Conveyancing Explained

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.

All properties have different tenures. Most are either freehold or leasehold. As a general rule, most houses are freehold and most flats are leasehold, but this is not always the case! If you want to check which tenure your property is, get a copy of the register held at HM Land Registry (see my separate article – How do I get a copy of my deeds?).

The first paragraph under Section A Property Register will say whether the property is freehold or leasehold. If you don’t want to do it this way and you don’t know which it is, your conveyancing solicitor can tell you as soon as they get a copy of the register themselves.

Freehold title generally just means that you own the property outright and everything in it. Leasehold title however means that the freeholder (or landlord) has the primary interest in the property and your interest is secondary to his. A Lease will be in place, which grants certain rights and restrictions on both you and the landlord. Usually, Leasehold title is put in place where there is a block of flats that have common or shared areas that need to be maintained and each flat owner is usually required to pay a contribution to the landlord for the upkeep.

Because Leasehold title is more complicated to deal with in terms of the law, most conveyancing solicitors will charge a higher fee in dealing with it. Only fair really, when you take into account the extra work that they have to do for both you and the mortgage lender, checking that the correct rights and restrictions are in place, how recently the maintenance has been carried out, who is responsible for what, how much you will have to pay for a service charge or ground rent etc. As I say, its a lot more work, and often more complicated.

Unfortunately, every lease is different, although its usual for leases to be granted in similar terms in the same block of flats. This means that it has to be read thoroughly by both you and the conveyancing solicitor. If there is anything that you don’t understand, then you really must make sure that your conveyancing solicitor explains it to you. Very often, you are required to;-

1) Pay a contribution towards the upkeep of the common areas (known as a service charge)
2) Pay an annual fee to the landlord (known as ground rent)
3) Abide by the restrictions in the Lease, usually sensible requirements such as not disturbing your neighbours, not altering or extending the property without the landlord’s permission, keeping the property in a good state of decoration and repair etc.

A managing agent could deal with the property on behalf of the landlord and if this is the case, then it is the agent that you will liaise with rather than the landlord direct. In this circumstance, it is the agent to whom you would make payments of annual ground rent or service charges to.

Bear in mind that the lease might contain clauses that allow the landlord to increase the ground rent by a certain percentage after a certain number of years. Your conveyancing solicitor should check this and tell you if this is the case. The smallest amount of ground rent that you can be required to pay is a peppercorn, because in law, ground rent cannot be nil and a peppercorn is a way of ensuring that it is nil. Obviously, it’s very unlikely that you will be expected to make a payment of a peppercorn to the landlord!

Leases can also be granted for different periods of time, sometimes 99 years, or 999 years. Its important to be aware that if the lease is already in place and you are getting a mortgage, then the lender will require between 20-35 years usually to be left to run on the lease. Even if you’re not getting a mortgage, this can become important when you come to sell the property because your future buyer in 20 years time may be getting a mortgage and the requirement will probably be the same. Therefore, if there is a shorter period of time left on the lease and you don’t intend to move for a number of years, you could be limiting your potential market to those willing and able to accept a small remaining number of years on the lease.

If you want to find out more advice on leases, in addition to your conveyancing solicitor, you can contact;-

The Leasehold Advisory Service (LEASE)
31 Worship Street
London
EC2A 2DX
Tel: 020 7374 5380 Or 0845 345 1993 (9.30am to 3.30pm Monday to Friday)
Fax: 020 7374 5373
E-mail: info@lease-advice.org.uk
Website: www.lease-advice.org.uk

Hope this clarifies a few points for you, if anyone wants further information on this point, please do let me know!

I spoke recently to a client who previously used another solicitors’ firm. The solicitor held his deposit in relation to a commercial transaction for a period of three months. The deposit was 25k. The client didn’t know that he could have asked for the interest accrued on the money whilst it sat in the solicitor’s client account and the solicitor didn’t offer it to him.

If the solicitor holds your money in his client account, then he doesn’t always have to pay interest to you. In particular, there’s no requirement for him to do so if the sum is 20 pounds or less.

No interest is payable to you if the money held doesn’t exceed the following amounts and times set out below;-

1,000 pounds for less than 8 weeks.
2,000 pounds for less than 4 weeks.
10,000 pounds for less than two weeks.
20,000 pounds for less than one week.

If this guideline is exceeded, then you are entitled to ask for interest to be paid to you.

If more than 20,000 pounds is held for less than a week, then although the guidelines say generally that interest doesn’t have to be paid, this is only if it is fair and reasonable not to do so in the circumstances of the case. Discretion has to be exercised by the solicitor in the client’s favour however.

New regulations apply to replacement windows and doors installed since 1st April 2002. Basically, all replacement windows, rooflights, roof windows and glazed doors (more than 50% glass) will have to comply with the FENSA Regulations/new Building Regulations.

