Top Frequently Asked Questions about Residential Conveyancing
What is the difference between Freehold & Leasehold?
- Freehold – If you own a Freehold Property you have outright ownership of the property and the land on which it stands, with no time limit to the period of ownership.
- Leasehold – Is a method of owning a property for a fixed term, but not the land on which it stands. A document called the Lease grants the owner the right to use the property for a specified period of time (Lease lengths vary, but the most common terms are 99, 125 and 999 years) granted by the Landlord (who owns the Freehold or Superior Leasehold).
What are covenants?
A covenant is a legally binding promise to do or not to do certain things with property or land. Covenants can be either positive or restrictive.
A positive covenant is a promise to do something or spend money (e.g. to contribute towards the maintenance of a shared driveway).
A restrictive covenant is a promise not to do certain things for the benefit of other land and therefore amount to a restriction on the use of a property (e.g. no trade or business to be carried out at a property).
What is ground rent?
Ground Rent is a periodical payment, usually paid once a year (‘per annum’) by the owner of a Leasehold property to the Freehold Owner or Superior Leasehold Owner (Landlord), as required under the terms of the Lease.
Ground Rent provides an income for the Landlord. If you are selling a property which is subject to a ground rent, it is important that you obtain a copy of the ground rent receipt from your landlord. Ground rent should not be confused with chief rent/rent charge.
I own a Freehold property, but still pay rent, why is this and what is this?
Some Freehold properties (particularly common in North West England) pay an annual sum known as a Chief Rent or Rentcharge to a third party who has no other legal interest in the land.
Rentcharge payments are usually between £2.00 and £5.00 per year. Rentcharges have existed for many centuries, but the Rent Charge Act 1977 barred the creation of new rentcharges from 1977 onwards.
Old rentcharges can now be redeemed by making a lump sum payment under the Act. Any rentcharges that are still in existence in 2037 will be extinguished.
What is service charge?
Service Charge is levied by Landlords or Management Companies to recover the costs they incur for providing services and maintaining the building, grounds/common parts from every tenant.
For example, if you live in a block of apartments which has a communal garden, the service charge will cover the cost of maintaining the apartment building itself, any common parts such as stairwells or lifts and the communal gardens.
The Management Company or Landlord will also usually recover the cost of the Buildings Insurance premium through service charge payments from every tenant.
Service Charge may also include the costs of management by the landlord or by a professional managing agent and for contributions to a reserve fund. The lease will set out the way the service charge is organised and what can be charged.
What is the difference between ‘exchange’ and ‘completion’?
- ‘Exchange’ means the exchange of contracts, which is when the transaction becomes legally binding. Prior to exchange of contracts, either party is free to withdraw from the transaction. When both parties are ready to commit to the transaction, they formalise the agreement by signing the contract.
The contract contains the agreed terms such as the purchase price and the completion date. The solicitors involved in the transaction will formally exchange contracts by telephone and then the seller’s solicitor will send the seller’s signed contract to the buyer’s solicitor and the buyer’s solicitor will send the buyer’s signed contract and deposit to the seller’s solicitor.
ii. ‘Completion’ is the date that has been agreed in the contract and is the date that the title to the property is transferred from the seller to the buyer and the buyer takes possession of the property.
The period between exchange and completion varies in each transaction and the parties involved; exchange and completion can take place on the same day (this is known as simultaneous exchange and completion) or exchange can take place with completion several months later. It is usual however to have between 5 and 20 working days between exchange and completion.
Do I need to come into the office to exchange contracts and complete?
You will not need to attend our offices for us to exchange and complete. Exchange takes place between the buyer’s and seller’s solicitors on the telephone, so you do not need to come into the office for us to exchange.
We will however contact you before we exchange to ensure that you want to commit to the transaction, that you are happy with the completion date and that none of your circumstances have changed. We will then inform you once exchange has taken place so you can implement your building insurance and make removal arrangements etc. On the completion date, the solicitors arrange for the relevant monies to be transferred and received to complete the matter. So again, you do not need to attend our offices for completion to take place.
We will contact you to advise you that completion has taken place so you can vacate the property and hand the keys to the agent (if you are the seller) or collect the keys and take possession of the property (if you are the buyer). Prior to exchange and completion, generally you will not need to attend our offices to sign the relevant documentation (contract, mortgage deed, transfer etc.) as we are able to post or e-mail these to you for your to sign and return.
