Whether you are selling or buying a home, it’s a good idea to know what is involved, and to understand how the Conveyancing process works. Our 7 Part step by step guide explains the different stages of the Conveyancing process for a typical property sale and purchase transaction.
In this first part we explore the role of the agent, the mortgage broker and explain some of the basic things you should consider when purchasing and what these mean in real terms. At SO Legal we have an expert team of solicitors and conveyancing assistants to walk you through the process. Buying a home can be the biggest financial transaction you undertake so it’s best to have jargon free, practical professionals on hand to assist you with your purchase.
Part 1 – THE INITIAL STAGES OF CONVEYANCING
- Instruct a Conveyancer – what to look for and who to use (us of course!)
CONVEYANCING is the legal term for the process of buying and selling residential properties. The laws which apply can be complicated and this is where a Solicitor, Licensed Conveyancer or Legal Executive (“Lawyer”) can help and so should be involved as early as possible.
Once you have contacted us for an estimate of costs, and instruct us proceed, we will send you a ‘Client Engagement Pack’ to confirm your instructions. You should also pass our contact details to the estate agents where applicable. This pack includes standard protocol papers needed to be completed on a sale and also vital information on when you wish to purchase.
It is vitally important that you choose a pro-active, efficient and experienced Lawyer to handle the sale or purchase on your behalf. A good indication of a quality service is accreditation to the Conveyancing Quality Scheme (CQS) – this involves rigorous assessment by the Law Society in order to secure CQS status, which marks the firm out as meeting high standards in the residential conveyancing process. CQS is considered the benchmark for quality in conveyancing matters. SO Legal are accredited with the CQS scheme.
- Legal Work, Mortgages and Surveys – Important information to consider.
If you are getting a mortgage to help finance your purchase, it is likely that you will already have contacted a bank or building society to obtain an offer in principle; i.e. an illustration of what the lender is prepared to offer you. Your mortgage company will have a panel of solicitors they are satisfied to use. Some will need to be CQS accredited and not all firms are on all panels. So, whilst you may want to use one firm of solicitors, the bank may not permit you to do so if they are not on that lender’s panel. You should always bear this in mind.
Once you have made an offer which has been accepted you now need to tell your lender. Your lender will then run through the valuation/survey options with you, but even if you are a cash buyer you should consider getting a survey done. The cost will depend on whether you choose a basic survey, known as a homebuyer’s report, or a full structural survey. The full structural survey will be more expensive than a basic one but is strongly recommended for older properties or a listed building. This full structural survey is the only way of knowing if there are any issues with the property which you may not be aware of. You cannot rely on the bank’s valuation as it is just a valuation of the value, not the structure. If you purchase with a mortgage and there are structural issues, this will not affect in any way your responsibility to pay the mortgage and the money borrowed. The structural survey is your responsibility as a buyer, not the bank as lender.
Meanwhile, on a purchase, as your conveyancer, we will request the contract pack from the seller’s conveyancer. This pack contains standard protocol documentation. The National Protocol is the standard national conveyancing protocol set up by the Law Society to make transactions easier and less stressful. It is sued by most firms although not legally binding – it dictates the process by which firms work together with standard documents to make the process as easy as possible.
Once we have received the contract pack we will request any relevant searches, usually a Local Authority Search, Water and Drainage Search, Environmental Search and, depending on the area, a Coal Mining Report. We will review the searches carefully and examine the contract and supporting documents supplied by the seller to ensure there are no issues which could adversely affect your enjoyment of living in the property or the financial investment you are making in it.
At this stage, we require your instructions and money on account to effect the searches and to move the matter forward.
- The role of the Estate Agents and their Sales Memorandum
When you decide to sell your property, like most sellers, you are very likely to be using the services of an estate agent.
Once you are ready to put your property on the market, the role of a seller’s agent includes:
- appraising the property and providing you with advice in relation to the value of your property
- obtaining a listing of the property – this occurs when you formally appoint the agent in writing to act on your behalf
- marketing the property
- seeking out and introducing potential buyers to the property
- offering you advice on current market conditions
- arranging and overseeing prospective buyers viewing the property
- negotiating the basic terms of the sale once a buyer has been found
- issuing a Sales Memorandum which will include the fundamental initial agreement between both the seller and buyer i.e. price agreed, any additional terms of the sale (such as any additional sum for fixtures & fittings) and the contact details of the parties involved and their Lawyers.
Estate agents are a vitally important part of the process of selling and buying a property. They are the glue that can keep a deal together and a reference point for all parties. They can speak to the seller and buyer directly, something your legal representatives cannot do. They also value the property, market it, show buyers round and answer any questions – most importantly of all, when parties are at loggerheads, an agent can bring them together to identify the important points needed to be clarified.