Either a FENSA Certificate or Building Regulation Approval/Completion Certificate should be available.

If you’re buying, you need to ask the seller whether there are any such replacements. If so, do they have a FENSA Certificate/Building Regulation Approval? Whatever their answer, tell your conveyancing solicitor, as this document is now required by law. The solicitor can ensure that it is available and that you will get the original Certificate on completion. If it is not available, then remedies such as indemnity insurance or retrospective building regulation aproval can be obtained.

If you’re selling a property and you’ve recently had replacements made, then find your Certificate, because the buyer’s solicitor is bound to ask for it. If you had a FENSA Certificate and you’ve lost it, a replacement can be obtained from the FENSA website at a cost of 10 pounds. Obtaining this sooner rather than later will avoid delays in exchange of contracts. If you didn’t get a FENSA Certificate or Building Regulation Approval, then you need to make sure that you tell your conveyancing solicitor. As indicated above, it is usually possible for you to either pay for an insurance policy to cover the buyer or to contact the Council for retrospective building regulation approval. If you use the latter option though, be aware that if retrospective approval is refused, you cannot then get insurance, because the insurance company will consider the Council as being notified of the breach and therefore likely to take enforcement action against you.

You can find more information from the Building Control Department of your local Council or by visiting www.fensa.co.uk.

Since the implementation of the Land Registration Act 2002, all paper deeds have been “dematerialised”. All this means is that instead of being kept on paper, which can easily be lost, the deeds are recorded electronically at HM Land Registry on a register. This means that you might not actually get any deeds after completion, you might just get a copy of the new register showing you as owner. This doesn’t necessarily mean that your conveyancing solicitor is holding anything else, he may just have no other relevant papers to give to you, sundry title deeds and searches may not be available nor do you really need them for anything other than historical interest.

The electronic register can be accessed by anyone, it is a public register. If your neighbours want to get a copy of your deeds to see how much you paid when buying your house, (and vice versa) then they can do. If you want to get a copy of your deeds, (or anyone else’s for whatever reason) visit www.hmlr.gov.uk and click on Land Register Online, coloured blue on the right hand side of the home page. The service costs from 3 pounds.

Is the conveyancing solicitor initially providing you with an estimate of costs, or a quotation?

Of course, when you’re buying a house or selling a house, you’re going to want to know how much your conveyancing solicitor is going to charge you to deal with the matter.

There is a marked difference between an estimate and a quotation.

A quotation is a statement of how much the conveyancing solicitor’s costs will be. This means that the conveyancing solicitor cannot then increase his charges to you in the future if the matter is prolonged or complicated. He can however ask you to pay for extra disbursements needed that were previously unforeseen. The disbursements are fees that are not paid to the conveyancing solicitor, they are paid by the conveyancing solicitor on your behalf to a third party, e.g. search fees.

An estimate is just that. The conveyancing solicitor does not know exactly how the transaction will proceed so he might reserve the right to increase his fees during the transaction if it becomes unduly complicated or prolonged. He should still notify you of this in advance.

Bear in mind that the conveyancing solicitor should always be willing to provide you with the details in writing, whether or not he is providing you with an estimate or a quotation, after you make the initial enquiry by telephone. If they won’t do this, I would question why they will not do so. Is it because they don’t want you to be able to compare like for like fees? Costs should always be separated from disbursements.

Remember to ask when you call the solicitor’s office what the actual conveyancing solicitor’s costs will be and what the total amount of the disbursements will be. Then even if they won’t provide the figures to you in writing until you instruct them, you can still compare the costs and disbursements with other firms.

In any event, when you instruct a solicitor to proceed, he should always provide you with full details of the costs and disbursements in writing.

Be aware that some conveyancing solicitors will add extra fees in on top of their own usual fees, often for work that in my opinion should be included in their actual costs. For example, I have seen some conveyancing solicitors in a written quote indicate that their costs would be say 400 pounds, but they added a fee under the disbursements (remember these should only ever be third party fees) for them to prepare the Stamp Duty Land Tax Form on your behalf! In my opinion, the fee for preparing this form should be included in the allover conveyancing solicitor’s fees since it is a task undertaken by the firm, but by doing it this way, it makes their solicitor’s costs look cheaper.

The best way to make sure you are getting a good deal when getting quotations for buying a house or selling a house, is to insist on having a quote in writing. If they’re not willing to do that, forget it. You can only properly compare and check that you are getting like for like quotations if you have it in writing in front of you.

If there’s anything you don’t understand or want to ask about, then don’t hesitate to call the conveyancing solicitor’s office for an explanation! If they can’t or won’t explain this to you, be very wary about instructing them to deal with a case for you, as they’re likely to have the same attitude when you get further down the line.