsidence, and industrial land uses within 250 metres of the property.

Answer 360

* Chancel repair liability affects properties in parishes where there is a pre-Reformation church. Responsibility for repair of the church roof was shared between the church and the parishioners. It can be very expensive if the parish church claims this. * This search is therefore usually carried out as standard, and if the search shows the potential for liability, indemnity insurance is readily available to cover the risk.

Answer 361

* The local search (specifically CON29) will show whether roads included in the search are adopted highway (ie, maintained by the local authority at its expense for public use). * For most residential properties, this will usually be sufficient, as it will be clear that the property immediately abuts the highway. However, where there is any doubt, or for most commercial properties, a highways search is needed. * The highways search shows the boundary of the public highway on a map. If the results show that the property does not immediately abut the highway, then it will be necessary to ensure that there are appropriate rights of access.

Answer 362

* Coal mining (CON29M) - When property falls within an area that could be subject to coal mining. Areas affected by coal mining are listed in a gazetteer, which is freely available. The search identifies the risk of subsidence, and whether any compensation has already been paid (which will mean no future compensation can be paid). * Cheshire Salt search - When property falls within an area that could be subject to brine subsidence (parts of Cheshire). Similar to coal mining search (and some search companies incorporate it in the coal mining search) * Tin, clay and limestone - Similar to coal mining search, but specifically for the minerals indicated. Like other mineral searches, it is dependent on area (eg, there were tin mines in Cornwall and Somerset).

Answer 363

* Environmental Phase 1 Survey - This is more detailed than the standard desktop environmental search and includes a site inspection. * Environmental Phas 2 Survey - This will be taken where Phase 1 study indicates risk of contamination. Soil/water samples are tested to indicate whether there is contamination or not. * Flood search - Where property is known to have flooded in the past. Desktop flooding search goes into more detail than desktop environmental search.

Answer 364

* Utility providers - Where property is a new development or a site for development. * Checks that the property has the benefit of utility connections (electricity, gas, telecom, broadband, etc) * Railways - Where a railway passes near the property or property may be within proximity of proposed railway. * There is no standard railway search, but specific enquiries may be made of Network Rail or the relevant railway company (London Underground, Crossrail, HS2, etc) about such issues as access rights across the property * Waterways search - Where property has a waterway (river or canal) passing through or next to it. * Search shows liability for maintenance of river bank or canal, rights of way for banks and tow paths, drainage and fishing rights, and owner’s liability for flooding (but do not use to assess flood risk).

Answer 365

* The seller will usually provide replies to standard enquiries at the beginning of the transaction. * Commercial property – the standard replies to enquiries are known as CPSE1 (Commercial Property Standard Enquiries). There are additional CPSE forms (CPSE2, CPSE3, etc) for different transactions. * Residential property – the standard forms are:  * Property information form (Form TA6) – contains information about boundaries, alterations, work done, neighbour disputes, occupiers, utility providers, location of utility meters, etc  * Fittings and contents form (Form TA10) – items that are included or not in the sale, such as curtains, light fittings, carpets, etc  As with the CPSE, there are further forms specific to different transactions

Answer 366

* The replies rely on the seller being co-operative and truthful. * A seller may decline to answer enquiries if they have no knowledge of the property (eg, an executor of a deceased’s estate) * The seller cannot deliberately mislead the buyer, by concealing physical defects or answering enquiries dishonestly. A misleading statement may give rise to an action in misrepresentation. * “Not so far as the seller is aware” * This phrase does not absolve the seller of responsibility if the answer should have been “yes”. * A seller who answers in this way can be taken to have made reasonable investigations in the matter (William Sindall plc v Cambs CC [1994] 2 All ER 932).

Answer 367

* The buyer’s solicitor will typically raise additional enquiries on specific issues from the investigation of title, search results or standard replies to enquiries. * Enquiries may bounce back and forth a number of times until the buyer’s solicitors are satisfied that they are resolved.

Answer 368

* Index map search (SIM) - Where the property is unregistered, or comprises more than one title (registered or unregistered) or the registered title refers to mineral rights. * The index map search shows the extent of registered titles and unregistered land within the area searched. It does not show ownership, and the official copies must be ordered if this information is required.  Shows you what registered title there is in the area you search * Is any land you searched registered or not? * MapSearch – The Land Registry portal contains a free searchable map of registered titles. It is a useful reference tool, but unlike an index map search, the Land Registry do not guarantee the result. * Central Land Charge Search (Form K15) (Don’t confuse this with the local land charges register (part of the local search!) - Where the property is unregistered, the central land charge search is carried out against the full names of the seller and all previous owners referred to in the epitome of title (refer to notes on investigating title) * Bankruptcy search (K16) - This is usually only carried out against the seller if the transaction is not at full market value. * Companies Search - If the seller is a company, then a company search should be made to check that the company is in existence, and has not gone into liquidation or been dissolved.

Answer 369

 What planning permissions or other planning consents have been granted.  Whether the property is in a conservation area.  If there is a Tree Preservation Order in force.  Any entries for these issues will be in Part 3 of the register – known as Planning Charges * Other important charges to be aware of are:  A smoke control order which comes up in Part 4 of the register – known as Miscellaneous Charges.  A Part 10 charge – known as a Listed Building Charge – which reveals that the building is of historic interest and protected as a listed building.  When you are investigating title and reviewing search results it is a good idea to think about what the seller has done at the property – has it carried out building works? Has it made a material change of use? That way, you know what to expect from the search result, and you can check to see if what you are expecting is there. There are also other matters you might not be expecting too – eg you may not know the property is in a conservation area. If the property is in a conservation area this means that there are more onerous conditions imposed if a buyer wants to carry out any work to the property and permitted development under the GPDO is often not allowed.

Answer 370

* While there is some overlap between the LLC1 and the CON 29 in relation to planning information, the key difference is that the LLC1 will only give you details of what planning permissions have been granted, the CON 29 will give you some more information. o LLC1 will also tell you if it is a listed building and whether it is in a conservation area o LLC1 – Article 4 directions appear on it * The CON 29 will tell you about what planning permissions have been granted, and in addition it will actually tell you what planning refusals there have been and also what applications are currently going through so it gives a wider picture of the planning applications for the property.

Answer 371

* The Con 29 also informs you whether Building Regulations Approvals and Building Regulations Completion Certificates have been obtained for works carried out.

Answer 372

* In relation to roads, the main question on the CON 29 is: are the roads adjacent to the property actually adopted i.e. public highways, or not? * One of the key issues when looking at any private right of way benefitting a property is will it be adopted? The CON 29 tells you of any current adoption plans.

Answer 373

* The highways search tells you the exact boundary between private land and the highway with reference to a plan. It is carried out so that a buyer can ensure that the property they intend to purchase either;  · Abuts a public highway; or  · Any right of way, which the land has the benefit of, abuts the public highway.  This is slightly different information to what the local authority enquiries tell you, as they simply say whether a particular road is adopted or not, and do not go on to look at the boundaries between the public highway and the property or any private land

Answer 374

* The CON 29 also tells you if the local authority has served a notice regarding contaminated land. You need to consider this in conjunction with your Desktop Environmental Search and you may, as a result, need to raise additional enquiries with the seller and/or council. It is important to report to the client as this stage confirming the final position once this has been established.

Answer 375

 Needed for development * Building works or o Exception – purely internal works * Changes of use o Different purpose but you stay within the same class * In both there are important exceptions o GDPO – automatically grants permission for certain activities  Article 4 Direction * Local Authority can disapply this when it is in a conservation area o Will know this because it appears on the LLC1

Answer 376

means carrying out of certain building works on land or a material change of use of the land

Answer 377

 building works that only affect the interior of the building; or  building works that do not materially affect the external appearance of the building; or  changes of use that are within the same use class (s3(1), The Town and Country Planning (Use Classes) Order 1987

Answer 378

o B2 – General industrial o C1 – Hotels o C2 – Residential institutions o C3 – Dwelling houses o E – Commercial, business and service – this is a wide use class, including retail of goods, food, professional services to the public, etc o F1 – Learning and non-residential institutions o F2 – Local community

Answer 379

o The Town and Country Planning (General Permitted Development) Order 2015 (known as the ‘GPDO’) allows certain development without planning permission. It operates like a general planning permission. o Permitted development will need to fall within the conditions set out; otherwise, planning permission will be needed.

