Conveyancing Explained

July 22, 2008

I use this document to send to my clients to explain some of the terms that they might hear during a conveyancing transaction. I hope it will be of help to readers too.

Agreement – Another word for Contract (see below).

Bankruptcy Search – A search made by us to check whether a buyer or a borrower has been, is or is about to be declared bankrupt. This search is always required by the mortgage lender.

Borrower – The person taking out a loan or mortgage on a property that they own, also known as the Mortgagor.

Boundaries – The boundaries define the extent of the property and are usually marked out on the ground by fencing or hedging.  Boundaries are often, although not always, shown on the Land Registry plan.

Chain – These are the property buyers and sellers that link together to make the chain for your particular sale or purchase.  The chain may consist of only two people i.e. you as buyer and the person you are buying from as seller or it may consist of several buyers and sellers.  The beginning of the chain usually starts with a first time buyer or a buyer with nothing to sell and the end of the chain usually ends with a seller who is buying a brand new home or who is not buying another property.  Your sale or purchase can only proceed at the same pace as everyone in the chain, unless someone agrees to break the chain and usually move in with friends or family whilst the rest of the chain catches up. 

Completion Date – This is the date when the purchase becomes final and the Purchase Price is paid by the buyer’s Solicitor to the seller’s Solicitor.  The seller must move out of the property on this date. The keys are released to the buyer and they may move into the property.

Conditions of Sale – The conditions of the sale are detailed in the Contract that the seller’s Solicitor prepares and sends to the buyer’s Solicitor.  There are standard conditions set out by the Law Society, to which the seller’s Solicitor may add any Special Conditions.

Contract – The legal document that confirms the sale/purchase of the property. This is prepared in draft by the seller’s Solicitor and sent to the buyer’s Solicitor.  The buyer’s Solicitor then approves the contract and an identical copy is signed by each of the parties. It is then held by each Solicitor until their client is ready to proceed to exchange contracts.

Conveyancing – The legal description for the work that is done to transfer ownership of a property from one person to another. 

Conveyance – This is the old fashioned name for the document that transfers a property from one person to another.  Conveyances are rarely used nowadays and property is usually transferred by a Transfer Deed.

Covenants/Restrictive Covenants – These are obligations/restrictions that are attached to the property and would be legally binding upon the purchaser of the property, should they decide to proceed.  Think of it as a legally binding promise either to do or not do something. For instance there may be an obligation to maintain a fence or boundary which is a positive covenant. A restrictive covenant would be not to make any alterations or additions to the property without the prior consent of the original developer.

Defective title insurance – A defective title means that there is a problem with the deeds relating to the property. For example they could be missing, destroyed, lost or simply inadequate in terms that rights or restrictions that should appear are missing. A buyer will not usually buy a property with a defective title unless the seller provides him with an indemnity insurance policy to protect him and the mortgage lender against possible financial loss as a result of the defect.

Deposit – There are two types of deposit that you may be asked to produce.  Sometimes the estate agent will ask for a “Goodwill” Deposit to secure the property. You should not pay this deposit without first consulting with your Solicitor.  The second type of deposit is the one which the purchaser will pay to the Solicitor to hand over with the Contract. Traditionally this is 10% of the purchase price but often less than this is accepted and nil deposits can sometimes be agreed.

Disbursements – This means fees that the conveyancing solicitor must pay to other companies on your behalf.  Typically these are indemnity insurance policies, Stamp Duty Land Tax, Land Registry fees and searches. Obviously these payments are separate to fees for dealing with the transaction on your behalf.

Easement – This term means a right given to the property owner over adjoining property or land i.e. a right of way or access, a right to drainage etc. Sellers must disclose all “Latent” Easements but not “Patent” Easements to the buyers.  Latent Easements are those that cannot not be discovered by search or survey, in other words they are not easily found out.  Patent Easements are easements that can be discovered upon inspection or investigation of the property.

Equity – This is the value of the property that is left over taking into account its current worth and deducting from that any mortgages or financial charges outstanding on the property.

Exchange of Contracts – The buyer’s Solicitor and the seller’s Solicitor “Exchange Contracts” on the telephone.  If there is a chain, the solicitors for everybody in the whole chain “exchange contracts” at the same time using a Law Society formula.  Basically this means that they agree verbally that they have a contract signed by their clients and that the terms of each contract are the same. Once contracts are exchanged, the sale/purchase is legally binding on each party to the transaction and the completion date is fixed. At this stage, the deposit is also paid.

Financial Advisor – The Financial Advisor is usually responsible for arranging the mortgage or finance to purchase the property and will often arrange any life insurance, mortgage protection insurance etc.

