A property transaction refers to the process of buying or selling a property. It involves various legal and financial steps to transfer ownership from the seller to the buyer. Here is an overview of the key stages involved in a typical property transaction.
Pre-contract and Exchange of Contract
Property Listing: The seller, often with the assistance of a property agent, puts the property on the market. The seller and buyer enter into an informal arrangement, which does not have any legal effect.
Instructing Solicitors: Both the seller and the buyer engage their respective solicitors or conveyancers to handle the legal aspects of the transaction.
Survey and Finance: The buyer arranges for a property survey to assess its condition. Additionally, if necessary, the buyer makes arrangements for financing the purchase, such as applying for a mortgage.
Draft Contract and Deduce Title: The seller's solicitor prepares the draft contract and deduces title, demonstrating that the seller legally owns the property and has the right to transfer it. The seller's solicitor sends the draft contract package to the buyer's solicitor.
Title Investigation: The buyer's solicitor investigates the title of the property to ensure there are no legal issues or restrictions that could affect the buyer's interests.
Searches and Enquiries: The buyer's solicitor conducts pre-contract searches and enquiries, including searches with local authorities and other relevant parties to gather information about the property. The buyer's solicitor also raises any necessary requisitions or specific questions on the title with the seller's solicitor.
Seller's Replies to Enquiries: The seller's solicitor responds to the buyer's enquiries and requisitions on title, providing appropriate information and addressing any concerns raised.
Amendments to Draft Contract: If necessary, the buyer's solicitor proposes amendments to the draft contract. Both solicitors work together to reach an agreement on any amendments.
Buyer's Finance Check: The buyer's solicitor verifies that the buyer has the necessary financing in place to proceed with the purchase. The buyer's solicitor also ensures that any conditions attached to the finance are met. The buyer's solicitor reviews the buyer's survey report as well.
Contract Report: The buyer's solicitor prepares a contract report for the buyer, summarising the key details and terms of the contract.
Exchange of Contracts: Once both parties are satisfied with the contract terms, the buyer and seller each sign identical contracts. The solicitors then exchange the signed contracts, usually over the telephone following a formula set by the Law Society. At this point, the buyer's solicitor pays a deposit to the seller's solicitor. This marks the first time a legally binding agreement is formed, and both parties are obligated to adhere to the terms of the contract. Withdrawal or departure from the contract terms can have legal implications.
Post-exchange of Contracts and Pre-completion
Preparation of Purchase Deed: The buyer's solicitor prepares the necessary purchase deed, if it hasn't been provided earlier with the draft contract. The purchase deed is a legal document that, once properly executed and dated, transfers the legal ownership of the property to the buyer.
Completion Information and Undertakings: The seller's solicitor responds to the buyer's solicitor's questions in the Completion Information and Undertakings form. This form includes various details and undertakings regarding the property, such as outstanding charges, warranties, and other relevant information. The solicitors typically agree to follow the Law Society's Code for Completion by Post, which governs the completion process.
Financing Confirmation: The buyer's solicitor checks the financing arrangements and ensures that the funds required for completion are in place. The buyer's solicitor also requests the necessary funds from the lender within the specified timeframe to ensure a smooth completion.
Pre-Completion Searches: The buyer's solicitor conducts pre-completion searches, which may include searches with relevant authorities or agencies to obtain up-to-date information on the property. These searches help identify any issues that could affect the transaction or the buyer's interests.
Billing and Commission: Each solicitor provides his respective client with a bill of costs and a statement of account, outlining the fees, disbursements, and any outstanding amounts. Additionally, the seller's solicitors ask the selling agents for their commission account, ensuring that all commissions owed are settled appropriately.
Completion and Post-completion
Completion Funds: The buyer's solicitor ensures that he has sufficient cleared funds for completion. This typically involves arranging a direct credit transfer through the bank system to send the required amount to the seller's solicitor as per the completion statement.
Discharge of Seller's Mortgage: If the seller has an existing mortgage on the property, his solicitor takes the necessary steps to discharge the mortgage. Once the mortgage has been paid off, the seller's solicitor provides evidence of the discharge to the buyer. The seller's solicitor also settles any outstanding fees or commissions owed to the selling agent and deducts his own costs and disbursements. The net sale proceeds from the transaction are then paid to the seller.
Stamp Duty Land Tax (SDLT): The buyer's solicitor submits the required SDLT forms to His Majesty's Revenue and Customs (HMRC) and pays any applicable stamp duty. SDLT is a tax imposed on property transactions above a certain threshold. The buyer's solicitor ensures that the SDLT obligations are met in accordance with the law.
Registration of Title: After completion, the buyer's solicitor applies for the registration of the buyer's ownership of the property at the Land Registry. This involves submitting the necessary documents, including the transfer deed and other relevant paperwork. The buyer's solicitor receives the Title Information Document from the Land Registry, which confirms the registration of the buyer's title. They review the document and handle any other appropriate title documentation as needed.
It is important to note that variations and additional steps may apply depending on the specific circumstances of the transaction, such as leasehold properties or new builds. The Law Society of England and Wales has formulated the Conveyancing Protocol to provide a framework for solicitors and licensed conveyancers to follow when carrying out conveyancing transactions.
You can learn more about this topic with our Property Law notes.