IntroductionAs you read this information for the first time you are probably enjoying the prospect of buying your new, and possibly first, home. Most advice given at this stage centres around the importance of the transaction and the significance of your intended investment. These are wise words. But you need to know more. This may fill-in some important gaps in your knowledge and help you to be better prepared for what will follow.
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On-the-MarketFirst, we need to tell you that you that even though you have had your offer for the property you hope to buy accepted, it is not off-the-market. A property is never off-the-market until the seller has become legally bound to sell their property to you. This may strike you as unfair. Not so. You are not legally bound to buy it either. If you are not legally committed why should the seller be?
If the property you hope to buy can theoretically be sold to someone else, you need to get your proverbial skates on. Your seller is not going to sell to you if he or she loses confidence in your ability to buy it. Your seller will expect you to sort out a lawyer and your finances as a matter of some urgency. If you don’t the property will simply be offered to someone else.
Nothing has been agreed!You may think that lawyers simply shuffle a pile of papers from one office to another and then add a few signatures at the end. You believe that everything has been agreed between you, the seller and the estate agent (if there is one). Whilst saying “nothing has been agreed” might be an overstatement, it is not far from the truth. All you have agreed is the price. Even that can be open to debate.
We not only shuffle papers around; we also look at them. Does the paperwork tally with what you have told us? If not is there room for negotiation. Also, the seller’s paperwork will raise issues that neither you nor the seller has thought about. How will that change the deal?
Given that both you and the seller may be confronted with “new” facts, you need to understand that not all news is good news. To borrow a boxing analogy, you must “roll with the punches”. If you take every piece of unwelcome information like a left-hook to the jaw you will not last until the final round. We, the seller’s lawyer and an estate agent will, between us, referee the contest between you and the seller. We can only do that whilst you stay in the ring, however. That means the the lawyers and the estate agent deal with any disagreements between you and the seller, not you.
Mortgage Offers and FinanceOne of the most vexing issues for lawyers and clients is the funding for a purchase. We know you intend to sort out your finances in time to buy the property, but have you?
First, cash is never as easy to get hold of as you think. Savings usually have to be transferred from one account to another, which takes time, especially if you are getting a competitive rate of interest on them.
Secondly, when a broker or lender’s representative says to you that you have the offer of a mortgage, that does not necessarily mean the lender you have chosen will lend you enough money to buy the property. You will have to suffer a credit-check. Your employer (or accountant, if you are self-employed) will need to verify your earnings. A surveyor will need to check that the property you hope to buy is worth what the lender is willing to lend. You do not have a mortgage offer until your lender sends you a pack of papers with the words “Mortgage Offer” emblazoned across it.
Finally, are you relying on a friend or relative to provide financial assistance? If so, have they made clear the terms on which that assistance is being given? Assistance may be well intentioned but it can lead to complications. Mortgage lenders generally frown on it unless the assistance take the form of a genuine gift, meaning any transfer of funds to you is unconditional. If there are “strings attached” the lender will want to know what they are just in case they have an impact on your ability to repay their mortgage advance.
That’s enough preliminary information. What follows is the sequence of events that is likely to take place now that you have decided to buy your new property.
The Purchase SequenceSTEP 1
Find a property and make a bid. When your bid has been accepted by the seller, find a solicitor who handles “conveyancing”
Instruct your solicitor to proceed and give him all the relevant information, namely:
- who you are and how he can reach you.
- proof of your identity and address.
- Your date of birth and NI number.
- the address of the property you want to buy and what you have agreed to pay.
- the name of the estate agent selling the property; or if it is a private sale, the name and address of the person selling it.
Also make sure you pay him on account for any expenses he has to incur, before “exchange”, on your behalf.
P.S. “Exchange” is a word lawyers use to describe the legal process that legally binds you to purchase the property you have chosen to buy (see more below).
Allow your solicitor time to obtain a contract for the sale of the property from the seller’s lawyer and research the information that has been supplied on the seller’s behalf. This may take a few weeks to do.
