Understanding Terminology used in a Conveyancing Transaction
Purchasing a property is potentially the most expensive and stressful experience that you will have to deal with.
Whether you are buying or selling your own home or an investment property, the conveyancing process can be confusing and, at times, intimidating.
In this article, I will explain some of the terminology which you will come across during a conveyancing transaction. Hopefully, this will help you understand the process and let you know what to expect.
Freehold and Leasehold
A freehold property essentially means that you own the property outright and for most people, this is the preferred option. You do not pay any annual ground rent, you don’t have another party controlling matters such as maintenance and you will be solely responsible for the entirety of your building.
If the property you are buying is leasehold, you will own the property for the term specified in your lease.
Your lease will define you as the ‘tenant’ and will make reference to your ‘landlord’ who owns the freehold title out of which your lease has been granted.
Your lease will specify such things as any rights granted to you, covenants which you must abide by and will identify your property with reference to a plan.
You will be required to pay an annual ground rent, and may also need to contribute towards maintenance costs of the building as a whole and any common parts which is known as a service charge. Your landlord may be responsible for putting buildings insurance in place and your lease will specify the contribution you must make to the cost of the policy.
Searches and Surveys
During the course of your purchase, your solicitor will undertake searches on your behalf and recommend you arrange a survey to be carried out by a suitably qualified professional.
If you are buying your property with the assistance of a mortgage, your lender will require a full set of appropriate searches to be carried out on your behalf. If you are buying the property with cash, searches are discretionary but recommended. It is important that you discover as much information about the property before you commit, so that you can make an informed decision about whether to proceed.
Your solicitor will undertake those searches which are necessary, depending on the location of your property. This will always include a local authority search, a drainage and water search and an environmental search.
Some additional searches may be necessary, for example, if you are purchasing a property which lies within a former mining area, a ground stability report will be required.
Your solicitor’s role is to ensure the legal title to your property is good, marketable and acceptable to you and your mortgage lender. Solicitors are not qualified to advise you on surveying matters so we would strongly recommend you instruct a suitably qualified surveyor to inspect the property.
There are different types of surveys available to you, and you should discuss with your surveyor which type meets your requirements and which report should be undertaken.
If you are selling a property, your solicitor is likely to contact you at some point during the transaction to let you know that they have received some enquiries from the buyer’s solicitors. Enquiries are a list of questions which the buyer’ solicitor has raised to either obtain further information or to ask for information which hasn’t been provided yet. If there are any title issues, these will be raised as part of the enquiries.
When selling, your solicitor will help you reply to these enquiries and to obtain any certificates or other documents which the buyer’s solicitors are asking for.
When you’re buying a property, you should let your solicitor know if there is anything specific which you would like them to raise with the seller’s solicitors. Once your solicitor has received replies to enquiries, they will send you a purchase report to summarise all of the information they have gathered. You can still raise further enquiries up to the point of exchange of contracts.
Exchange and Completion
Exchange of contracts takes place once all of the parties in the chain have carried out all of their searches and enquiries, they have their mortgage offer and balance funds in place, and they have signed all of the relevant documentation.
A completion date also must have been agreed between the parties in the chain as the completion date forms part of the legal contract.
From the point of exchange, you will be legally bound to proceed with the transaction at the agreed price and on the agreed completion date. If you are buying a property, the risk for buildings insurance will pass to you on exchange so you must make sure that you have your own insurance in place.
Completion means the day on which the monies are transferred from the buyer’s solicitors to the seller’s solicitors and the keys are handed over. It is very important that you don’t hand any keys direct to the buyer until your solicitor has confirmed that the full balance monies have been received. Often people find it easier to drop the keys off at the estate agent’s office safe in the knowledge that the agents will hand over the keys to the buyer once completion has taken place.
If either party fails to complete on the day which has been agreed then they will incur financial penalties, so you need to be absolutely sure that all of your funds are in place if you are buying a property, or if you are selling that you will be able to move out of the property and clear out everything which is not included in the sale by 2 pm on the day of completion.
Exchange and completion can happen on the same day, but it’s preferable for exchange to take place a few days or sometimes even a few weeks before completion is due to take place so that people can book removals, arrange storage etc.
Please remember that the transaction is not legally binding on either party until exchange has taken place, which unfortunately means that someone could still back out of a deal or lower their offer right up until the point of exchange. If you’re in rented accommodation, please don’t hand your notice in until you know that contracts have been exchanged. Similarly, if you are moving into rented accommodation, it’s not advisable to sign a rental agreement until contracts have been exchanged on your sale and you know it’s definitely going ahead.