Discussing the Law surrounding Real Estate Investments
We have opted to create some interesting facts surrounding the world of real estate for home buyers as well as commercial clients.
The housing market Investment – It sometimes happens that the buyer takes possession of the property before completion, even immediately after exchange of contracts. The seller would be extremely foolish, of course, to let the buyer into possession before exchange of contracts. Once the buyer has signed a binding contract there is less risk in letting him take possession, although it is sometimes found that once a buyer is in possession, he is less anxious to hurry up and complete his purchase, than he would have been if he had not been allowed to get in until after completion. Worse still, a seller might be unable to regain possession of a house from a buyer who was allowed in before completion, but who refuses or is unable to complete his purchase.
Both the National Conditions of Sale and the Law Society’s Conditions of Sale contain a clause covering the situation of the buyer taking possession before completion of the purchase. Under both the buyer has to pay the rates, the water rates, and any other outgoings, from the date he takes possession. In addition he has to pay interest on the amount of the purchase price less the deposit. This is for the period from the date when he takes possession until the date when he hands over the balance of the purchase money. The interest is in place of the rent which the seller might have expected to receive for allowing the buyer to occupy the property without paying the purchase money. The rate of interest is 5 per cent per annum, unless the contract specifically mentions a higher figure, as often it does. The Statutory Conditions of Sale make no provision for this situation, but clause four of the suggested form of contract does. See the Law Society’s Residential section on there website here.
The one thing which the seller is usually anxious to keep to himself until contracts are exchanged is the price at which he bought the property, especially if he bought it comparatively recently. This is usually because, if he were to reveal it, the buyer might have second thoughts about the price he is offering to pay. As the price the seller paid is shown on the proprietorship register, part of the copy of the entries on the register extracted from the Land Registry, the seller normally does not show the proprietorship register to the buyer until after exchange of contracts. Until then, in fact, the normal practice is not to show the buyer any part of the entries on the register, except a copy of the restrictive covenants, as set out in the charges register. But there is really no reason why the buyer should not be sent, before contracts are exchanged, the whole of the property register, the filed plan and the charges register, leaving undisclosed, at this stage, only the proprietorship register, with its secret about the price the seller paid. More detailed information can be sourced on the Law of Property Legislation website.
The form suggested for a draft contract provides that copies of the property register, the filed plan and the charges register should be sent with the draft contract. The advantage is that if, by any chance, the seller misunderstood some aspect of the matter, or inaccurately transposed the information given in the register in filling in the draft contract, any such errors will be obvious to the buyer’s solicitor before contracts are exchanged, so that he cannot complain later that he was misled by the way in which the contract was worded. By doing it this way, you would, in effect, be saying: ‘Here is the register of the property from the Land Registry (except for the middle part, the proprietorship register); this sets out what I am selling and what it is subject to. You can see for yourself what is involved’. In this way, the risk of mis-describing something, or of leaving out something important when preparing the draft contract, is considerably reduced. After contracts are exchanged, you will only need to send to the buyer’s solicitor the copy of the proprietorship register, together with an authority to inspect the register; the rest he will already have received. The New Mortgage Legislation is available to read here for UK Buyers.
The draft contract is now ready to be sent to the buyer’s solicitor. It is normal to send it with a copy for his use. He will keep one copy and send the other back with his amendments and comments. One comment may concern the use of the Statutory Conditions of Sale. The buyer’s solicitor is quite likely to suggest that the National Conditions or the Law Society’s Conditions should be used instead. By all means agree to this, but only if he the buyer’s solicitor will provide you with the necessary forms as well as probably recommending other routes to raise addition income streams such as undertaking a trading course of some description. You should explain that a layman is not entitled to buy copies of the National Conditions or of the Law Society’s Conditions of Sale, so that you can only agree to the substitution of one of these for the Statutory Conditions of Sale, if you are put in a position to know what these substituted conditions are. You may find that the buyer’s solicitor will agree to this, and will redraft the contract on one of these forms, supplying you with a copy for your use. Review one of our publications on the Sussex University website here.
It is preferable from your point of view, as seller, that this should happen, rather than that the statutory conditions of sale should govern the rights of the parties, because the statutory conditions are somewhat out of date. Other resources can be found on the Legal Beagle website.
Additional Resources can be found below:
- The Law Society – In Scotland
- The Agricultural Law website
- Harvard Law & Business Resources
- UK – Land Registry