IAG Real Property Group Questionnaire – England and Wales
Q1. What type of ownership can I have? (e.g. of land and buildings, apartments. Whether the land and
buildings on the land have to be owned by the same party. Is title freehold or leasehold?)
There are two estates in land recognised under the law of England and Wales.
Freehold: A freehold estate (a fee simple absolute in possession) is an interest to hold land in
perpetuity (forever). Buildings form part of the land itself and, therefore, the owner of the
freehold will also own all the buildings on the land. It can also include the soil beneath the land
and the airspace above it.
Leasehold: A leasehold estate (a term of years absolute) is an interest in land held for a specified
number of years. Leases may include all buildings on the land or (typically for buildings let in
parts to more than one entity) only the internal space and surfaces of the floors and walls (i.e.
excluding the structure and common parts). In the latter case, the landlord retains the
responsibility for the structure and common parts and these may be managed under a service
charge regime.
Leasehold interests come in two distinct categories.
Long leases are typically for terms of 999, 125 or 99 years and are granted at a premium and for
a low annual rent.
Short/occupational leases are typically for terms of less than 25 years for commercial property
and not less than 6 months for residential leases. In each case, the tenant typically pays an open
market rent but no premium. Such leases are more restrictive in nature to protect the value of
the investment/superior interest (i.e. the freehold or long lease) out of which they are granted.
There is an alternative form of freehold ownership, namely commonhold, introduced in 2004. It
is suitable for units in multi-occupied buildings or estates. The unit holders own the freehold
and take part in the management of the common parts which are vested in a commonhold
association. The rules are complex and there has been very little take up of it in the market.
Q2. What structures are commonly used to buy or invest in real property? (e.g. property companies,
partnerships, real estate property companies, private individuals)
Conventional limited companies, partnerships, other corporate vehicles and private individuals
can all own real property. In principle, there are no restrictions on the types of entities that can
own or occupy real estate
There is no prevalent structure for holding real property. Private individuals commonly buy
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residential property in their own names.
Up to four entities may jointly own the legal interest (i.e. freehold or leasehold) in land. If more
than one entity holds the legal interest, they hold it on trust for any number of beneficiaries.
Where a corporate vehicle owns real property, its shares may be transferred according to the
laws applicable for that entity (as an alternative and indirect means of disposing of the
property). Note that in relation to leasehold properties, it is uncommon for the lease to contain
change of control provisions that may restrict a property sale by way of a share transfer.
Q3. How can I finance the purchase? (i.e. What are the most common forms of security granted over
real property to raise finance?)
The most common form of security granted over real property to raise finance is a mortgage. A
mortgage is a legal charge created by deed over freehold or leasehold property and is protected
by registration at the Land Registry, a public register open to inspection. The borrower has the
right to redeem the mortgage at any time by repayment of the loan, interest and other relevant
costs as may be specified in the loan agreement.
Q4. Are there any restrictions on foreign ownership or occupation of real property or on foreign
guarantees or security?
There are no restrictions on foreign nationals buying property in England and Wales. However,
owning property in England and Wales does not confer a right of residence.
Foreign companies enjoy the same rights that they have in their country of incorporation.
Therefore, if a company is capable of acquiring real property under the laws of the country in
which it is incorporated, this will also apply in England and Wales.
There is no legal restriction on the giving of foreign guarantees or security for the performance
by others of obligations relating to real property.
Q5. What costs are normally paid by the buyer and by the seller?
Buyer's Costs
Agent's costs - the margins can vary significantly but historically, agents' fees (on a successful
acquisition) at the rate of 1% of the purchase price for commercial property and 1½-2% for
residential property are not uncommon.
Land Registry fees up to £920.
Other costs include legal fees; the costs of valuation and for building, measurement,
environmental and other surveys; costs of searches of the local authority/local land charges
registers and utility undertakers; (and, where finance is required, arrangement fees for loans).
Seller's Costs
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Agent's costs - based on commission, being a percentage of the sale price on a successful sale.
Q6. What taxes are payable on the sale and purchase of real property and by whom? What are the
rates? (e.g. VAT, stamp duty, transfer tax, real estate tax?)
Stamp Duty Land Tax
A purchaser pays SDLT on the purchase price/premium paid for the property. Various
exemptions and reliefs apply but typically, the following rates apply:
Below a purchase price of £125,000/150,000
(respectively for residential/commercial properties):
nil
Between £125,000/150,000 and £250,000
1%
Between £250,000 and £500,000
3%
Above £500,000
4%
There will be a new SDLT rate of 5% payable on residential properties purchased for £1,000,000
or more, effective from April 2011.
For leases, SDLT is also payable on significant rents (for both residential and commercial
property) at the rate of 1% of the net present value of the aggregate ascertainable rents payable
over the whole term (less £125,000/£150,000) discounted at a rate of 3.5% per annum.