Answer 380

o The GPDO can be excluded or amended in a locality by an Article 4 Direction, in which case the proposed development will need planning permission o If proposing to rely on the GPDO, therefore, an enquiry should be made of the local authority whether the GPDO has been excluded. This enquiry is part of the local search. o If unsure whether a development falls within the GPDO, it is possible to apply for a certificate of lawfulness. This is not planning permission but confirms that the work either does not constitute “development” or if it does, that it falls within the GPDO

Answer 381

o Listed buildings are of special architectural or historic interest. o Grade I listed buildings are buildings of exceptional interest (eg, Tower Bridge) o Grade II*** listed buildings are particularly important buildings of more than special interest (eg, Battersea Power Station) o Grade II listed buildings are of special interest (eg, Adelphi Hotel, Liverpool) o Listed building consent is needed to demolish, alter or extend a building. o It is a separate requirement from planning permission, and may be necessary even where planning permission isn’t, such as internal alterations. o Various matters in the GPDO do not apply to listed buildings

Answer 382

o Conservation areas are areas of special historic or architectural interest, the character or appearance of which it is desirable to preserve or enhance. o The local authority is under a duty to designate conservation areas within its locality. * The GPDO will be restricted, so changes to external appearance may require planning permission * In England, planning permission is needed to demolish an unlisted building within a conservation area * In Wales, conservation area consent is needed to demolish an unlisted building within a conservation area (conservation area consent in England was abolished in 2013) * Consent is needed to cut back or cut down trees

Answer 383

 erection or extension of a building  installation or extension of a service or fitting that is controlled under the Building Regulations (for example, windows, boilers)  work required where there is a material change of use of the whole building o Building Regulations regulate issues that affect health and safety, such as the structural integrity of the building, fire escape, water supply, stairways, etc

Answer 384

* Before carrying out work covered by the regulations, building regulations consent is needed. This is separate from the requirement for planning permission, and it may be that some works will require both, and some will require one but not the other. * The work may be inspected by a building control inspector, who will issue a building regulations certificate of compliance if the work is in accordance with building regulations. * Self-certification schemes exist for certain types of work. For example, a window installer registered with the Fensa (Fenestration self assessment) scheme will certify to Fensa that windows comply with building regulations. Fensa will then lodge the certificate with the local authority. * Other work covered by self-certification schemes include roof replacement (NAPIT or CompetentRoofer), gas boiler (Gas Safe Register), cavity walls (Blue Flame Certification)

Answer 385

Planning enforcement is subject to limits of 4 years or 10 years

Answer 386

Building regulations enforcement is subject to limits of 1 year or 2 years, but injunctions have no time limit

Answer 387

development has taken place without planning permission; or a condition or limitation of planning permission has been breached

Answer 388

Local authority gives 28 days’ notice that:  * land must be restored to condition it was in before unauthorised development; or  * comply with any conditions or limitations imposed by planning permission * After 28 days, land owner may be fined, and the local authority can enter the land to carry out the work, recovering its expenses from the land owner

Answer 389

Local authority can serve a stop notice only after serving an enforcement notice – requires that specified activity (for example, an unauthorised use) stop immediately

Answer 390

Similar to enforcement notice, but only concerned with breach of conditions or limitations to planning permission

Answer 391

Local authority can apply to court for an injunction, but it is discretionary, and local authority needs to show good reason

Answer 392

4 years * * Building works – starting with the date on which the building works were “substantially completed” * * Change of use to single dwelling house – starts with the date the use was begun 10 years * * Other changes of use o Changes of use that are not a single dwelling house!!! * * Breach of planning condition from the date of breach

Answer 393

local authority can apply to a magistrates’ court for a planning enforcement order.

Answer 394

* Prosecution - Local authority has six months after discovering breach to prosecute the person responsible (builder, installer or main contractor) for the breach in the Magistrates’ Court. Unlimited fines may be imposed. * Prosecution may take place up to two years after completion of the building work. * Enforcement notice - Local authority has one year after completion of the building work to serve an enforcement notice. Similar to a planning enforcement notice, this gives the land owner 28 days to alter or remove the work. Again, if the land owner fails to comply, the local authority can undertake the work at the land owner’s expense. * Injunction - Local authority can apply to court for an injunction. If the work is unsafe, then there is no time limit.

Answer 395

* Local search – for planning permissions, building regulations consents and approvals, and enforcement action, GPDO and Article 4 Direction, Conservation Area, Listed Building status * Seller’s replies to enquiries – for work done or change of use that may have required planning permission or building regulations approval  * Buyer’s survey – the survey may reveal work that is not mentioned in replies to enquiries * If a breach is discovered, then the buyer’s solicitor will need to advise on the options available.

Answer 396

* Withdraw from transaction – drastic, and in most cases will not be necessary unless the issue is central to the purchase. * Invite seller to regularise matters before completion, whether by removing/altering work, or further paperwork (see below).  This may need to be a term of the contract on exchange. * Obtain indemnity insurance (usually at seller’s expense) for breaches of planning or building regulations.  However, only covers financial loss for enforcement. * For breaches of building regulations, buyer should be advised of health and safety risk, and policy will not cover claims for personal injury or death. * In some circumstances, seller may be able to obtain:  * retrospective planning permission for development;  * regularisation certificate for works that did not have building regulations approval but otherwise comply.

Answer 397

* Solicitors usually use the Commercial Property Standard Enquiries (CPSE), and may add enquiries specific to the transaction.

Answer 398

* If the parties adopt the Law Society Conveyancing Protocol, enquiries usually use the relevant TransAction form. * Under the protocol, the buyer’s solicitor should only add specific enquiries in limited circumstances.

Answer 399

 * responsibility for boundaries, and their extent  * rights benefiting and burdening the property  * access to the property  * physical condition  * contents  * utilities and services  * planning and building regulations  * occupiers and employees  * notices and disputes  * Value Added Tax (VAT) treatment

Answer 400

Applies where the property is subject to commercial tenancies (for example, the purchase of an office block or an industrial estate)

Answer 401

Applies on the grant of a new lease (for example, when acting for a tenant on an industrial estate)

Answer 402

Applies to specific other circumstances (less commonly used)

Answer 403

* TA6 Property information form - Always used. Covers such matters as:  * boundaries  * rights benefiting and burdening the property  * disputes, complaints and notices  * alterations  * planning and building regulations  * occupiers  * services and utilities  * energy efficiency * TA10 Fittings and contents form - Always used. Identifies any fittings and contents included or excluded in the sale. Also identifies those fittings or contents that the buyer may buy in addition to the property. * TA7 Leasehold information form - Used where the property is a long leasehold (eg, a flat on a 99 year lease) * TA8 New home information form – used where the property has been newly built

Answer 404

* Remedies for misrepresentation are rescission or damages.  Most commercial and residential property contracts include standard conditions which limit the buyer’s ability to rescind the contract: * ‘An error or omission only entitles the buyer to rescind the contract: * (a) where it results from fraud or recklessness, or * (b) where the buyer would be obliged, to his prejudice, to accept a property differing substantially (in quantity, quality or tenure) from that which the error or omission had led it to expect.’ * Damages are only available where there is ‘a material difference between the represented and the actual description or value of the property’. * These provisions are in 7.1.1 of the Standard Conditions of Sale (Fifth Edition) for residential contracts and 10.1 of the Standard Commmercial Property Conditions (Third Edition) for commercial contracts.

Answer 405

* CPSEs are complex, and some solicitors assist their client by part-completing drafts, asking their client to fill the gaps and to check the answers already provided. * Residential solicitors usually have a large volume of cases, and will send the standard enquiries to their client to answer (but they are more user-friendly than CPSEs). * Check CPSE replies against the title and any information you have (eg, if your firm manages the leases) * Exercise caution with stock answers, such as “not so far as the seller is aware”. * Make sure that the client has approved any replies and enclosures before sending. * Residential solicitors should still, however, check replies before sending to the buyer’s solicitors, and make sure there is nothing that is clearly incorrect or incomplete. * For both residential or commercial replies to enquiries, check that they remain up to date at exchange.

Answer 406

* Standard conditions for sale (incorporated into the contract) * Property forms * Formulae for exchange * Code for completion by post

Answer 407

* use non-Protocol ‘standard’ enquiries indiscriminately * raise enquiries that seek the seller’s opinion rather than fact

Answer 408

* Buyer’s solicitor should only make enquiries that are essential to act in their client’s best interests

Answer 409

* The seller’s solicitor should confirm and update, where necessary, replies to enquiries if completed more than two months earlier * The seller’s solicitor does not have to deal with any enquiries that do not comply with the Protocol

Answer 410

* Solicitors who choose to adopt the Protocol, who are obliged (as they are part of the Conveyancing Quality Scheme) agree: * to comply with its terms; and * act within the spirit of the Protocol. * If a solicitor breaches the Protocol, then the Law Society may require an explanation, potentially leading to their being monitored and even removed from membership of the Conveyancing Quality Scheme.

Answer 411

· If looking at ‘permitted development’, then remember that local planning authorities can disapply parts of the GPDO by making an Article 4 Direction. · The LLC1 part of the local search will show if there is an Article 4 Direction in place, and when it took effect, which could be important for historic development. · If an Article 4 Direction had disapplied the GPDO as to the particular permitted development under consideration, then planning permission would have been needed. · You are more likely to find an Article 4 direction has been made in a conservation area.

Answer 412

· For planning permissions, the LLC1 is the best place to check, as this shows planning permissions that have been obtained. The CON29 also shows planning permissions that have been refused. · Building regulations approvals are not shown in the LLC1, so you will need to look in the CON29.

Answer 413

· If there is still a risk of enforcement action for planning issues then the options are:  An indemnity policy to cover the financial losses caused by enforcement – this should be provided at the cost of the seller  Retrospective planning permission  Compliance with a condition (if this is the breach) · These may be made conditions of the contract. · For building regulations breaches, the options are:  An indemnity policy to cover the financial losses by enforcement.  A regularisation certificate and remedying any non-compliant work. · For minor or trivial breaches, an indemnity policy may be considered sufficient. However, it should always be borne in mind that work that does not comply with building regulations may not be safe. Indemnity policies do not cover the risk of a structure collapsing or personal injury or death.

Answer 414

· There are various remedies available to the local authority for a breach of planning permission or a planning permission condition:  A planning enforcement notice requires that the land be restored to the condition it was in before the unauthorised development took place.  A stop notice can only be served with an enforcement notice and prohibits the carrying out of further activities in breach of planning control.  A breach of condition notice is similar to a planning enforcement notice but requires compliance with conditions imposed by a planning permission.  The local authority can also seek an injunction from the court if they consider it necessary.