The research consists of asking the seller’s solicitor questions about the information supplied and making “searches” at the local council and with other bodies that hold relevant publically available information.
In the meantime, make sure your finances are available on request. If you are obtaining a loan to assist with the purchase, make sure there are no problems with the lender’s (inevitable) paperwork.
Your solicitor will report to you in writing on what he has discovered. You may not like all the information given to you. If there is a discrepancy between what your solicitor tells you and what others have led you to believe, tell your solicitor at once.
If you feel that you need the extra comfort of a building survey or test certificates for the gas or electricity services laid on, sort it out now.
Eventually, when you are happy with everything you have been told about the property, arrange to let your solicitor have your “deposit”. He will need this for exchange (see above).
Exchange (of contracts) can only take place when the buyer and seller have agreed all the terms of the sale of the property. One of the most important terms to agree is the “completion date”. This is the day on which you must pay for the property and the seller must hand it over. It is usually also the day when any other contractual obligations must be performed.
P.S. The “deposit” is not the amount of personal cash you are investing in the purchase. It is a part-payment of the purchase price of the property and usually equal to 10% of the purchase price (see more below).
Once the contracts have been exchanged and the completion date has been set you are locked into the purchase. You cannot back out unless you are prepared to buy your way out of the contract. That would mean losing your deposit.
The best thing to do is wait for completion and make sure that any money you have yet to pay to your solicitor is paid in good time so that completion of the purchase is not delayed. There will be penalties to pay if it is.
On the day of completion you are entitled to collect the keys as soon as your solicitor has paid for the property. Only then does it become yours. The keys are generally held by the estate agent that sold the property.
As a general rule sellers move-out in the morning and buyers move-in in the afternoon.
Your solicitor will still have a few things to sort out. He will need to report the deal to HM Revenue and Customs and register your ownership at the Land Registry. This may take a few weeks. When everything has been done and the registration of the property in your name has been completed, proof of the registration will be sent to you.
Your file will then be stored for 6 years and then destroyed.
Understanding the JargonSo, armed with a new-found sense of realism and a rough understanding of how the conveyancing process works, let’s try and explain some of the words that lawyers use. Some of the words we use do not mean what you expect them to mean.
|Words and phrases||Meaning|
|Completion||The day you have to make your final payment of the purchase price and the day when the seller gives you vacant possession (see below) and hands over the keys to the property.|
|Contract||The document (sometimes called an “Agreement”) used to legally bind a buyer and seller in connection with the sale of a property. The terms of the contract spell out what each party can expect of the other. Verbal promises made by one party to another do not form part of the contract, but written promises made via each party’s lawyer do.|
|Conveyance||A document that was in common usage before the Land Registry took over responsibility for recording the ownership of land and property. Such documents are no longer in use but they crop up on Land Registry records as proof of ownership and as confirmation of any covenants or easements that may affect a property.|
|Covenant||A legally enforceable promise imposed by one landowner on another to do something or refrain from doing something. Commonly, covenants will require the maintenance of a boundary fence or restrict the use of land to a particular purpose such as use only as a private dwelling.|
|Deed||A formal document where the party’s signature is witnessed. Such documents used to be signed and “sealed” but nowadays they are merely expressed to be “signed as a deed”.|
|Deposit||A part payment, usually equal to 10% of the purchase price, paid to the seller’s lawyer on exchange of contracts. This payment can be forfeited if you fail to complete the purchase of the property for reasons other than the seller’s breach of contract.|
|Easement||A right enjoyed over neighbouring land that does not form part of the property. Examples include a right of way over a shared driveway or footpath; and right of entry onto adjoining land for the purpose of maintaining the wall of a house or simply a garden fence.|
|Enquiries||Questions asked by a buyer’s lawyer, before exchange of contracts. They are usually addressed to the seller’s lawyer and are designed to clarify issues that are likely to be within the seller’s personal knowledge.|