Freehold – This is the legal term for the way that an owner holds the property.  The other terms are Leasehold and Commonhold.  With freehold land, the owner owns the property/land outright, subject to any mortgages, charges, easements, covenants etc. shown by the deeds.

Gazumping – This is where the seller sells to another buyer for a higher price.  This can only happen before exchange of contracts.

Gazundering – This is where the buyer lowers his offer on the property after agreeing a price.  This can only happen before exchange of contracts.

Ground Rent – This is the annual rent paid to the Landlord, usually on a Leasehold property where there is a long lease.  It can be as little as a peppercorn, the legal equivalent of “nil”. Ground Rents are payable on some freeholds, although this is now rare.

Joint Tenants – Where two or more persons buy a property, they are called joint tenants or tenants in common, whether the property is freehold, commonhold or leasehold. Where a property is held as a joint tenancy, if one owner dies the property passes to the other owner automatically without a Will.  If the property is held as Tenants in Common, each buyer owns their own share of the property which can only be passed on by sale or by a Will. (See my separate article on this for more information.)

Leasehold – A Leasehold property means that the owner does not own the property or land outright.  There is a lease which for a term of years grants the owner the right to occupy the property/land.  There may be a rent or a ground rent to pay to the Landlord.

Lender – The Bank or Building Society who lend money to property owners, sometimes also known as the Mortgagee.

Listed Buildings – Listed Buildings are protected by the Local Authority. Properties that are listed are subject to planning/development restrictions and you will have to obtain special consent to make alterations or additions to the property from the Council.

Management Company – If the property is leasehold, there will often be a management company set up to deal with the day to day running of the property and repairs and renewals.  The management company collect the service charge to pay for their services and for the upkeep and maintenance of the building.

Mortgage Deed – This is the document the borrower signs to agree to the terms set out in the Mortgage Offer.  This document is sent to the Land Registry who register the Mortgage as a Financial Charge on the property which is shown in the Charges Register.

Mortgage Offer – A written offer to lend money on a property.  The Mortgage Offer will contain all the terms of the Loan and the conditions upon which the money is loaned.

Mortgage Valuation Fee – The borrower generally pays a fee to the Lender to have the property valued for mortgage purposes.  This enables the Lender to take a commercial view on whether the property is worth what the borrower says it is and whether it is suitable security for the Mortgage.  The Mortgage Valuer will not necessarily inspect the physical condition of the property and you should always consider at least paying for a Home Buyer’s Report. The valuation report is not undertaken for or to protect you, only the lender’s security.

New Build – Where a property is being purchased for the first time from the Builder or Developer.

Off Plan – Where a property is being bought at the planning stage and is yet to be built. A detailed site map often available for viewing at a site office.

Overriding Interests – Not all matters affecting property are registered or capable of being registered at the Land Registry.  Nonetheless the property is still subject to such matters.

Pre Contract Enquiries – This is a set of questions that is sent to the seller’s Solicitor by the buyer’s Solicitor relating to the property. Typically these questions will consist of enquiries relating to boundaries, easements, persons living at the property etc.

Property Information Forms – These are standard forms completed by the seller giving details about the property.  The form is legally binding on the seller and you should be very careful when completing it. If any of your answers change before exchange of contracts, you must let your conveyancing solicitor know straight away or the buyer could sue you for breach of contract (the replies given in the form effectively are part of the contract).

Redeeming Your Mortgage – When a property owner pays back the mortgage on the property, it is known as “redeeming the mortgage”.  You will first need to get a statement of what is owed which is called a Redemption Statement.  If you are paying the loan back early you may be charged a Early Repayment Fee.

Seller – This is the person selling the property sometimes also known as the Vendor.

Stamp Duty – This is the tax payable on the purchase of a property, based on the purchase price and the annual rent, if applicable.

Stamp Duty Exempt/Disadvantaged area relief – Some types of purchase or transfer of land are exempt from Stamp Duty Land Tax.  The Government has designated certain areas as exempt. 

Subject to Contract – Before Exchange of Contracts (see above) all negotiations relating to the property are subject to contract. This means they are not binding unless contracts are actually exchanged. Your conveyancing solicitor will not exchange contracts on your behalf without your express confirmation that you wish him to do so.

Surveyor – The person who is responsible for surveying the property, who will usually be a member of the Royal Institute of Chartered Surveyors (RICS).

Tenants in Common – See Joint Tenants above.

Transfer Deed – This is the legal document that transfers the legal ownership of the property from the seller to the buyer.