Answer 415

Section 57(1) of the Town and Country Planning Act 1990 (‘TCPA 1990’) states that planning permission is required for carrying out any development of land. ‘Development’ is defined by s 55* of the TCPA 1990 as the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or other land. So there are broadly two strands of controlled development, firstly operational development (building, engineering, mining or other operations) sometimes referred to as ‘BEMO’, and material change of use.

Answer 416

Some things are specifically excluded from the definition of development, such as the carrying out of the maintenance, improvement or other alteration of any building or works which affect only the interior of a building, or do not materially affect the external appearance of a building. In addition, some material changes of use are excluded from the definition of ‘development’, so do not require planning permission. Section 55(2) of the TCPA 1990 excludes a change of use within the same class of use as specified in the Town and Country Planning (Use Classes) Order 1987 (the ‘Use Classes Order’)*. The Use Classes Order contains lists of uses grouped together into use classes denoted by a letter of the alphabet and, in most cases, a number (thus B2 and B8 are each separate use classes, whereas E(a) and E(b) are in the same class E). The uses are divided into the following main groups: B2 – general industrial B3 – storage and distribution C – residential uses: hotels (C1), dwelling houses (C3), houses in multiple occupation (C4) E – commercial, business and service F – local community and learning: learning and non- residential institutions (F1) and local community (including shops selling essential goods in premises not exceeding 280m2 with no other such facility within 1,000m) (F2). Class E was introduced on 1 September 2020 and contains a large number of different uses, of which the following are the most common: E(a) – retail sale of goods, other than hot food E(b) – sale of food and drink for consumption on the premises E(c) – financial and professional services E(g) – uses which can be carried out in a residential area without detriment to its amenity, including offices to carry out any operational or administrative functions and research and development. In addition, there are a number of uses that are classified as ‘sui generis’, which is Latin for ‘the only one of its kind’ or ‘in a class of its own’. These are uses which could potentially have adverse effects on their locality and include entertainment establishments (such as cinemas and bingo halls), drinking establishments (such as pubs and wine bars) and hot food takeaways (for the sale of hot food for consumption off the premises). Changes of use to another use, or mix of uses, within the same use class will not require planning permission. For example, a change of use from a clothes shop to a restaurant will not require planning permission as both are within class E. A change of use from one class to another will require planning permission (although see 1.7.4 for the possibility that planning permission will be granted automatically without the need for a planning application and an express planning permission). Changes to and from a sui generis use will always require planning permission (although see 1.7.4 for the possibility that changes from a sui generis use will be granted automatically without the need for a planning application and an express planning permission).

Answer 417

Once a planning permission has been obtained, it continues to exist for the benefit of the land and of all persons for the time being interested in it (unless otherwise specified in the planning permission itself). A planning permission will usually state that it has to be implemented within a certain time and will lapse if not implemented in that time. Planning permissions do not generally impose a time limit by which the authorised development must be completed, but if the Local Planning Authority (‘LPA’) decides that completion will not take place within a reasonable time, it can serve a completion notice stating that the permission will cease to have effect if completion has not taken place by the expiration period stated in the notice. However, completion notices are rare and as a general rule, a planning permission, once implemented, runs with the land forever and any conditions attached to it will burden the relevant land. The grant of a planning permission is effective for planning purposes only; it does not obviate the need for other types of approval that may be necessary (see 1.7.6– 8 below) or confer the right to breach an enforceable covenant affecting title to the land

Answer 418

* four years for operational development carried out without planning permission * four years for change of use to a single dwelling house * ten years from the date of the breach for all other breaches (such as any other material change of use or breach of a planning condition).

Answer 419

* Changes to the external appearance of a building in a conservation area may require planning permission from the LPA that is not required elsewhere, as some permitted development rights are curtailed. * Demolition or substantial demolition of a building within a conservation area will require planning permission from the LPA. * Any work planned to a tree in a conservation area must be notified to the LPA six weeks in advance so that the LPA may determine whether or how the work to the tree should take place.

Answer 420

A solicitor acting for a lender should make a search against the borrower (who may also be their buyer client) to ensure that there are no bankruptcy or insolvency proceedings affecting them. These searches must be made just before completion (see 5.4.2), but some firms will also make them prior to exchange of contracts so that any problems can be sorted out in good time. Where the borrower is an individual, the search is done by sending a K16 form to the Land Charges department in Plymouth. Where the borrower is a company, a company search will be needed.

Answer 421

In certain circumstances, an occupier may be able to claim an equitable interest or a tenancy in the property. A non- owning spouse may have a protected home right under the Family Law Act 1996 and this will be revealed in the title investigation (see 2.5.11). However, any adult occupier could potentially claim an interest or tenancy so the buyer’s solicitor should ask the seller about occupiers in the pre- contract enquiries of the seller. If there is an adult occupier, the seller should be required to obtain from the occupier a release of all rights in the property and agreement to vacate on or prior to completion. This is usually dealt with in the contract

Answer 422

* The buyer’s solicitor in a residential transaction usually acts for the lender as well. This does not usually present a conflict of interest, as the lender has standard documentation and precise instructions to the solicitor.

Answer 423

* The lender in a commercial transaction will usually want their own solicitor, as the documentation will be non-standard and may be negotiable. The transaction may also be more complex.

Answer 424

* A solicitor acting for a buyer of residential property can usually act for the buyer’s lender as well, because they have a substantially common interest because both buyer and lender want a property that is:  worth what the buyer has paid (including the lender’s advance)  which is suitable for its purpose (eg, a house can be used for residential purposes)  easy to sell if the buyer wants to move or the lender needs to repossess and sell the house * The risk of a conflict arising is low because:  a high street lender will have standard non-negotiable mortgage terms and conditions and prescribed documents  the solicitor’s discretion in acting for a high street lender is limited by standard instructions (the Council of Mortgage Lenders (CML) Handbook) * Lender’s solicitor in commercial transactions  Most lenders in commercial transactions will instruct their own solicitors, as there is much more potential for conflict.

Answer 425

 specify what enquiries and searches are needed  ask the buyer’s solicitor to send copies of all searches and replies to enquiries  review them and ask the buyer’s solicitor to make such additional enquiries as the lender’s solicitor requires  draft the legal charge and other security documents  either draft the certificate of title or ask the buyer’s solicitor to provide it

Answer 426

* The mortgage offer is a formal offer by the lender to lend. It is subject to the lender being satisfied with the transaction and the security (ie, the property). * A facility letter is roughly the commercial equivalent of a mortgage offer. * Both mortgage offer and facility letter set out the terms and conditions of the loan. * A certificate of title is a document in which a solicitor certifies that the title to the property is satisfactory for lending purposes. * A certificate of title for a residential mortgage is usually a one page form which is completed and signed. * A commercial certificate of title is much more complex. * The legal charge (or mortgage deed) is the deed that creates the security interest and is registered at the Land Registry. * Strictly, the security is a charge by way of legal mortgage but you may hear practitioners use the terms charge and mortgage interchangeably. * The charge by way of legal mortgage gives the lender the right to repossess.

Answer 427

* The certificate of title for commercial property is similar to a report on title, but unlike a report that can follow any format, the certificate of title is prescriptive.  It confirms to the recipient matters relating to the property through a series of statements of facts and disclosures * Completed by the buyer’s solicitor and gets sent to the lender’s solicitors  Confirms that the property is good for the loan * Draft of this is exchanged before exchange and the actual certificate is sent shortly before completion usually with a request for mortgage funds  Formal summary of what happened – issues should have already been discussed * The industry standard is the City of London Law Society (CLLS) Certificate of Title, which is freely available on CLLS’s website. * The format of the certificate is a series of statements that would be given if the property title is in perfect order. * The solicitor completing the certificate must give a disclosure after a statement if any of these statements is incorrect.

Answer 428

* * A property contract must be in writing, signed by or on behalf of the parties and incorporate all the agreed terms

Answer 429

A contract may not be needed for certain transactions, such as a gift of property between family members or land of low value.

Answer 430

The contract allows the parties to fix a completion date and set out their respective obligations.

Answer 431

* Seller: Prepare Draft Contract * Buyer: Approve Draft Contract * After both of the above the next step is exchange.

Answer 432

* A contract can:  * fix a completion date, so that all parties know when they will need to have money and make practical arrangements (eg, booking removal vans)  * tie related transactions, eg, if using the money from the sale to buy another property  * set out related obligations, such as buying furniture and other contents  * include conditions, such as obtaining specific planning permission * A contract is used in most property transactions, but sometimes it is unnecessary. Examples might be: o * a gift of property between family members o * land of low value, such as when one neighbour agrees to sell the other a couple of feet at the end of the garden

Answer 433

* Standard form  * Residential transactions almost always use a standard form residential contract  * The standard form residential contract refers to the Standard Conditions of Sale * * There is a similar contract for commercial transactions o * The commercial standard contract incorporates the Standard Commercial Property Conditions * Tailor made * * Commercial transactions commonly use precedents from the firm’s own precedent bank or from sources such as Practical Law or the Encyclopaedia of Forms & Precedents * * These contracts tend to run to more pages * * They usually incorporate the Standard Commercial Property Conditions and amend them as required * * They may be weighted in favour of the seller in the expectation that the buyer’s solicitor will negotiate the terms

Answer 434

* * The Standard Conditions of Sale (SCS) are incorporated into residential contracts * * If the parties are adopting the Law Society Conveyancing Protocol, then the Standard Conditions of Sale are obligatory * * They may also be used for simple or low value commercial transactions

Answer 435

* * Standard Commercial Property Conditions (SCPC) are incorporated into most commercial property transactions * * They cover more detail on areas of relevance to commercial property, such as taxation and occupational leases * * Both sets of standard conditions are updated from time to time to take account of changes in law. The SCS are currently in their fifth edition, and the SCPC are in their third edition.

