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Do you know the difference between leasehold and freehold? What is a declaration of trust?

The legal terminology used when buying or selling a property can often be confusing, especially if you are not familiar with it. To help guide you through the process we’ve defined some of the most common terms used in property law.

Please note that these definitions, whilst a helpful guide, do not constitute legal advice. Should you have any questions or concerns, please contact one of our specialist property lawyers.

Bankruptcy Search – A bankruptcy search will need to be made in respect of each buyer and any other individual contributing to the purchase price either by way of gift or loan, both at the outset of the transaction and once contracts are exchanged. The Bankruptcy Search Fee is currently £2 per name searched against.

Cash Buyer – A person who already has the purchase money saved or deposited in a bank or building society account is a GENUINE cash buyer. A person who can pay for the property with the proceeds from the sale of their own property and does not need a mortgage is NOT a genuine cash buyer.

Chancel Repair Liability – Due to a change in the law which came into effect in October 2013, there is an ever-decreasing possibility that the property you purchase may attract a liability to contribute to the costs of chancel repairs in churches in and around the locality of the property. As part of the process of checking the title to the property before we exchange contracts we will see if chancel repair liability might be relevant to the property you are purchasing. If it appears that there may be a risk of chancel repair liability we will then report back to you and discuss with you what steps we should then take.

Completion – This is when a sale / purchase is finalised and is usually your moving date. Monies are passed over and the buyer has the legal right to the property.

Covenant – A restriction or condition affecting the property which must be complied with.

Conveyancing – The legal transfer of property from one owner to another.

Declaration of Trust – A document setting out in what proportions joint owners own the property and what will happen to the proceeds of sale once the property is sold.

Deeds – These are all of the legal documents relating to ownership of the property. These are generally of limited relevance nowadays, as the ownership of the vast majority of properties is electronically registered at the Land Registry.

Deposit – This is a part payment of the agreed purchase price paid by the buyer on exchange of contracts. Most contracts provide for the buyer to pay 10% of the purchase price. If you feel you will be unable to pay a full 10% deposit you must let your conveyancer know at the beginning of the purchase process so that they can try to make other arrangements for you.
This can frequently be arranged, especially where there is a chain of transactions involved. In the very rare event that a buyer backs out of the purchase after exchange of contracts, the full 10% would be forfeited.

Easement – A right over somebody else’s property, for example a right of way over an access way. Energy Performance Certificate (EPC) In England and Wales when you are selling a property you are required to provide an EPC for
that property. This gives details of the energy efficiency of the property. Your estate agent will normally arrange this for you, but if you do not have an estate agent we can advise you in this area.

The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 mean that, from April 2018, private non-domestic (and domestic) landlords must ensure that properties they rent in England and Wales reach at least an Energy Performance Certificate rating of “E” before granting a tenancy.

Environmental Search – This is intended to reveal such matters as whether the property is in an area subject to flooding, whether the property is built on contaminated land, and whether there are any other environmental considerations e.g. radon gas.

Exchange of Contracts – This happens when all necessary searches and enquiries have been satisfactorily concluded and when both parties, the buyer and seller of a property, have signed identical documents (contracts) and the purchaser has given the agreed deposit to their conveyancer/solicitor. Once exchange of contracts has been “formally” agreed, both sides are legally bound to complete the transaction.

Freehold – Buying a freehold property means that the property and the land on which it stands will be fully owned by the purchaser.