Stamp Duty Land Tax is also payable on any VAT (20%) paid on the purchase price and/or rents.
VAT
The supply/disposal of land is typically exempt from VAT.
However, exceptions apply e.g. in the case of new build properties or where the owner
expressly opts to charge VAT.
Special rules apply where the sale is a "transfer of a going concern" e.g. on the sale of an
investment property let to occupational tenants.
Stamp Duty
Where a company owns a property and the property is sold indirectly by way of the sale of the
shares in that company, stamp duty is paid by the buyer at the rate of 0.5% of the price paid for
the shares.
Q7. What are the main stages and documents in the sale and purchase of real property? (e.g. Are
there pre contractual negotiations, heads of agreement, non binding letters of intent, term sheets,
memorandum of understanding, sale contract completion/transfer? Answer in short bullet points)
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Heads of terms are negotiated by the property agents.
Term sheets for financing agreed between buyer and funder.
Lock-out: Buyers may be given a period of exclusivity. The seller takes the property off the
market and the buyer is given a period to reach exchange of contracts before the seller may
recommence marketing or other negotiations with third parties. Neither party is contractually
committed to sell or buy the property at this stage.
Contract races: As a matter of protocol, the seller's lawyers may not send out a sale contract to
more than one prospective buyer's solicitors unless each buyer is aware of the situation.
Separate rules apply to auctions.
Investigation of title:
Searches of the registers of title at the Land Registry where the property is registered.
Where the land is still unregistered, a separate form of investigation is required by inspecting
the original title deeds. All significant property acquisitions are now compulsorily registerable at
the Land Registry upon completion.
Investigation of planning permissions and the local land charges and local authority registers,
making industry standard enquiries, carrying out surveys, reviewing charges and encumbrances
affecting the property, and making searches of the utilities providers.
Contract negotiation and exchange: the sale and purchase agreement is negotiated and agreed
between the seller's and the buyer's solicitors following which contracts are exchanged. A
deposit of 10% is usually paid by the buyer on exchange. There is no need for a notary to be
involved in relation to the transaction.
There is often a period of time between exchange of contracts and actual completion of the
transaction e.g. to give the purchaser enough time to raise and draw down any finance needed,
for the seller to vacate the property and/or, in relation to residential property transactions, to
enable a chain of sales to be set up and completed at the same time.
Completion: Completion of the purchase commonly occurs upon payment of the purchase price
on the date agreed in the contract. If the buyer defaults, the seller may be entitled to forfeit and
keep the deposit (upon expiry of a notice served by the seller on the buyer requiring completion
within a short period thereafter).
Stamp Duty Land Tax: The purchaser must pay any SDLT generally within 30 days of completion
of the transaction.
Registration: Legal ownership passes (effective from the completion date) upon actual
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registration of the transfer at the Land Registry.
Q8. When are the parties legally bound?
Upon exchange of contracts. A contract for the sale and purchase of land needs to be in writing
to be valid but there is no need for notarisation.
Q9. When is title to the property transferred? What are the formal legal requirements? (e.g. in
writing and signed by the parties? Notarised?
Legal title passes (effective from the date of completion) when the buyer is registered as owner
at the Land Registry. There is no need for a notary to be involved in relation to the transaction.
A transfer of the property must be by deed (a written document which requires certain
formalities to be observed). The original transfer, a certified copy and evidence of payment of
SDLT (where chargeable) is sent to the Land Registry with the application for registration and
fee.
Registration of the transfer of ownership usually takes place a few weeks after completion. The
buyer obtains protection to be registered as owner by obtaining a clear priority search result
from the Land Registry in advance of actual completion of the purchase.
Q10. Does the seller have any statutory or other liability to the buyer after the sale of the property?
Without express provisions to the contrary, the principle of "caveat emptor" (buyer beware) will
generally apply and it is up to the buyer to satisfy itself as regards the seller's title/ownership
and the marketability of the property.
The seller usually excludes liability for defects in the building and it is up to the buyer to survey
the property and satisfy itself as to the quality of its construction and to identify defects.
However, a seller typically transfers a property with various title guarantees (subject to certain
qualifications) including that the seller will do what is necessary to procure that the buyer is
registered at the Land Registry as owner; that it is given the same quality of title as the seller;
and that the property is sold free from encumbrances and charges other than those to which
the seller does not know about or to which the sale is expressly made subject in the contract.
Property sales are customarily made subject to matters discoverable upon inspection and/or
which were disclosed in the investigation of title process and/or are matters of public record.
In respect of new build properties, the seller will often procure guarantees or warranties from
the contractor and the design team who were appointed in connection with the development.
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