Answer 436

* The Standard Conditions of Sale may be amended, excluded or supplemented with special conditions * The standard form contracts have some special conditions included with tick boxes so that they may be chosen as appropriate. * If the seller’s solicitor is following the Law Society Conveyancing Protocol, they may only add other special conditions if they are absolutely necessary for the purposes of the transaction. * In other transactions, it is a matter of negotiation between the parties.

Answer 437

* SCS:  The seller needs to disclose any incumbrances registered at the Land Registry, the Land Charges Registry (for unregistered land) and at Companies House.  If they do not, then the seller is in breach of SCS 3.1.2 (d) and (e). * SCPS:  The buyer is deemed to buy the property subject to any incumbrances which would be revealed by a prudent buyer’s searches and enquiries.  This places the onus on the buyer to carry out all relevant searches and enquiries

Answer 438

* An exception to caveat emptor is the title guarantee. The seller can offer one of two types of guarantee (or none) as to the quality of title of the property. * Both types of title guarantee confirm that the seller has the right to sell the property. * Limited title guarantee is given by sellers with little knowledge of the property, such as executors of a deceased estate.  This means that no incumbrances have been created over the property during the seller’s period of ownership. * Full title guarantee – this is the default (SCS and SCPC), and should be offered unless there is a good reason not to.  This means that the property is free of all incumbrances other than those disclosed in the contract, and those which it didn’t and couldn’t reasonably have known about. * Assumption is full guarantee unless raised * No title guarantee means that the seller does not guarantee the seller’s right to sell the property, or that the property is free of incumbrances. * The buyer has no remedy against the seller if a title issue arises after completion. * An administrator or liquidator selling property may offer no title guarantee.

Answer 439

* * The completion date is usually fixed by the parties. * * If the parties do not fix a completion date, then the SCS and SCPC default to ‘the date that is 20 working days after the date of the contract’. This is rare in practice. * * The time for completion under both SCS and SCPC is 2 pm. For the buyer’s solicitor, this means that the money must be received by the seller’s solicitor before 2 pm. * * If the buyer will use money from a related sale to buy the property, then the buyer’s solicitor should ensure that there is sufficient time to receive and forward the funds. * * Both SCS and SCPC state that ‘time is not of the essence until a notice to complete is served’. * * This means that if a party fails to complete (the ‘defaulting party’) by the specified completion date and time, the other (the ‘non-defaulting party’) can claim damages for the breach, but cannot yet walk away from the transaction. * * However, the party who is ready to complete can serve a notice to complete and make time of the essence. * * The contract rate sets the interest that is payable by the defaulting party for the delayed completion.

Answer 440

that the contract must be performed by the specified time, and if not, the non-defaulting party can walk away from the contract and claim damages for the breach.

Answer 441

* * Both SCS and SCPS require the buyer to pay a 10% deposit on exchange of contracts, but this can be varied by special condition (say 5%). * * If the parties agree a lower deposit, but the buyer doesn’t complete on time and the seller serves notice to complete, the buyer must immediately pay the balance of the 10% deposit (unless this provision is also amended by special condition). * * When acting for a seller, always advise the client and check with them before agreeing to a reduced deposit. * * The balance of the purchase price payable on completion is the purchase price less the deposit. * * Under SCS, the deposit can be paid by a cheque from the buyer's solicitor’s client account (not a cheque from the buyer) or electronically. * * Under SCPS, the deposit must be paid electronically. * * The deposit may be held by the seller’s solicitor as stakeholder or agent.

Answer 442

* When the seller’s solicitor holds the deposit as stakeholder, it means that the seller’s solicitor must keep the deposit safe and not pay it to the seller until completion.

Answer 443

* If the seller’s solicitor holds the deposit as agent for the seller, the seller may demand the deposit immediately after exchange. * Mostly buyers will not accept this, as there is a risk of loss to the deposit if the seller is unable to complete (particularly if insolvent). * Both SCS and SCPC therefore provide for the deposit to be held as stakeholder. * As a residential seller may need the deposit for a related transaction, however, SCS provides that part or all of the deposit may be used for the deposit on that transaction. Any remaining deposit is still held as stakeholder. * Common for developers – so they can invest that deposit to finance on the ongoing work

Answer 444

* Starting point is that VAT is not payable * Residential property  Residential property is usually an exempt supply or a zero rated supply, meaning that no VAT is payable by the buyer. * Under SCS, the purchase price is inclusive of VAT.  The buyer does not need to worry about the possibility of VAT on top of the purchase price. * Commercial property  VAT always needs to be considered with commercial property.  The default position under SCPC is that the property is a standard rated supply, meaning that VAT is payable at the normal rate (currently 20%) on top of the purchase price.  There are exceptions. For example, if the property is over three years old, and the seller has not made an option to tax, then there will be no VAT to pay. * So not exempt is they are less than 3 years old or the seller has opted to charge VAT * CPSEs would confirm whether the seller has opted for tax  The parties should amend SCPC with a special condition.

Answer 445

once contracts are exchanged, risk passes to the buyer under both SCS and SCPC. * * This means that if the property is damaged or destroyed between exchange and completion, the buyer must still complete.  under condition 8.1 of the SCPC, risk in the property passes to the buyer on exchange of contracts under common law (even without an express provision) * * The buyer’s solicitor should therefore advise the buyer to obtain insurance quotes before exchange, ready to insure the property from the date of exchange. * * The lender may also want confirmation that insurance is in place before advancing the completion funds. * * In some cases, it may be better for the seller to keep their insurance policy going (eg, if the building is still under construction), in which case a special condition is needed. * * If this is the case, then SCS and SCPC contain standard obligations on the seller regarding insurance.

Answer 446

* In the title investigation topic we saw how the burden of positive covenants can be passed by a chain of indemnity covenants. * If the chain is unbroken, then the seller can require the buyer to give an indemnity covenant and continue the chain. * Both SCS and SCPC make this an obligation of the contract. * However, if the seller did not give an indemnity covenant, then this obligation does not apply. * The parties may want to agree the wording and set this out in a special condition (see next page).

Answer 447

* The transfer to the Buyer will contain the following provision:  The Transferee covenants with the Transferor to observe and perform the covenants contained or referred to in entry no 3 of the charges registered of title number XXXXX and to indemnify the Transferor against any liability for any future breach or non-observance of those covenants. * Note that the seller is described in the transfer as the transferor, and the buyer as the transferee.

Answer 448

* * Special conditions may be pre-written on the standard residential or commercial form of contract, or may be tailor made by the parties’ solicitors.

Answer 449

The pre-written standard conditions deal with some of the more common amendments that the parties may want to make to the Standard Conditions of Sale and the Standard Commercial Property Conditions. * * Tailor-made special conditions can cover a wide variety of matters.

Answer 450

Law Society Formula B is most frequently used to allow for exchange of contracts to take place by telephone.

Answer 451

* * The seller’s solicitor drafts the contract * * In doing so, the seller’s solicitor will refer to the heads of terms to the seller for instructions on any point on which there is doubt, and to the title * * If the Law Society Conveyancing Protocol is adopted, then the contract should be in standard form, and official copies and protocol forms will be sent to the buyer’s solicitor at the same time * * These papers are collectively known as the contract bundle.

Answer 452

* * The buyer’s solicitor checks the contract against the heads of terms, and the buyer’s instructions. * * The buyer’s solicitor may want to amend the contract if it is weighted towards the seller, or to take account of matters that arise from the buyer’s solicitors’ investigations. * * In a commercial transaction, the contract may go back and forth between the seller’s solicitor and the buyer’s solicitor until the contract terms are agreed.

Answer 453

* Until exchange, the parties’ losses are limited to whatever expenses they have incurred in expectation of selling/buying the property. After exchange, the parties are committed, and there is the potential for significant financial loss if all is not in order. * Before exchange, then, both seller and buyer need to ensure that they are ready. Some solicitors use checklists to ensure that nothing is missed.

Answer 454

* check have received all search results and replies to enquiries, and followed up any issues arising from them as needed * check that buyer has received survey and is satisfied with it advise buyer that insurance must be in place from exchange of contracts * check that have cleared funds from the buyer for the deposit (usually 10%)for a commercial transaction, * ensure that the lender’s solicitor has approved the draft certificate of title * ensure that have reported fully to the buyer on title and advised on any issues of concern * agree contract * send contract to the buyer for signature * obtain instructions on proposed completion date * obtain authority of the buyer to exchange contracts (do not rely on merely having a signed contract as authority to exchange!), * Need to get deposit * and if necessary check again just before exchange * At exchange tell the client to insure the property * Process of exchanging contracts: * Client is happy with report on title * Agree contract * Sign contract * Deposit * Completion date * Authority to exchange  CRITICAL * Send draft certificate of title * Insurance – at exchange tell client to insure property

Answer 455

* · obtain a redemption figure (ie, the amount needed to pay off the loan in full) from the lender to check that the proceeds of sale will cover it * · reply to any outstanding additional enquiries (the buyer’s solicitor will likely refuse to exchange without this in any case) * · prepare engrossments (final versions) of the contract and send one copy to the seller for signature, and the other to the buyer’s solicitor * · obtain seller’s authority to exchange contracts (again, do not rely on the signed contract as authority), and if necessary check again immediately before exchange * Example: you receive a signed contract and authority to exchange from your client (the seller). The buyer is not ready to exchange until two weeks later. You check with the seller, who tells you not to exchange, because it has that morning come to light that the buyer intends to let the property to a direct competitor of the seller.

