A guide to the legal process of buying a house
To many people, the process of buying a house can seem to be a long-winded, frustrating and sometimes mysterious process, veiled in legal jargon. Below is a guide as to what is going on throughout the process and what your Solicitor will be doing for you at each stage:-
Pre-Contract:-
When instructions are first given to your solicitor, he or she is obliged to comply with the Money Laundering Regulations and will therefore ask you at the outset for ID documents, including a passport or photo driving licence and recent proof of address. (usually less than three months’ old) and will also send to you an initial Engagement and Terms & Condition letter. To start the process moving, it is important that all of these documents are returned to your Solicitor as quickly as possible. Upon receipt, your Solicitor will then be able to open a new file for you and to start work on your purchase.
Agreed terms:-
Before the seller’s Solicitors are able to prepare a draft Contract, there will be preliminary discussions identifying the agreed terms. Usually, these will amount to agreement on the purchase price, anything to be paid for extra items, such as carpets, furniture or other items and an anticipated likely timescale (on average a Conveyancing transaction takes around two to three months, depending upon the number of parties involved in the chain and so please bear this in mind when an offer is made and accepted). On more complicated cases, there may be others matters to consider and agree such as whether the property is to be sold subject to any leases or tenancies or, if only part of a seller’s title is being included, to agree a plan showing exactly what is to be included in the sale. Completion may also, on occasions, be subject to certain conditions taking place such as the buyer obtaining planning permission. Once terms have been agreed, the Estate Agent will prepare the “Memorandum of Sale” setting out these terms and details of both the seller’s and buyer’s Solicitors and will circulate this to all parties.
Energy performance certificate (EPC)
An Energy Performance Certificate (EPC) will normally be required. The EU introduced Regulations in 2002 designed to improve the energy performance of buildings. One of the requirements was the introduction of EPCs. An EPC is a certificate which shows information about the energy efficiency of the property to which it relates. There is a legal obligation to commission an EPC before marketing the property if there is no existing valid EPC and so this should already be available by the time a sale and purchase have been agreed.
Investigating the property:-
Once the seller’s and buyer’s Solicitors have received the Memorandum of Sale from the Estate Agents, together with the identification documents and signed Letter of Engagement referred to above, they can then start work on the Conveyancing transaction. The seller’s Solicitor will provide a draft Contract and details of the title to the property to the buyer’s Solicitors and the process of investigating the property generally can then commence. Investigating the property involves finding out about the physical property and about its legal title and any third party rights affecting it. Generally, the buyer takes responsibility for investigation through its legal and other advisors who will prepare a report on the property for the buyer and any lender involved in the financing of the purchase.
The common law principle of “caveat emptor” (“let the buyer beware”) means that generally the seller is not obliged to disclose anything about that property to the buyer. This means that the onus is on the buyer to find out everything it wants or needs to know about the property before being committed to buy it (i.e. before “exchanging Contracts”).
The process of investigating the property will involve:-
• The buyer’s Solicitors raising enquiries with the seller’s Solicitor to answer.
• The buyer’s Solicitor carrying out all appropriate searches (including searches with the Local Authority and the Land Registry).
• Obtaining any documents and other information from the seller that it cannot obtain from any other source.
• The buyer instructing a surveyor, environmental auditor or valuer as appropriate.
• Physically checking the property (by way of a survey and general inspection) to make sure that it is what the buyer wants to buy. If the property is leasehold, the buyer will also need to consider the terms of the Lease and to obtain all consents required under the Lease to authorise the transfer of the Lease from the seller to the buyer. Often this involves fees being paid to a management company for a “leasehold management pack”. If a seller is selling a leasehold property, it is important that the necessary fees to obtain this pack are paid to the management company as soon as possible, as often this can lead to delays in the process if this is not requested early on.
Finance:-
The buyer’s Solicitor will need to check that the financing of the purchase is in order.
If a loan is being taken from a bank, the bank will need to be satisfied as to the adequacy of the security it will be taking. This will be done by the bank or other lender obtaining a valuation of the property, approving the information on the buyer’s mortgage application generally and instructing the Solicitor (usually the same Solicitor as the Solicitor acting for the buyer/borrower) to provide a certificate of title confirming that the legal title to the property is good and marketable and that there are no onerous conditions on it which will prevent the lender from lending on the security of the property. As the same Solicitor is often acting for both the borrower and the lender, the Solicitor will need to gather together the information required by the lender to provide the certificate of title and to disclose any adverse matters to the lender before the transaction can proceed to an exchange of Contracts.
Contract:-
The seller’s Solicitor drafts the Contract for negotiation with the buyer’s Solicitor. Where the sale relates to residential property, the Contract will normally incorporate the “standard conditions of sale” which sets out a series of standard conditions which are generally incorporated in each Contract for the sale and purchase of residential property. The Contract will be sent to you for signature by your Solicitor once your Solicitor has obtained the results of all searches and replies to enquiries raised and has completed the investigation of the title to the property.