If however, there is not enough time to rely on the postal system or you would prefer to come into the office to discuss these documents with the solicitor, we will be more than happy to make an appointment for you.
What needs to happen before exchange of Contracts?
If you are purchasing a property, before exchange of contracts, the following must take place:
- Contract documentation received from the seller’s solicitors, contract approved, all supporting documentation checked through, any enquiries arising out of the documentation raised with the seller’s solicitor.
- Searches submitted and results received and any enquiries arising out of the searches raised with the seller’s solicitor.
- Replies to all enquiries raised with the seller’s solicitor received and answered satisfactorily.
- Mortgage valuation carried out, mortgage offer received and any special conditions of the mortgage offer dealt with.
- Survey carried out on the property.
- Report and documentation sent to client along with documentation for signature (contract, mortgage deed, SDLT form).
- Client returns signed documentation along with payment of deposit.
- A completion date agreed with all parties.
If you are selling a property, before exchange of contracts, the following must take place:
- Client completes Property Information Form and Fittings & Contents Form and returns these to the solicitor along with any other documentation relating to the property (such as planning permissions or guarantees). Also provides details of any mortgages affecting the property.
- Solicitor receives the above, obtains an up to date Title of the property from HM Land Registry, drafts the contract and send the contract package to the buyer’s solicitor.
- Whilst the solicitor waits for any enquiries to be raised by the buyer’s solicitor, a redemption statement is obtained for any mortgages on the property to ensure that there will be sufficient funds from the sale to repay any mortgages.
- Enquiries are received from the buyer’s solicitor. Any property specific enquiries will be sent to the client to answer and the solicitor will deal with all other enquiries of a legal nature.
- Replies to enquiries are sent to the buyer’s solicitor.
- The contract is sent to the client for signature.
- The client returns the contract.
- A completion date is agreed with all parties.
How long will it take to exchange contracts?
Every transaction is different as there are many factors that can affect the speed at which the transaction proceeds; whether there is a chain involved and the stage the rest of the chain are at, the time it takes for the mortgage valuation to be carried out and the mortgage offer being issued, the amount of time it takes for searches results to be received etc.
Other external factors could include someone in the chain going on holiday (which is a common issue for clients buying or selling during the summer holidays) or bereavements/illness in families that potentially affect the transaction.
If you have do have a particular timescale from the outset, you should advise us of this, so we can assess this and advise the other parties in the transaction.
We would advise you not to set a specific date for completion (and make arrangements around this date such as booking removals) until all parties in the chain are ready to commit to an exchange of contracts.
When do I pay the deposit?
The deposit on your purchase property is payable on exchange of contracts. This means that you do not have to pay the deposit at the outset of the transaction. When the transaction is near to exchange we will inform you that the deposit needs to be paid to enable exchange of contracts to take place. The deposit can be paid by bank transfer (CHAPS or BACS) or alternatively by cheque.
An exchange deposit is usually 10% of the purchase price. This deposit is forfeitable in the event of the buyer withdrawing from the transaction.
If you do not have sufficient funds in order to pay a full 10% deposit (for example if you are obtaining a 95% mortgage and are therefore only have a 5% deposit) you must make us aware of this as soon as possible in order that we can advise the Seller’s solicitors and agree a reduced deposit with them.
Why do you need to see my ID and my proof of funds?
Solicitors have a duty under money laundering regulations to verify the identity of any client in order to satisfy themselves that clients are who they say they are.
You will need to provide two forms of certified ID; proof of identity (usually a Passport or Driving Licence) and proof of address (usually a Utility Bill or Bank Statement no older than three months).
Evidence of source of funds is also required under the money laundering regulations as solicitors have a duty to check that the money you are using to purchase a property (be it the exchange deposit or the full purchase price if you are a cash purchaser) has come from a reputable source (such as employment savings) and is not the product of criminal activity.
We will need to see evidence of proof of funds before we are able to accept any monies from you into our client account and we may also ask further questions regarding the source of funds.
My parents are gifting me money towards the deposit, do I need to tell you?
Under money laundering regulations, solicitors also have a duty to verify your parents’ identity and see evidence of their proof of funds. This also applies to any other third party such as a partner or other family member who is gifting you money.
If you are obtaining a mortgage to purchase the property solicitors are also under an obligation to disclose any gift to the mortgage lender and ask the person(s) providing the gift to sign a gift declaration confirming that the money they are providing is purely a gift and is not repayable and they do not have any interest in the property.
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