Answer 456

* Exchange of contracts is the point at which the parties enter into a binding contract.

Answer 457

* The buyer’s solicitor and seller’s solicitor will let each other know when they are ready to exchange. Before doing so, they need to have received their respective client’s signed contract. * The exchange conversation will involve the solicitors:  * identifying any blanks left in the contract and agreeing what wording/figures need to be inserted  * agreeing any handwritten amendments or special conditions  * agreeing and writing in the completion date in the appropriate space * Once both solicitors are happy that the contracts are complete and identical, they agree that they will exchange the contracts under Law Society Formula B, agree the date and time of exchange, and give each other their names to write on the contract. * The contract is then exchanged, and from that time onwards, the parties are legally obliged to complete. * Box at the top of the contract allows the solicitors to record the date and time of exchange

Answer 458

 * to hold the signed contract to the other solicitor’s order – this means that the buyer’s signed part belongs to the seller and vice versa  * to post the signed contract to the other solicitor that day by first class post or DX (the document exchange used by solicitors and certain other professionals) or by hand delivery  * in the case of the buyer’s solicitor, to send the deposit in the form of payment specified by the contract (eg, solicitors’ client account cheque in the first class post, or same day electronic transfer)

Answer 459

* Law Society Formula A is used when the same solicitor holds contracts signed by both seller and buyer. * It might be appropriate, for example, where a solicitor knows that they will be abroad at the time of exchange. * The solicitors have a similar telephone conversation as with Formula B, but the solicitor who holds both parts undertakes just to send their client’s signed contract to the other solicitor. In Formula A, the undertakings are that the solicitor holding both signed parts of the contract will, that same day, send their client’s signed part of the contract to the other side by first class post, through a document exchange, or by hand. The buyer’s solicitor also undertakes, that day, to send to the other side a banker’s draft or client account cheque for the agreed deposit, with their client’s signed part of the contract if it is the buyer’s solicitor who holds both parts

Answer 460

* Law Society Formula C is for chain transactions, meaning that the money from one property is used to buy the next. A chain may involve two or more properties. * Although chain transactions are common, Law Society Formula C is not, as it is complex. * Instead, the parties use Formula B, but care must be taken to tie the transactions together. Formula C is the most complex of the three formulae and is used mainly in residential property work when there is a chain transaction. A chain transaction occurs where there are two or more properties being sold. The paramount aim is to synchronise all the exchanges in the chain so that nobody ends up owning two properties, their own and the one that they are buying, or no property at all. However, it is little used in practice because it is so complex.

Answer 461

* * Related sales and purchases must be tied together. Never exchange on one, hoping that you can exchange on the other, as there is a risk that the second exchange will fall through. * * A solicitor will ‘release’ the contract to the solicitor who is dealing with a related transaction. This means that if the solicitor manages to exchange on the related transaction by an agreed time, the first contract is treated as exchanged, but if not, the exchange is cancelled. * * This method comes from Formula C, but as Formula C is complex, the solicitors usually just adopt the release method and apply it to Formula B.

Answer 462

* Each of the parties’ solicitors should prepare a memorandum of exchange with the key contract terms for the file. * It is also wise to keep a copy of the signed contract in case the original is lost in the post to the other solicitor. * Risk passes to the buyer on exchange, so the buyer should have in place insurance in case the property is damaged or destroyed. * The parties will start to make arrangements for completion, such as submitting the certificate of title to the lender and requesting the mortgage funds in time for the completion date. * In residential transactions, the seller and buyer may also book removal vans to physically move house on the completion date. * The buyer also holds an equitable interest in the property which may be protected by a notice on the register or, for unregistered land, a class c(iv) land charge.  Beneficial ownership transfers to buyer

Answer 463

1 On the front page, there are headings relating to the description of the property and the terms of the sale. These details are unique to the property and the particular transaction and are sometimes referred to as ‘the particulars of sale’. 2 In the middle of both versions are what is called the standard conditions, designed to apply to all transactions. These are either the SC or the SCPC, which contain much of the detail. These are the terms that will govern the transaction unless the parties specifically agree something different. The SCPC has two parts, the longer Part 1 which will apply unless excluded and the shorter Part 2 which only apply if specifically included. 3 On the back page are the special conditions – special in the sense that they are specifically drafted to meet the particular requirements of this transaction. There are some pre- printed suggestions at the top of the page and then a blank space into which the parties can insert any requirements of their own.

Answer 464

The front page of a pre- printed contract contains the information about the parties, the property and the financial terms of the transaction. The example below is the front page of a pre- printed contract incorporating the SCs. The seller’s solicitor will have obtained information about the buyer, the price, the deposit and the fixtures and fittings when they took instructions (see 1.8). They should also have information about the seller, which they need to cross- check with the information in the proprietorship register in the official copies for a registered property, or the title deeds for an unregistered property. The title documents will provide the details of the property, including the address and whether the property is freehold or leasehold. The title documents will also reveal whether the property has the benefit of any rights over adjoining properties, such as a right of way. Some practitioners include these in the description of the ‘Property’, although it is not necessary to do so. For a registered property, the contract will need to state the title number and the class of title, which is found in the proprietorship register of the official copies. The class of title can either be incorporated into the address by the ‘Property’ heading or typed in brackets after the ‘Title Number’ * Specified incumbrances * Title guarantee * Contract rate * Deposit: stakeholder and agent

Answer 465

Special conditions relate to the individual characteristics of the property and the particular circumstances of the transaction. Special conditions appear on the back page of a pre- printed contract

Answer 466

* the appointment of a second trustee for the purposes of the transfer (see 2.5.4) * arranging for the seller to obtain or pay for a restrictive covenant insurance policy (see 2.5.5) * disclosing a defect in title (eg see 2.5.7) * the seller selling with limited or no title guarantee (see 4.4.2 above) * a deposit of less than 10% and/ or for the deposit to be held as agent rather than stakeholder (see 4.4.4 above) * the payment of VAT (see 4.4.7 below) * the removal of fixtures by the seller (see example below) * the inclusion of an indemnity covenant in the transfer to protect the seller from liability once they have lost physical possession of the property (see 2.5.6).

Answer 467

(a) The purchase price is exclusive of VAT and VAT will be added on top. (b) The purchase price is inclusive of VAT so that VAT, if any, cannot be added on top. (c) The purchase price is exclusive of VAT, so VAT can be added on top in the unlikely event that the law changes to make an exempt supply chargeable at the standard rate, but the seller is contractually obliged not to opt to tax.

Answer 468

The lender will want to know that the property is adequate security for the loan. In particular, the lender will require a certificate from the solicitor acting for them that the property has ‘good and marketable’ title. In residential transactions, the lender will usually require a certificate of title in the form approved by the Law Society and UK Finance which aims to reduce the risk of a conflict of interest when a solicitor acts for both the lender and the borrower. The certificate confirms to the lender: * there are no legal problems with the property (it has a ‘good and marketable title’) so the lender can safely lend against it * who will own the property once the sale is completed * the completion date when the funds are needed. In commercial transactions, the lender is likely to require a more detailed certificate of title, such as the one produced by the City of London Law Society. This certificate is a report about a property, a summary of the information which has been ascertained by a solicitor in the title investigation and the pre- contract searches and enquiries. It is prepared by the buyer’s solicitor based on information from their pre- contract investigations: sometimes it will be addressed to the buyer and the lender, sometimes just the lender. The benefit of the certificate is that it reduces the volume of paperwork to be reviewed and avoids the need for duplication of the title investigation and searches and enquiries. Therefore it saves time and expense for the borrower and the lender.

Answer 469

The certificate is given immediately prior to completion of the loan. Drafts will be provided to the buyer/ lender’s advisors at earlier stages in the transaction so they will have early warning of any major issues. The buyer’s solicitors will not exchange contracts until they know the lender is satisfied with the certificate and any disclosures.

Answer 470

The parties have now reached a critical stage in the transaction. Both sets of solicitors have taken their client’s initial instructions. The seller’s solicitor has investigated their client’s title, prepared the draft contract and deduced evidence of title to the buyer’s solicitor. The buyer’s solicitor has raised the pre- contract searches and enquiries and the results have been received and analysed. The buyer’s solicitor has also investigated the seller’s title and approved the draft contract. Any issues arising from investigation of title and/ or the searches and enquiries will have been successfully resolved by the time the parties are ready to exchange contracts. At this point the buyer’s solicitor will send to the buyer a pre- contract report summing up the results of the pre- contract searches and the investigation of title. The report usually also explains the terms of the contract and the mortgage offer. The report will also include some disclaimers, eg that the solicitor cannot advise on the value or structure of the property.

Answer 471

(a) Report to client The buyer’s solicitor should report to the buyer in writing, explaining the results of title investigation, searches and enquiries and the terms of the contract and the mortgage offer. (b) Report to lender The buyer’s solicitor should report to the lender, who will need to know the property is good security for the loan and has ‘good and marketable title’. (c) Ensure deposit funds are available The deposit funds should be available to the buyer’s solicitor in cleared funds, ready to send to the seller’s solicitor at exchange of contracts. (d) Check the mortgage offer is in place and that the client has sufficient funds to complete The buyer needs to have the mortgage offer in place (and accepted it) and to have complied with any conditions attached to the mortgage offer (or be in a position to do so). The buyer’s solicitor should also check that the buyer has the funds to proceed with the purchase at completion. (e) Ensure arrangements are in place for insurance immediately following exchange In most cases the contractual position is that risk passes to the buyer on exchange and therefore the buyer needs to have insurance in place from exchange. These arrangements need to have be made in advance of actual exchange so the insurance takes effect immediately. (f) Contract signed Both solicitors need to ensure that their client has signed their copy of the contract. In many cases a client will sign in ‘wet ink’, although a 2019 Law Commission report concluded that an electronic signature can lawfully be used to execute a document provided the person signing the document intends to authenticate it and any execution formalities are satisfied. A solicitor can sign the contract on their client’s behalf if they have the client’s express authority to do so. (g) Completion date Both solicitors will need to discuss this with their client and the other side in advance of exchange of contracts.