Exchange of Contracts:-
This is the stage at which the sale and purchase become legally binding. Either party can generally withdraw from the transaction up to this point. Once both the seller and buyer have signed their respective parts of the agreed Contract and returned these to their Solicitor, and once the buyer and the buyer’s Solicitor is satisfied that all questions have been answered, all searches are back and the financing of the property is in order, then the Solicitors will exchange Contracts, with an agreed completion date (which is the date upon which funds change hands and the legal title is transferred to the buyer). The actual process of exchange of Contracts normally takes place over the telephone between the two Solicitors. On exchange, a deposit (normally 10% of the agreed purchase price) is paid by the buyer’s Solicitor to the seller’s Solicitor. If you are buying and selling properties at the same time, then it is usual practice for the deposit to be passed along the chain rather than a seller, who is relying on funds from their own purchase, having to provide a separate deposit at the time of exchange.
Once Contracts are exchanged, the risk in the property passes to the buyer. Exchange of Contracts is therefore the point at which the buyer should insure the property. If the property is leasehold, then the insurance provisions will be determined by the terms of the Lease (normally the landlord or management company will continue to insure the property).
Pre-completion:-
Once Contracts have been exchanged, and prior to the set completion date, the buyer’s Solicitor will then carry out some final pre-completion searches at the Land Registry; raise “Requisitions on Title” with the seller’s Solicitor (largely practical details such as the seller’s Solicitors’ bank details) and will finalise the financial arrangements (such as sending the purchaser a final completion statement showing the balance required and sending the certificate of title to the mortgage lender to draw down funds for the completion date).
Preparing the Transfer:-
Often the form of this is agreed prior to exchange of Contracts. The Transfer Deed is usually prepared by the buyer’s Solicitor and sent to the seller’s Solicitor for approval. The buyer’s Solicitor arranges for the Transfer Deed (often a Land Registry form TR1 or a TP1 if only part of the title is being transferred) to be signed by both parties in readiness for completion.
Landlord’s consent:-
In the case of a leasehold property, if the necessary consents for the transfer of the Lease have not been obtained before exchange of Contracts, they will need to be obtained before completion if the transfer is to be properly authorised. The buyer’s Solicitor will normally deal with this with the landlord or management company directly.
Completion:-
This is the date that everyone has been waiting for, when funds change hands and ownership of the property passes to the buyer. The buyer’s Solicitor will need to arrange for completion monies to be transferred to the seller’s Solicitors who, upon receipt of the money, will then authorise the Estate Agents to release keys to the buyer. The property is finally all yours! The seller’s Solicitor will then send the signed Transfer and any other necessary title documents to the buyer’s Solicitor and will ensure that any existing mortgages affecting the property are paid off.
Post-completion:-
There are still some further steps to be taken after completion has taken place. Within 14 days of completion the buyer’s Solicitor must send a Stamp Duty Land Tax return to HMRC and pay the necessary amount of Stamp Duty Land Tax. On receipt of the return, HMRC will issue a certificate which the buyer’s Solicitor must then send on to the Land Registry with the signed Transfer Deed and any new Mortgage Deed with an Application for Registration of the transaction.
Registration:-
The buyer’s Solicitor will deal with registration of the Transfer or Assignment of the Lease at the Land Registry. The Land Registry nowadays requires evidence of identity for all parties to the transactions which are submitted for registration, unless they are represented by a Solicitor or Conveyancer. If the property concerned has not been registered with the Land Registry previously, then a process of first registration at the Land Registry must take place which can sometimes take several months. In the case of leasehold property, there may also be registration requirements under the Lease and the buyer will normally need to send to the landlord or management company a notice of the transfer of the Lease from the seller to the buyer.
Conclusion:-
Once the buyer’s Solicitor receives the registered title back from the Land Registry he or she will normally send the buyer a copy for their own records and a copy will also be sent to any mortgage lender. Any associated documents, such as indemnity policies, are also normally sent to the buyer and should be kept safely as they may be needed when you come to sell the property again.
Carol Lee is this year celebrating ten years as a Consultant Solicitor, serving the Rutland and Stamford area, under the Setfords’ umbrella and Sarah Pembleton is this year celebrating five years working as a Residential Conveyancing Manager with Carol Lee. Carol deals with both residential and commercial property, and the preparation of Wills and LPAs and can be contacted on
clee@setfords.co.uk or 01572 453101. Sarah Pembleton deals with residential property (primarily in the Melton Mowbray area) and can be contacted on spembleton@setfords.co.uk or 01664 491412.