Glossary of some commonly encountered terms
Access to property between exchange and completion
This will only (usually) be agreed, if the buyer's lender is making a retention from the mortgage advance until specified works have been completed. The buyer usually needs that retained money if he is to be able to proceed. If access if agreed, then the buyer will be required to give certain undertakings as to the terms on which such access is given.
Very rarely will a buyer be allowed to occupy the property between exchange and completion - and even in those circumstances it will be against the seller's solicitors advice.
Additional enquiries
When draft contract, copy of title deeds and the various information forms are received, the buyer's solicitors need to satisfy themselves that the seller is able to sell with "good title" to the property. The buyer's solicitors will raise any questions that they feel appropriate both as to the adequacy of the title and also request further details of any matter which is not adequately answered by the standard documents. Typical examples are inconsistencies in the drafting of the contract and/or transfer documents; and contributions to repair of anything used in common.
Bridging finance
If the buyer needs proceeds from a sale to complete purchase but the purchase is to complete first then in order to be able to complete the purchase the buyer will need to obtain bridging finance. This can be difficult to obtain and expensive. If a bank is willing to give bridging finance, then most will require that contracts must have been exchanged on the sale with a fixed completion date. This is called a “closed bridge”. If a bank is willing to give bridging finance even though contracts have not been exchanged this is called an “open bridge”. In either case, the bank will insist on taking a charge over both the existing property and the new property.
Completion
Following exchange, completion is the date when legal ownership changes to the purchaser, and which then often triggers stamp duty payments and HM Land Registry applications.
Contract
Agreement setting out all of the terms of the transaction including
- property to be sold, parties, price
- general conditions relating to insurance, completion on notice, late completion, deposit, responsibility for property between exchange and completion
- conditions specific to this transaction, eg access for repairs
This is prepared by the seller's solicitors on receipt of the title deeds.
Contract papers
The papers sent by a seller's solicitors to the buyer's solicitors, eg draft contract, copy title deeds, copy planning documents, copy guarantees, various information forms completed by the seller.
Deposit
Client account cheque paid by buyer's Solicitors to seller's Solicitors for, preferably 10% of the purchase price. Where there is a chain of transactions, the deposit from the first purchase will usually be passed up the chain to the last seller' solicitors. Sometimes one or more of the parties in the chain may have to "top" this up.
Purpose of the deposit is to give seller some comfort that buyer will proceed to complete the purchase and pay the balance of the purchase price. If the buyer does not complete, then it is possible for the seller to keep the deposit. Often it will not be worth the seller suing the buyer for failure to complete, the seller usually settling to accept the deposit.
Drainage search
The local search for most authorities will no longer reveal whether foul and surface water from the property drains to a publicly maintained sewer and, if so, whether the connection is effected by a private sewer and a drain or just a drain.
A separate search now has to be made to the appropriate water authority who will confirm that foul water drains to a publicly maintained sewer and supply an extract of the sewer map.
Exchange of contracts
When solicitors hold signed contract and have instructions from their clients to commit to the transaction, solicitors agree, usually by telephone, that contracts are to be treated as exchanged with completion fixed for a specific date. The Law Society has a code of implied undertakings that apply on exchange eg as to timing of payment of deposit.
The result: legally binding contract.
Fixtures fittings and contents form
Standard form which sets out most main items in a property that could either be left or taken by a seller. The seller indicates whether each item is included or excluded from the sale price. Sometimes the seller will indicate that a particular item is excluded but may be purchased at a suggested price.
HIPS (Home Information Packs)
From the 14th December 2007 all homes put on the market now require a Home Information Pack.
By introducing the Home Information Pack, sellers will have the benefit that it should reduce the likelihood of any unwelcome surprises in the selling process that could delay the sale, as buyers will be able to make more informed decisions about purchasing their home. And the benefit to buyers, is the Pack provides essential information about properties they are considering buying, free of charge.
What’s in a Home Information Pack? The pack contains important information that buyers and sellers need to know including:
- Energy Performance Certificate
- Sale statement
- Standard searches
There also optional inclusions such as Home Condition Report and Legal Summary.