|Exchange (of Contracts)||The process by which the buyer and seller agree to buy and sell the property on the terms agreed between them. Exchange takes place between lawyers over the telephone. Each party’s lawyer agrees that their client will be bound from the time the conversation takes place. A detailed note is taken of the time and date. Each lawyer then promises the other to send their contract and that way, contracts are “exchanged”.|
|Land Registry||The government department responsible in England and Wales for the registration of freehold and leasehold ownership. The Land Registry also register covenants, easements and legal charges. Information held by the Land Registry is open to public inspection.|
|Legal Charge (Mortgage)||A legal charge and a mortgage are, for all practical purposes, one and the same. It’s a legal document designed to impose on the owner of a property an obligation to repay a debt. If the obligation is not met or if other terms relating to the loan are broken, the mortgage allows the lender to take possession of the “mortgaged” property and sell it for the best price the lender can reasonably obtain. If the lender cannot sell for enough money to clear the borrower’s debt, the borrower is still liable to pay any shortfall.|
|Lease||The document that allows a tenant to occupy a property for a limited period. That period can be as little as 6 months or as long as 999 years (or even shorter or longer). When the lease period comes to an end, the property belongs to the landlord. Because the tenant will occupy the property during the lease period, the lease will set out all the obligations that the landlord wants to tenant to observe or perform.|
|Grant of Probate||The court order that allows someone (called an “executor”) to deal with a deceased person’s affairs. There are other similar types of court order that are commonly referred to as grants of probate even though they are not. If the expression is used, it means that the owner of the property has died and someone else is selling it for the benefit of the deceased owner’s beneficiaries.|
|Searches||Similar to enquiries, these are questions raised before exchange of contracts. They are almost always sent out on set forms. The most important is the Local Search, which is compulsory for anyone obtaining a mortgage advance. The Local Search is a series of questions addressed to the local authority. They are designed to establish if the local authority has anything on its records that might affect your future use and enjoyment of the property.|
|SDLT (Stamp Duty)||Stamp Duty Land Tax has never tripped off the tongue so everyone refers to it by its original name, Stamp Duty. It’s a tax on property transactions and requires that a buyer paying more than the stipulated minimum price also pays tax on the whole of the purchase price. The rate of tax is dictated by the amount being paid to the seller.|
|Title Information Document||This has replaced the title deed. It is the sheet of paper issued by the Land Registry as confirmation of who owns a particular property and on what terms it is owned. It is simply a copy of the information that the Land Registry holds on its records. It has no value and if lost or destroyed can be simply replaced with another copy issued by the Land Registry.|
|Transfer||A deed used to transfer a property from one person to another. The Land Registry insist that all lawyers wishing to record a change of ownership with them use a set form, which must contain what the Land Registry regard as essential information. Signing this document does not, of itself, shift the ownership from the seller to the buyer. That only happens when the transfer has been dated and submitted to the Land Registry for registration.|
|Vacant possession||This describes the obligation that most sellers must satisfy on completion. It means that the seller and all members of the seller’s household have departed, taking with them all those possessions that they have not specifically agreed with the buyer will remain on the property. It means that all doors should be capable of being opened without force. It also means that the seller must remove rubbish and stored items so that the buyer can gain access to the whole of the property without difficulty.|
It isn’t possible to prepare you for all possible situations that may arise. This booklet is meant to be an aid to your understanding of what is about to happen, nothing more. So, is there anything more you need to know? Of course there is, but we cannot cover every topic. What you need is a “reality check”, so take on-board the following:
- Selling a home is intensely personal, so don’t assume the seller won’t be easily upset by something you say or do. He or she will be.
- Everyone wants to be popular and is tempted to stretch the truth.
- Not everything you hear will be true, and if it is true it is likely to be an edited version of the truth.
- The seller does not have to tell you what is wrong with his or her property; the onus is on you to find out.
- The less information you ask for, the more you are relying on your own skill and judgment.
- If your personal judgment turns out to be wrong, no one will come to your assistance to help you out.
- There’s no such thing as free money, so if you borrow, make sure you understand the consequences of not paying it back.
- Lawyers work on the principle of, “Don’t tell me; show me”.