The sales memorandum is the notification of the details of the sale to include seller, buyer, price and their professional adviser’s details. It may also include if there are clear dates for exchange or if any fixtures and fittings are also being sold. It is the important document at the preliminary stage and although not legally binding, provides a clear breakdown of the terms of the deal for reference by all parties.
What are you buying? Some early considerations
- Freehold or Leasehold? What type of property are you buying?
The two main forms of property ownership are leasehold and freehold. Most houses are owned freehold, while flats are usually owned on a leasehold basis. We’ll explain the difference between the two and some of the things to watch out for.
What is a freehold?
Buying a property freehold means you own the whole property and the land it’s built on. You own it outright, until the time you choose to sell it. You’re responsible for maintaining the property, and (subject to your mortgage arrangement) you can choose what to do with it, including whether to rent it out. Most houses are sold on a freehold basis.
What is a leasehold?
Buying a leasehold effectively means paying a freeholder for long-term rental of your part of the property. The freeholder owns the fabric of the building (the external walls and the roof, for example) and the ground it’s built on, and they’re responsible for maintaining it.
This arrangement is commonly used for flats, as a way of managing ownership of the whole building as well as individual flats. Occasionally, houses are sold on a leasehold basis. For example, houses in some modern developments have been sold leasehold, with the developer keeping the freehold or selling it on to another company.
When it comes to flats, the freehold arrangement varies from property to property. The freehold may be owned by a separate freeholder (effectively a landlord), or owned jointly by the leaseholders if there’s a ‘share of freehold’ arrangement. The main issues to consider at this early stage are service charges, maintenance charges, outstanding works needed to the whole building and the management fee for any managing agents. Leasehold property can create obligations other than just paying a simple ground rent. You need to carefully consider all of these aspects and outstanding costs not paid by your seller. These costs remain the responsibility of the leaseholder, not the seller, so we need as much information as possible of this.
Sharing the freehold
If the freehold is jointly owned by the property’s leaseholders, when you buy your flat you also buy a share of the freehold. This means that you and the owners have a shared responsibility for the communal areas and the structure of the building. You’re effectively leasing your flat from yourself (and the other freeholders), and you also share ownership of the entire building.
If there are four or fewer freeholders, you can share the freehold by naming all the owners on the title deeds. If there are more than four freeholders, you have to set up a management company to own the property jointly.
Pros and cons of leasehold
If you own your property leasehold and there’s a separate freeholder, on the plus side you usually don’t have to arrange things like buildings insurance, building repairs and maintenance for the communal areas.
On the other hand, you have to shell out for service charges and ground rent, and you rely on the freeholder to carry out repairs and fulfil other duties. Disputes between freeholders and leaseholders are quite common.
As you near the end of your lease, your flat will be worth less and you may struggle to find a buyer. To extend the lease, you’ll have to get the freeholder to agree, and they’ll usually charge you a fee.
If you want to rent out your leasehold flat, you’ll usually have to get permission from the freeholder, and you may have to pay a charge.
Pros and cons of freehold
If you own a flat and you share ownership of the freehold, you and the other owners can make decisions about the property, and you just need to get the agreement of the other owners if you want to extend your lease. This often means that flats that include a share of the freehold sell for more money than leasehold flats.
As a group, you can agree the amount that you pay annually to cover things like buildings insurance, communal bills and a sinking fund for any repair work that crops up. Often, this amount is lower than the amount you’d pay to a freeholder or their managing agency, as they may add admin charges and management fees on top of the actual costs.
The major downside of sharing the freehold is that it can involve quite a lot of work and negotiation with the other freehold owners. In particular, if you haven’t set up a managing company, it can be quite difficult to agree on things like payment of communal bills. If you can’t get in contact with one of the freeholders, if someone doesn’t pay their share, or if one of the freeholders won’t sign the document to extend a lease, for example, it could be a headache.
If you buy a freehold house, then you’re not sharing the freehold with anyone, and there aren’t really any major downsides. You own the property entirely and there’s no ground rent or service charge to pay. You don’t need to worry about a lease that will eventually expire, and you don’t have to rely on someone else to keep the building in good repair.
As Benjamin Franklin once said, “there is nothing certain in life but death and taxes” and of course stamp duty in itself is a tax on buying property. There are various schemes and reliefs such as the recent (January 2018) first time buyer’s relief ( https://www.gov.uk/guidance/stamp-duty-land-tax-relief-for-land-or-property-transactions ) and also the 3% levy on additional properties or residential properties purchased by companies. But in essence you must take into account the need to pay stamp duty at the prevailing rates as set out below. We will act on your behalf as agent to submit the stamp duty form to HMRC. We are not providing tax advice or advice on the complexity of stamp duty. You need to budget for the stamp duty at an early stage.