Identification
Money Laundering Regulations 2007
All solicitors are now required by law to identify all new clients. In addition, all lenders make a similar requirement. At the outset of every transaction, if the client is not an existing client of the firm, then they will be asked to produce two forms of identification eg passport, driving licence, utility statement not more than 3 months old.
Indemnity insurance
The title deeds are not always perfect. Common defects are:
- covenants are referred to, but there are no details of them
- if there has been a transfer of the title by way of gift or undervalue within the last 5 years
- if there is an insufficient right of way
- where there is a flying freehold
- where an extension or conservatory has been built without planning and/or building regulation consent and/or without consent.
Where there is a defect in title it is possible to obtain insurance cover, on payment of a one off premium, against the possibility of action being taken that would reduce the value of the property. The policy will also pay the costs of defending such an action. It will usually be the seller who is required to pay this because he is unable to provide an acceptable title.
Infrastructure agreements (newer properties)
Infrastructure Agreements are agreements which a developer is required to complete in order generally to enable the roads and sewers to be adopted. The most common infrastructure agreements are:
A Section 104 Agreement
This is an agreement entered into by the developer with the local sewage authority eg South West Water. The agreement will provide for the main sewers within a site to be constructed to a set standard. If the authority is happy with the standard of construction they will then require the developer to maintain the sewers for a minimum period of 2 years and if they are then happy with them they will then “adopt “them which means that the authority will then be responsible for the future maintenance. Often the agreement will be completed during the course of construction of the development although in some cases it may not be completed until after the development has completed. Late completion of an Agreement can cause difficulties as mortgage lenders often require that if the agreement is not in place by completion a retention should be made- most developers will not agree retentions.
A Section 38 Agreement
This is an Agreement entered into by the developer with the local council. The agreement will provide for the main roads to be constructed to a required standard. Again, similar to the section 104 Agreement, after a maintenance period the local council will take over responsibility for the roads. The same difficulties as occur with section 104 Agreements regarding retentions apply equally with section 38 Agreements.
Leasehold information form
Standard form of general questions that are tailored to a leasehold property. This is supplied in addition to the Property Information Form eg requesting ground rent/service charge/insurance details and receipts, details of landlord and/or management company
Lender's instructions to solicitors
All lenders used to have a different standard set of instructions which solicitors had to satisfy. The majority of lenders now adhere to the Council of Mortgage Lenders Handbook which sets down one standard set of instructions to solicitors – although all lenders have their specific variations to these. Generally, the instructions relate to:
- Conditions on which the solicitor advises the buyer/borrower, eg that building insurance and life cover are in place
- Requirements that the solicitor has to look for in the title deeds
- Before the lender will release the mortgage advance, it must have received a formal written Certificate of Title from its solicitors which confirms that all of the lender's requirement have been complied with and that the title is satisfactory
- The report also includes a request for the advance money to be sent to the buyer's solicitors on a specific date. Most lenders will require from 7 to 10 days prior written notice – more if a re-inspection is required. Where such time is not available, most lenders will be flexible and accept shorter notice, although before exchanging contracts the buyer's solicitors will want to check with the lender, in any particular case, that it will accept short notice.
The advance money is sent either by cheque or telegraphic transfer. Each lender's practice varies.
Local search
This will reveal, amongst other things:
- whether the property abuts a publicly maintained highway (or if it is a new development whether there is an appropriate road agreement and bond in place)
- whether there are any proposed roads or road improvements within 200 metres of the property (in which case the lender's valuer needs to be asked whether this will affect the value of the property and therefore the lender's Offer)
- any planning permissions
- where building regulation consent has been granted and the work commenced but the Building Control Officer has not been asked to make a final inspection
- any breach of any planning conditions
- whether the property is listed and/or in a conservation area
Contracts cannot be exchanged until the result of the search has been received. It is possible to obtain a local search indemnity policy on payment of a one off premium, (although the local search must still be submitted) but many lenders will not accept this. It is also possible to carry out a personal search, and we will advise you on the most appropriate for your transaction.
Most lenders require that a local search not be more than 3 months old at completion
Mortgage offer
The formal written offer from a lender to a buyer/borrower confirming that a specific advance will be made subject to certain specified conditions being met, eg life policies, building insurance, retention required if no s.38 or s.104 agreement.