Answer 472

1. In person, by one solicitor attending the other’s office and handing the contract over. 2. By post, with each solicitor sending their client’s part of the contract by post to the other solicitor’s office. 3. Over the telephone.

Answer 473

Following exchange, a binding contract exists from which neither party may withdraw without incurring liability for breach. The seller retains the legal title in the property until completion, but holds the beneficial interest on behalf of the buyer. During this period, the seller is entitled to remain in physical possession of the property (although it is possible for the parties to agree that the buyer can occupy the property as licensee (see SC 5.2.2)). The seller must pay the outgoings, such as the community charge or business rates, until completion. Unless the contract provides otherwise, the buyer bears the risk of any loss or damage to the property, hence the need to ensure that insurance of the property is in place and effective from the moment of exchange. Immediately after exchange, the solicitors should inform their respective clients and the estate agent that exchange has taken place and, if the exchange has taken place over the telephone, comply with the undertakings in the relevant Law Society Formula.

Answer 474

* Seller: – Draft/approve Transfer Deed (TR1) – Rely to Completion Information – Prepare for completion – COMPLETION * Buyer: - Draft/approve Transfer Deed (TR1) – Requestion Completion Information – Pre-Completion Searches – Prepare for Completion - COMPLETION

Answer 475

* draft the transfer deed (TR1) for the seller’s solicitor’s approval * once approved by the seller’s solicitor, arrange for the buyer to sign if it contains indemnity covenants (or any other obligation on the part of the buyer) * send requisitions on title to the seller’s solicitor * carry out relevant pre-completion searches * send certificate of title to the lender, and request the loan advance in time for completion (usually to arrive the day before) * send the buyer a statement of money needed to complete the purchase * Stamp Duty Land Tax form approved by client

Answer 476

· approve the transfer deed drafted by the buyer’s solicitor · arrange for the transfer to be executed by the seller · reply to requisitions on title · request a redemption statement from the seller’s lender (if any) - So they know how much money is required and make sure the client is not in negative equity · in a residential sale, ask the seller or agent to take final meter readings

Answer 477

* Traditionally, the seller’s solicitor drafted the contract, and the buyer’s solicitor drafted the transfer deed. * This is still the default position taken in the Standard Conditions of Sale (SCS) and Standard Commercial Property Conditions (SCPC). * However, in recent years, it has become quite common for the seller’s solicitor to draft the transfer at the same time as the contract, and for the draft transfer to be annexed to the contract in approved form.

Answer 478

* A transfer of land must be in the form of a deed (s52, Law of Property Act 1925) * Registered land: · Land Registry forms must be used: · TR1 – the most common, this transfers the whole of a freehold or leasehold title · TP1 – this is used for the transfer of part only of a registered title · TR5 – this is used for the transfer of a portfolio of registered titles (and may include unregistered titles * Unregistered land: · Unregistered title may still be transferred in the form of a conveyance, and could even be written in copperplate on parchment! · In practice it is usual to use the Land Registry form TR1, which can be used for registered land as well.

Answer 479

* Panel 1 – title number: (Registered property) Enter the title number or numbers. · (Unregistered property) Leave this panel blank. * Panel 2 – property: Enter a brief description of the property. · For most properties this will be the address which can be found in the official copies or root of title. * Panel 3 – date: The date is handwritten in on completion, which has the effect of completing the deed, so it should be left blank until completion. * Panel 4 – the transferor(s): This will usually be the registered proprietor(s) of the property. · If the seller’s name is different than it was when they bought the property (eg, due to marriage or civil partnership), the marriage certificate should be provided. The buyer’s solicitor will need this proof for the Land Registry application. * If a second trustee is appointed for a sole surviving tenant in common, their details go here as well. * If the transferor is a company, the company’s registered number should be provided. * Panel 5 – the transferee(s): Insert the buyer’s full name. A maximum of four people or companies can be named. * Panel 6 – address for service: Insert the buyer’s address here. Unlike the contract, where the parties’ addresses are their addresses before completion, here a residential buyer will put the address of the property. · An email address can also be provided. · The Land Registry will use the address for service to direct any notices relating to the property. * Panel 7 – the transfer wording: This panel contains the wording ‘The transferor transfers the property to the transferee’ which operates to transfer title. · It cannot be amended * Panel 8 – consideration: There are three tick box options which are roughly in order of how often they are used (common first) · The transferee is paying a sum of money for the property – the figure is inserted · The transferee is giving no monetary consideration or anything that has a monetary value – for example, a gift, or from existing trustees to new trustees · Other receipts – less frequently used. Examples might be where parties swap properties (this used to have stamp duty saving advantages) or where the property is being transferred to pay off a debt. * Panel 9 – title guarantee: There are tick boxes for full title guarantee and limited title guarantee. This choice will generally be governed by the contract (see Week 4). · If the transferor is giving neither title guarantee, the tick boxes are left blank. * Panel 10 – declaration of trust: If both legal and beneficial title are being transferred to a sole transferee, then you can skip this panel. · There are tick boxes for the transferees to hold as beneficial joint tenants or tenants in common. · The third option covers all other possibilities, which may be tenants in common in unequal shares, or may be to hold the property on trust for a third party. * Panel 11 – additional provisions: Anything that is not relevant to panels 1 to 10 but needs to be included in the transfer deed is included in this panel. · This could be an indemnity covenant for positive covenants, or new covenants and easements (although these are more common in transfers of part). · If the transferor is a sole surviving tenant in common, the appointment of a second trustee would appear here. * Panel 12 – execution: Provides space for the attestation clauses that allow the parties to execute the TR1 as a deed. · These will depend on the parties and circumstances.

Answer 480

* The transferor must always execute the TR1. * The transferee(s) must execute the TR1 if: * if they are tenants in common or agree to hold the property on trust for someone else in Panel 10 * they are providing an indemnity covenant, or any other obligation in Panel 11

Answer 481

transfer of part · The TP1 is used for a transfer of part of the transferor’s title. · Usually the part is identified by a plan attached to the TP1, and Panel 3 refers to the plan. · The “additional provisions” panel, Panel 12 (similar to Panel 11 in the TR1) provides headings likely to be appropriate, such as “Rights granted for the benefit of the property” and “Rights reserved for the benefit of other land”.

Answer 482

– transfer of portfolio of titles · The main difference is that Panel 1 contains a table where a number of properties and their title numbers (if registered) can be set out.

Answer 483

* An individual signs the transfer in the presence of an independent witness who also signs and prints their full name and address (s1(3)(a)(i), Law of Property (Miscellaneous Provisions) Act 1989)] · Limbs * The transfer is considered delivered (ie, comes into effect) when it is dated, usually by the transferor’s solicitor.

Answer 484

* There are different options for a company executing a deed (s44, Companies Act 2006) * It is best to check if the company has a policy on executing deeds, so that you know which attestation clause is appropriate * Options include: · In all these options they need at least two signatures!!!!!!! · Company seal attached, and signed by two directors, or one director and the company secretary · No company seal, but signed by two directors or one director and the company secretary · Signed by one company director and witnessed by an independent witness · Signed by a senior employee (not a director or the company secretary) who is authorised under a power of attorney

Answer 485

* Buyer’s solicitor drafts transfer deed * Seller’s solicitor either amends draft for buyer’s approval, or approves the transfer as drafted * Once agreed, seller’s solicitor sends the engrossment (final) transfer deed to the seller for execution (buyer’s solicitor does likewise only if the buyer needs to execute) * The seller’s solicitor and, if appropriate, the buyer’s solicitor, hold the executed but undated transfer deed ready for completion

Answer 486

* Pre-completion searches are much more limited than pre-exchange searches, and are to check and protect the buyer’s and lender’s ability to register their transfer and legal charge.

Answer 487

* pre-completion searches are mainly to check and protect the buyer’s (and lender’s if appropriate) ability to obtain title to the property as per the contract. * While some issues that might arise would be a breach of contract, it is better to identify these before completion rather than rely on the ability to sue afterwards. * Pre-completion searches are concerned with (1) the property (2) the parties.

Answer 488

* The buyer’s solicitor carries out a search with priority (form OS1 or OS2 for part of land) at the Land Registry against the title number. * This updates the official copies that were initially provided, and identifies any changes that have been made. * It also confers a priority period of 30 working days in favour of the person searching.

Answer 489

* The buyer’s solicitor carries out a land charges search of the Land Charges Registry (Form K15). * This identifies any incumbrances or other adverse matters registered against the owner/seller of the unregistered land. * It confers a priority period of 15 working days. * If the buyer’s solicitor registers the transfer with the Land Registry within the priority period conferred by the search, then the buyer’s transfer will take priority over any other applications, even if they were lodged before the buyer’s transfer.

Answer 490

* As the OS1 search updates the official copies that the buyer’s solicitor has seen, the buyer’s solicitor provides the Land Registry with their date, and this is the date from which the search is run. * If nothing has changed since that date, then the search will come back clear; otherwise updated official copies will be sent to the searcher.