Help to Buy – A Government scheme to help first time buyers onto the property ladder. You may come across:

  • Help to Buy ISA: If you are saving to buy your first home, save money into a Help to Buy ISA and the Government will boost your savings by 25%. For every £200 you save you receive a government bonus of £50 up to a maximum bonus of £3,000. For further information see: https://www.helptobuy.gov.uk/help-to-buy-isa/how-does-it-work/
  • Help to Buy Equity Loan: With a Help to Buy Equity Loan the Government lends you up to 20% of the cost of your newly built home, so you’ll only need a 5% cash deposit and a 75% mortgage to make up the rest. You won’t be charged loan fees on the 20% loan for the first five years of owning your home. For further information see:
    https://www.helptobuy.gov.uk/equity-loan/equity-loans/

Insurance
Your mortgage lender, if you have one, will usually discuss insurance with you. There are 2 types of insurance that you may need:

  • Buildings Insurance: covers the bricks and mortar of your home – this should be at least as much as is necessary to rebuild the property if there is a disaster.
  • Contents Insurance: covers your household contents. You will need to work out how much cover you need to replace your belongings.

A buyer of a freehold property should arrange insurance cover for their new property from the date of exchange of contracts when the purchase is legally binding. However, if you are buying a leasehold property the landlord will already have buildings insurance in place so you will not have to arrange this. You will still need contents insurance from when you move your belongings in.

Land Registry Search – This is a search carried out before completion to check that there have been no changes to the property title and to enable us to register you as the new owner of the property following completion. The Land Registry Search Fee is currently £3.

There are other searches available and we can discuss these with you in detail if we consider they are appropriate.

Leasehold – Buying a leasehold property means that your right to hold or use the property is granted by a lease from the freeholder for a fixed number of years. Ground rent on the lease is paid annually by the leaseholder to the freeholder. A service charge is also often payable. This is the contribution determined by and paid to the freeholder towards the cost of maintaining the building and/or estate that the property is in.

Leasehold – Buying a leasehold property means that your right to hold or use the property is granted by a lease from the freeholder for a fixed number of years. Ground rent on the lease is paid annually by the leaseholder to the freeholder. A service charge is also often payable. This is the contribution determined by and paid to the freeholder towards the cost of maintaining the building and/or estate that the property is in.

Lender – This is the bank, building society or other financial institution with which you arrange your mortgage. The lender is sometimes referred to as the Mortgagee. As the borrower you will sometimes be referred to as the Mortgagor.

Local Authority Search – Apart from local road proposals affecting land within 200 metres of the property, the Local Authority search will only give information about the property itself, concerning the effect of Town & Country planning legislation, liability for road charges, compulsory purchase or demolition orders, financial orders and other matters which could vitally affect it.

The search will not give information about other property, for example the development of neighbouring land. If you are concerned about the possibility of a development or any matters relating to other property or land in the neighbourhood then you should make enquiries yourself of the local authority before you consent to the exchange of contracts on your purchase. We can explain how this can be done. Alternatively there are specialist agency companies who can carry out these enquiries for you for a separate fee to that agency – if you would like further details please let us know.

Mortgage – This is a loan specifically to buy a property and secured on that property. Most people will need to take out a mortgage when purchasing a property.

Simultaneous exchange of contracts and completion

This is where contracts are exchanged on the same day that you complete your legal sale or purchase of property. This is not recommended unless absolutely necessary, as until contracts are exchanged either party can change their mind, leaving either seller or buyer with no legal recourse if the other party changes their mind at the last minute.

A simultaneous exchange of contracts and completion cannot take place where a Help to Buy
equity mortgage is being obtained.

Source of Funds – This is where the purchase money is coming from, e.g. a mortgage, proceeds of sale of an existing property, savings, a gift, a private loan, from parents, or any combination of the above.

Stamp Duty – Stamp Duty or Stamp Duty Land Tax (SDLT) asit is properly known is a government tax charged on land and property transactions in the UK. It is paid by the purchaser and is calculated based on the purchase price.

Water & Drainage Search – This type of search will enable us to find out whether the property is connected to the mains drainage and mains water supply. It will also show whether there is a mains sewer passing through the garden of the property and if the property is on a metered water supply.

Will – A Will is a legal document that allows a person to make decisions about how his or her estate will be managed and distributed following their death. As a homeowner it is advisable to make a will or consider whether an existing will needs altering