Exchange of contracts cannot take place until the offer has been received and the buyer's solicitors are satisfied that all of the conditions have been or can be satisfied.
Negative equity
If the sale price is less than the amount required to redeem the mortgage(s). The seller's solicitor will not usually be prepared to exchange contracts until the seller has confirmed that he will have adequate funds to pay to his solicitor the shortfall together with solicitors' and agents' fees.
NHBC cover note (new properties)
A buyer’s solicitor cannot request mortgage funds and use the funds until they have received from the developer the NHBC cover note. This is evidence that the NHBC inspector is satisfied that the property sufficiently complies with the NHBC’s requirements.
Planning issues
The buyer's solicitors will want to be satisfied that they have a copy of all planning permissions and building regulation consents relating to the property and any extensions to it.
Common issues:
- On large housing estates, it is common for the planning permission for the development to remove permitted development rights, ie any extension or alteration would require formal planning permission
- Extensions and conservatories
- the title deeds may require consent to be obtained for any extension or alteration - in addition to planning permission - retrospective consent often needs to be sought
- if building regulation consent (or Notice of Passing of Building Plans) was not obtained for any work - has more than 12 months elapsed since work completed? If so, no action will be taken unless there is a risk to health & safety. Solicitors will usually require that indemnity insurance be obtained
- if building regulation consent obtained, but no final inspection carried out most solicitors would request that the Building Control Officer make inspection and issue a Certificate of Completion of Works
- Listed buildings
- if any alterations or extensions have taken place, to ensure that no breach of listed building requirements
- there is NO time limit for a breach of condition. The owner of the property for the time being is liable
Property information form
Standard form of general questions which every seller will complete and supply to the buyer. The intention is to negate the need for the buyer to ask numerous questions of the same kind in every transaction eg boundaries, disputes, occupiers, alterations.
Reporting to client with contract for signing
When all replies to enquiries and results of searches received, the buyer's solicitor will send the contract to the client for signing. When doing so they will "report" to their client as to whether all is in order to proceed. Some solicitors will give minimal information, but simply say that all is in order, others may report in letter form, while others prefer to see the client.
Requisitions on title
Standard form of questions relating to the title only. They are always raised prior to completion. These include the seller's solicitors undertaking to redeem any mortgages and give the seller's solicitors bank details for receipt of the purchase monies.
Title deeds
Since 13 October 2003 the Land Registry will no longer issue a Charge Certificate or Land Certificate following completion of an application for registration – “dematerialisation”. The Registry will simply send a copy of the amended title to the buyer’s solicitors.
Lenders are increasingly not wanting to hold such deeds as there are due to storage costs. Therefore, often the seller’s solicitors will have to piece documentation together by obtaining copy documents from the seller’s themselves, from the Land Registry and from the Council, eg planning and building regulation consent, road, sewer and planning agreement.
Title insurance
Typically an indemnity policy giving cover against (1) any title defects – known or unknown – (2) any adverse matters that would have been revealed by any search, eg local search, had it been carried out. Level of cover = purchase price. Policy can be obtained immediately.
Transfer/Lease
The document, signed by each of the sellers before an independent witness, which evidences the transfer or devolution of the title to the buyer. This document is produced to the Land Registry in order for the buyer's title to be registered.
The signed transfer or lease must be held by the seller's solicitors in time for completion. If it is not, then while completion can take place and the buyer can take possession of the property, the seller's solicitors cannot release the money to the seller, the selling agent or redeem any mortgage.
The transfer is usually produced in draft by the buyer's solicitors for approval by the seller's solicitors. The buyer's solicitors prepare the "Engrossed transfer" which is the final top copy of the transfer that is agreed and that is to be signed by the parties.
For new properties a model draft transfer or lease is prepared by the developer’s solicitors who will then engross it for signature and charge a document fee.
If the buyer is giving a covenant to the seller or there is more than one buyer, then the buyer(s) will also sign the transfer.
Please do not hesitate to contact the Move Forward team for further details or explanation.
If you are buying a 'new home' our specialist New Build team can help , or if you prefer a more tailored face to face approach visit Classic Move.