Answer 491

* Under SCS or SCPC, the seller should disclose any adverse issues that may have resulted in changes to the official copies originally provided. * If the seller does not, the buyer may have a claim for damages for breach of contract and/or misrepresentation, or even to rescind the contract. * However, a buyer’s solicitor should never rely on this, and should always ensure that registration is protected by priority at the Land Registry. * If the search were not carried out, then it is likely to cost time and money to put right any entry (at best correspondence with the seller’s solicitor, and at worst litigation against a seller who is unable to pay damages). * This would be a clear case of professional negligence on the part of the conveyancing solicitor. * It is easy for a busy solicitor to forget the OS1 search, particularly if there is a delay to completion – in the majority of cases, the search result would be clear anyway, but it is not worth the risk!

Answer 492

the land charges search gives priority (although only 15 working days) * Any entry against the landowner during the priority period, does not affect the ability of the buyer to register the transfer * In the elements dealing with investigation of unregistered title, we discussed how the land charges search is carried out against all owners in the chain of title * For the purposes of priority, however, it is unnecessary to update land charges searches against previous owners, as any entries that may affect them after their period of ownership are not relevant to the property * The land charges search against the seller, however, should be carried out just before completion to give a sufficient priority period to lodge the application for first registration

Answer 493

* When acting for buyer and lender, the buyer’s solicitor must carry out a bankruptcy search (Form K16) against the buyer to protect the lender. Like a land charges search, it confers a priority period of 15 working days. · K16 IF IT IS AN INDIVIDUAL OTHERWISE COMPANIES SEARCH * If the buyer is a company, then a lender will want a company search carried out against the buyer to check that there is no pending insolvency or crystallisation of a floating charge. * A company search gives no priority period, so should be carried out as late as possible and updated if necessary. * If the seller is a company, then the buyer’s solicitor should carry out a company search immediately before completion. * This checks that there is no pending insolvency or crystallisation of a floating charge. * Again, there is no priority period.

Answer 494

* Requisitions on title are simple questions to elicit certain information that the buyer’s solicitor needs to complete.

Answer 495

* they are now used more generally to refer to the questions that the buyer’s solicitor needs answering before completion. * Requisitions on title for residential transactions are usually in the form of Law Society TA13. The form is also headed ‘Completion information and undertakings’ which is a more accurate description than ‘requisitions on title’. * Requisitions on title for commercial transactions may be in the firm’s own precedent form, or the Commercial Property Standard Enquiries (CPSE) form SCR (Solicitor’s completion requirements) * The forms are similar in content, if not in form, so we will just look at TA13 (Completion information and undertakings)

Answer 496

* Vacant possession: Asks about arrangements for collecting the keys; for example, whether they are left with the agents. If there is a rent-paying tenant, then asks for an authority for the tenant to pay the rent to the buyer following completion. * Deeds and documents: For unregistered property, asks for a list of deeds and documents to be sent on completion * Completion: Asks for confirmation that completion will take place according to the Law Society’s Code for Completion by Post. Like Law Society Formula B for exchange, the Code for Completion by Post sets out expectations and undertakings of the solicitors on completion. * Money: Asks for the seller’s solicitor’s client account details (to send the money), and for the exact amount payable on completion. * Mortgages and charges: Asks the seller’s solicitor to list any mortgages secured on the property and confirm their undertaking to redeem them on completion.

Answer 497

* The buyer’s solicitor wants to ensure that the mortgage is cleared from the property promptly after completion so that the buyer’s transfer can be registered. * Ideally, this would be done before completion, but this is usually not possible, as the seller will rely on the sale proceeds to pay off the mortgage. * The seller’s solicitor undertakes in the Law Society Code for Completion by Post to redeem the mortgages against the property which it will have already notified to the buyer’s solicitor. * Note that the undertaking is not to discharge the charge, as this is not within the solicitor’s power. * On the loan being redeemed, the lender should either discharge the charge at the Land Registry electronically (most common) or provide a form DS1 which can be produced to the Land Registry to discharge the charge. * With large value transactions, the buyer’s solicitor may insist that the seller’s solicitor obtains an executed but undated DS1 in advance of completion.

Answer 498

* Completion is usually carried out by post, with the seller’s solicitor acting as agent for the buyer’s solicitor under the Law Society Code for Completion by Post

Answer 499

* Written confirmation of completion must be sent to the buyer’s solicitor as soon as possible after completion and in any event by the end of the working day following completion.

Answer 500

* THERE ARE IMPLIED UNDERTAKINGS WHEN YOU USE A LAW SOCIETY CODE FORMULAE * The Law Society Code for Completion by Post (‘the Code’) avoids the need for the solicitors to physically attend each other’s office by treating the seller’s solicitor as an agent for the buyer’s solicitor. * The seller’s solicitor provides various undertakings under the Code which the buyer’s solicitor can rely on to know that if the necessary money is sent, completion will take place, or the seller's solicitor will return the money to the buyer’s solicitor. * Immediately following completion, the seller’s solicitor holds the transfer deed and other deeds and documents to the buyer’s solicitor’s order. This means that the buyer’s solicitor can direct what happens to them. * As soon as possible, and no later than the end of the working day after completion, the seller’s solicitor undertakes to send the transfer deed and other deeds and documents to the buyer’s solicitor.

Answer 501

* Buyer’s solicitor has received (hopefully) mortgage advance and balance of money required from client, and sends required amount to seller’s solicitor by bank transfer * Seller’s solicitor telephones buyer’s solicitor when the money arrives to confirm completion, and dates the transfer deed, calls seller to let them know, and estate agent to release keys to the buyer if appropriate * Buyer’s solicitor calls buyer, who can now collect the keys and physically move into the property. If acting for the lender, the buyer’s solicitor dates the legal charge. * Seller’s solicitor sends the transfer deed and any other agreed deeds and documents to the buyer’s solicitor, redeems the mortgage, and sends the balance of the money (less costs, Land Registry fees, etc) to the seller

Answer 502

* If either party does not complete on the contractual completion date, this is a breach of the contract entitling the other to damages and contractual interest under the standard conditions.

Answer 503

* If the non-defaulting party is ready, willing and able to complete, then after the contractual date and time for completion has been missed, they can serve notice to complete.

Answer 504

* Compensation interest is for the number of calendar days not working days

Answer 505

* The effect of the notice to complete is to make time of the essence and giving both parties ten working days (after service of the notice) to complete.

Answer 506

* If either of them fail to complete, then the non-defaulting party (at that point) can rescind the contract and keep the deposit.

Answer 507

* A seller’s failure to complete means that the seller’s solicitor is unable to date an executed transfer. * A buyer’s failure to complete means that the seller’s solicitor has: · not received the money needed to complete from the buyer’s solicitor or · has received the money, but the buyer instructs the buyer’s solicitor not to release it to the seller’s solicitor (for example, if the buyer changes their mind at the last moment) * A party who fails to complete is the defaulting party, and the party who is ready to complete is the non-defaulting party.

Answer 508

* If either party fails to complete by the time and date specified in the contract, then they are obliged to pay interest for each day’s delay under SCS. · This includes the weekend * This is calculated at the interest rate specified in the contract. If none is specified, then SCS 1.1.1(e) provides that the Law Society interest rate (the current rate is published on their website) applies. * If the seller is late in completing, then the seller pays interest on the full purchase price. * If the buyer is late in completing, then the buyer pays interest on the purchase price less any deposit paid.

Answer 509

* IF YOUR LOSSES ARE MORE THAN THE CONTRACTUAL COMEPNSATION YOU CAN CLAIM DAMAGES · IF THE LOSSES ARE LESS THAN THE INTEREST THEN CANNOT CLAIM DMAGES IN ADDITION TO INTEREST - It would either be damages or interest * As seen in the previous example, unless it is either a large value transaction, or a long delay, the interest is relatively low.

Answer 510

a remedy where the contract is set aside and the parties are put back in the position in which they were before the contract was made.

Answer 511

· Unlike the interest under the standard conditions and common law damages, rescission is not automatically available to the non-defaulting party. · This is because under a standard contract, time is not of the essence (SCS 6.1.1 or SCPC 9.1.1) · After either party has failed to complete on time, however, the non-defaulting party can serve notice to complete on the other (SCS 6.8.1 or SCPC 9.8.1) · This has the effect of making time of the essence · The parties must then complete within ten working days (excluding the day on which notice is given)

Answer 512

* If completion has not taken place by the date and time stated in the contract (2pm under the standard conditions if not amended), then either party if they are ready, able and willing to complete, may give the other notice to complete * If it is the buyer who is the defaulting party, and they have not given a full 10% deposit, they must make it up to 10% without delay.

Answer 513

* The parties must complete within ten working days, the first day being the day after the notice to complete has been served. * The party serving the notice to complete is bound by the notice as well, so they must make sure that they will continue to be ready to complete within the ten working day period. * Once served, the notice to complete cannot be withdrawn unless both parties agree. * If either party fails to complete within the ten working day period, the remedies available depend on whether the non-defaulting party is the seller or the buyer.

