Most of us will either buy or sell a house at some point in our lives. There are two important milestones in a conveyancing transaction of this kind. First comes the exchange of contracts and secondly the completion.
The exchange of contracts is the first moment that a legally binding contract is created between the parties. You may have heard of people having ‘offers accepted’ on properties – but accepting an offer does not create any legal obligation whatsoever until contracts are exchanged.
Completion is the stage at which the bulk of the purchase money is to paid to the seller and the transfer deed is completed to transfer the property to the buyer. It is the stage at which the transaction is formally completed.
The exchange of contracts is not compulsory but it does come with certain consequences. It can fix the completion date and gives the buyer time between exchange of contracts and completion in order to make the final preparations. This course considers the role of solicitors at every stage of the transaction.
The relationship between a conveyancing client and a solicitor will begin with both parties taking instructions. The seller’s solicitor will submit a pre-contract package of documents to the buyer’s solicitors which will include a draft contract and evidence of the seller’s title to buy the property actually being sold.
The buyer’s solicitor must begin by checking the documents and title very carefully to ensure that the seller is entitled to sell the property and secondly that there are no encumbrances such as covenants which would prevent the buyer from using the property as they intended. They may need to do additional searches such as where boundaries lie, whether there are access disputes, whether there are ongoing works occurring at the property etc. There are many searches and enquiries that have to be carried out and almost all of them incur at least a small fee. The results of these investigations are put might require changes to a draft contract. Only once the buyer’s solicitor is satisfied that the necessary searches have been completed the results can be reported to the buyer and the buyer’s lender and the contract is in an acceptable form that the exchange of contracts can take place. This is a very brief overview of the initial stages of a freehold transaction. We will obviously consider the stages in more detail below.
Once contracts are exchanged the parties are contractually bound to complete. This means there are contractual consequences of failing to complete at the specified time and date. The time between exchange and completion is spent making sure all of the correct documentation and completion money is in place. In the post-completion stage both sides must finalise the relevant administrative matters regarding the transaction. The seller’s solicitor has to ensure that the mortgage that the seller had on the property is paid off and removed from the title. They will usually give an undertaking to do this. The buyer’s solicitors must ensure that stamp duty is paid and then finally the buyer’s solicitor must register the client as the new owner on the property and register any new mortgage over the land.
You should familiarise yourself with the Law Society Conveyancing Protocol which applies to all residential conveyancing transactions. It is attached as an addendum to this manual.
When undertaking instructions in a conveyancing matter you always need to be aware of your duty to monitor conflict. This is why it is rarely appropriate to act for both the buyer and seller in the course of a transaction. Acting for a buyer and a seller carries a high risk of conflict where the land is being transferred for value. You will remember the exceptions set out in paragraph 6.2(a) to allow a solicitor to act for more than one party even if there is a conflict of interest if they have a substantially common interest in relation to the matter and provided that certain conditions are met. However the Law Society has stated that this exception does not apply to a property purchase.
It is usually acceptable to act for joint buyers provided the solicitor can comply with paragraph 6.2.
You may be asked to act for a lender and a borrower in the context of a property transaction. Again you need to be very wary of a risk of conflict arising. The lender will frequently instruct the borrower’s solicitor to act for them as well as the borrower in connection with the grant of a mortgage. This is normally acceptable subject to paragraph 6.2 of the Code of Conduct. Where the solicitor is acting for both the borrower and the lender they must bear in mind the possibility that the duty of confidentiality will be breached under 6.3 of the Code of Conduct.
It is usually also acceptable to act for joint borrowers providing no conflict of interest exists or is likely to arise.
Sometimes a solicitor is asked to advise on the most appropriate form of finance for both a particular client and a particular transaction. A solicitor may not be in the best position to advise on such matters and there are also restrictions on solicitors when they provide such financial advice. Consider first that if a solicitor is carrying out a regulated activity in relation to a regulated mortgage contract then they have to be authorised to do so under the Financial Services and Markets Act 2000. It is very useful to be aware of the restriction under FSMA with respect to undertaking regulated activity, so consider revising this in full.
Regulated activities include arranging or advising on a regulated mortgage contract but would not giving generic advice such as the differences between types of mortgages or arranging the execution of a mortgage chosen independently by the client or on the advice of an authorised person.
There are two types of mortgages most commonly available on the market these are repayment and interest only mortgages. A repayment mortgage involves the borrower making monthly payments to the lender made up of instalments to the original amount borrowed and partly of interest chargeable on the loan. An interest only mortgage means the borrower will only make monthly payments to the lender but the payments will only comprise the interest chargeable on the loan. The advantages are that the monthly payments of an interest only mortgage are likely to be lower than under a repayment mortgage but at the end of the mortgage term the borrower will still owe the lender the whole of the original amount borrowed.