Answer 514

* Seller’s remedies: · The seller may rescind the contract, and on doing so, may also: - forfeit the deposit and any interest accrued on it - resell the property and any contents included in it - claim contractual damages * Buyer’s remedies: · The buyer may rescind the contract, and on doing so, may also: - demand return of the deposit with any interest accrued on it - claim contractual damages or even specific performance (an equitable remedy forcing the seller to complete the sale) * Note that contractual compensation (interest) only applies to delayed completion, so where completion does not take place at all, the remedy is damages. * REMEMBER SCS IS FOR DEALYED COMPLETION SO IF THE CONTRACT IS RESCINDED THERE CANNOT BE COMMON LAW DAMAGES COMPENSATION

Answer 515

* Stamp Duty Land Transaction Tax (SDLT) in England or Land Transaction Tax (LTT) in Wales must be notified and paid within 14 days or 30 days respectively * Charges created by companies must be registered at Companies House within 21 days of the creation of the charge * The Land Registry application must be made within 30 days of the OS1 search to protect priority * An unregistered application must be made within 2 months or the transaction is void * SDLT, LTT, Companies House and Land Registry applications can be made online, except for unregistered applications to the Land Registry

Answer 516

* The last step of the post-completion work is often the Land Registry application. * The process and timing of this differ for transfers of registered land and transfers of unregistered land that trigger first registration. * The Land Registry are very user friendly, and will usually raise requisitions on any issue that arises from an application, such as a missing deed or document, or use of an incorrect form. * However, some errors will lead to the application being returned completely, so it is best to get the application right first time.

Answer 517

* If the title is already registered, then Land Registry form AP1 (form you use to charge the register) is used to set out the details of the application and the documents provided. * For a purchase, these will include: · The transfer deed (eg TR1) · SDLT5 or WRA certificate to prove payment of SDLT or LTT · Form DS1 to discharge the seller’s mortgage if appropriate (this can be sent on later if not yet available) · Mortgage deed in favour of the buyer’s lender · If appropriate, certificate of registration of charge at Companies House · Other documents as appropriate (eg, death certificate for deceased joint proprietor if the seller is a sole surviving beneficial joint tenant)

Answer 518

* An application for first registration is usually a little more involved than for a transfer of registered title. * Instead of the form AP1, a form FR1 is used, which contains additional boxes relevant to unregistered title. * Unlike the AP1, the FR1 does not have a box where the enclosures are listed. Instead they are listed on a separate form DL. * The following documents are included: · Numbers 1 to 6 on the previous page · The epitome of title and the deeds and documents referred to in it · Land charges searches for the seller and previous owners in the chain of title

Answer 519

* For both registered and unregistered land, the buyer’s conveyancer should either tick the AP1 or FR1 to state that there are no overriding interests, or if there are, complete a Form DI.

Answer 520

* Most solicitors have an account on the Land Registry online portal, enabling registration applications to be submitted online. However, this is not possible for a first registration. * The application is instead made by post or document exchange (DX), and this is possible for a transfer of registered land if the solicitor does not have access to the online portal. * If this is the case, it is best to send certified copies of the transfer and mortgage deed, as the Land Registry do not return paper documents. * The original mortgage deed should be sent to the lender, and the original transfer deed should be kept if it has covenants.

Answer 521

A certified copy of a document is a copy that has been stamped and signed by a solicitor to confirm that it is a true copy of the original. Certified copies are usually (not just in property law) treated as equivalent to original documents for evidential purposes, although there are times when an original will suffice.

Answer 522

* The Land Registry application is less pressing than the SDLT and Companies House registration, but should still be attended to as soon as possible. * If the application is not submitted within 30 working days of the buyer’s solicitor’s OS1 search with priority, then priority will be lost. · HMLR – 30 working days from the OS1 result * The original OS1 search cannot be extended. * A new OS1 search can be submitted, but this will start a new priority period, not extend the existing one.

Answer 523

* For registered land, there is no deadline for application other than the time limit for priority under the OS1 search. The Land Registry will allow an application to be submitted at any time after completion, but may query it if a long period has elapsed. * For unregistered land, however, there is a deadline of two months from completion. If this is not complied with, the transaction is void. * An application must then be made to the Land Registrar to extend the period.

Answer 524

* If there are no requisitions, then usually the Land Registry will process a transfer of registered land within a couple of weeks. * First registrations of unregistered land take much longer, and depending on how busy the Land Registry are, can take several months. * Once the application has been completed, the Land Registry will issue new official copies showing the buyer as registered proprietor, and the lender (if any) as the proprietor of the legal charge. * They are accompanied by a title information document (TID) but really the title is in the Land Registry’s electronic registers, not in the document. * Although mistakes are rare, the buyer’s solicitor should check that all the details are correct before sending a copy to the buyer and to the lender (if they instruct). * In most cases, sending the client the updated official copies is the end of the transaction.

Answer 525

* Preparation of the transfer deed * Pre- completion searches * Making practical arrangements for completion * Ensuring the finances are in order for completion

Answer 526

* a certificate of title to confirm that the property is adequate security for the loan being advanced (see 4.10) * a solvency search against the borrowers (see 5.4.2 above) * a clear OS1R in the name of the lender (see 5.4.1 above) * an executed but not completed mortgage deed (see 4.8). The solicitor for the buyer will need to send a Financial Statement to the client advising the client of the funds needed to complete. This statement will show the amount to be forwarded by the buyer to its solicitor and will include the balance of the purchase price, any SDLT/ LTT due, the registration fee, the amount outstanding for any other disbursements, usually the solicitor’s fees and any other amount owing, eg a restrictive covenant insurance policy premium. The buyer’s solicitor should ensure that they have received both the mortgage advance from the lender and the balance of the purchase price from the buyer client. The balance of the purchase price should then be sent to the seller’s solicitor to the bank account specified in the replies to the Completion information form (see 5.5 above). The solicitor should notify the seller’s solicitor that the money is on its way. Once the money has been received, the seller’s solicitor will contact the solicitor acting for the buyer and completion will take place.

Answer 527

* Completion in person * Completion by post

Answer 528

Completion in person requires one solicitor, usually the buyer’s solicitor, to attend the office of the other solicitor. The meeting usually takes place at the office of the seller’s solicitor. All parts of the transfer should have already been executed by the parties in anticipation of formal completion and will usually be with the seller’s solicitor since the seller normally executes the transfer last. The buyer’s solicitor will usually arrange for the completion money to be sent electronically. At the completion meeting the Buyer’s solicitor will check any title documents against the evidence of title previously sent to them, which is only of real significance in unregistered land. In return for receiving the completion money, the Seller’s solicitor will hand over title documents and other documents relating to the property, such as planning permissions, and guarantees or insurance policies. The Seller’s solicitor will then arrange for the release of the keys to the property by whoever is holding them.****

Answer 529

The disadvantage of completing in person is that it takes time. Friday was traditionally the day that lawyers would visit each other’s offices to complete transactions, but the reality of modern life often makes it impractical to spend so much time away from the desk and it is much more common for completion to take place by post.

Answer 530

The Law Society’s Code involves the seller’s solicitor acting as the agent of the buyer’s solicitor for the purpose of carrying out the completion procedure. The seller’s solicitor does this at no cost to the buyer, on the basis the seller will be a buyer at some point and will likewise benefit from using the Code. It is important for the buyer’s solicitor to set out in writing precisely what the seller’s solicitor is to do on their behalf. The buyer’s solicitor is asking the seller’s solicitor to do whatever it is that they would have done if they could have attended the completion in person. On receiving the completion money, the seller’s solicitor will then carry out the instructions and complete the transaction. The seller’s solicitor should then contact the buyer’s solicitor to inform them that completion has taken place. The documents which would have been handed over to the buyer’s solicitor are instead sent by first- class post or document exchange. Under the Law Society Code for Completion by Post the seller’s solicitor gives an implied undertaking to carry out the buyer’s solicitor’s instructions. This undertaking may be enforced through the courts.

Answer 531

The effect of completion depends upon whether the land is registered or unregistered. In unregistered land, legal title passes to the buyer on completion. In registered land, legal title does not pass to the buyer until the buyer is registered at the Land Registry as proprietor of the land. This is why it is important to protect the buyer from the creation of adverse third party rights in the intervening ‘registration gap’ using a Land Registry search which confers priority.

Answer 532

Arrangements for the discharge of the seller’s mortgage will have been agreed using the completion information form. In many cases, the buyer will have agreed to allow the seller’s solicitor to discharge the mortgage after completion using the money received at completion, the buyer relying on the undertaking from the seller’s solicitor (see 5.5 above). Alternatively, the seller’s solicitor may ask the buyer’s solicitor to send the amount required to redeem the mortgage direct to the lender on the day of completion, with only the balance being sent to the seller’s solicitor. Once the lender has received the amount required to redeem the mortgage from the seller’s solicitor, they will either: * complete Land Registry form DS1 and send it to the seller’s solicitor for onward transmission to the buyer’s solicitor; or * submit an e- DS1 electronic discharge through the Land Registry portal; or * use the Electronic Discharge (ED) system, sending an electronic message to the Land Registry which automatically removes the charge from the register. If the ED or e- DS1 system is used, the seller’s solicitor will not be sending a DS1 form to the buyer’s solicitor. Instead, the seller’s solicitor will send the buyer’s solicitor confirmation that notice of release or discharge in electronic form has been given to the Land Registry.

Answer 533

Both sets of standard conditions provide for compensation to be paid, with one significant distinction: in the SCs both the buyer and the seller can be asked to pay this compensation (SC 7.2), whereas under the SCPCs only the buyer can be required to pay compensation (SCPC 10.3). The compensation is calculated at the Contract rate specified in the contract (see 4.4.3) on the balance of the purchase price, less any deposit paid (if the defaulting party was the buyer) for the period between the contractual completion date and the date of actual completion. The compensation is calculated as a daily rate so that it can be multiplied for the number of days of default. If the non- paying party was also at fault for some of that period then those days are ignored. The compensation is payable on completion.

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