This note explains the usual legal process and steps that need to be taken when buying property in England and Wales.
The following guidance is not intended to be exhaustive or replace detailed discussions with your solicitor. Please do not hesitate to contact us about anything that requires further explanation.
Pre-contract
Due diligence and title investigation
The first step in purchasing your property will be a detailed investigation of the title. We will obtain copies of the registered title to the property from the Land Registry and review the same for any issues or defects, including whether there are any restrictions or registered charges which need to be dealt with. The information held by the Land Registry on any plot of land is guaranteed by the UK government.
Searches
Searches will be carried out at the outset of the matter. The fees for the searches are usually in the range of £500-£1,000. The usual searches carried out include:
- Local Authority search
- Environmental search
- Drainage and water search
- Chancel repair search
- Highways search
Other searches may also be relevant depending on the location of the property, its intended use and any development proposals for the property. We can also search against neighbouring properties if required as searches only relate to the specific property searched against.
Any material adverse results will be considered and further searches and/or investigations may be required or indemnities be put in place. Some risks may also be covered by insurance.
Please note that all searches are desktop searches only, i.e. without any physical inspection of the site, and only give a snapshot as at the date of the search.
Physical inspection
It is recommended that structural surveys, environmental investigations and valuations are carried out by relevant specialist surveyors. Any issues that arise can be raised with the seller and dealt with accordingly.
Planning
You may require planning permission for a change of use, alterations or additions to the property. It can take some time to obtain planning permission, so if planning permission is needed, this should be dealt with well in advance of any purchase. A contract for the sale and purchase of property can also be conditional on planning permission having been obtained.
Community Infrastructure Levy (CIL)
CIL is a charge which can be levied by local authorities on all new developments in their area, including new homes, with the aim of supporting local infrastructure. If you intend to carry out any development work you may be liable to a CIL charge. Authorities wishing to charge CIL must prepare a charging schedule that sets out the CIL rates in their area. The rates of CIL may vary from area to area and can be set on a geographical basis, by reference to the intended use of the development, the gross internal area of the development or the intended number of dwellings to be constructed.
Finance
You will need to ensure that you have adequate finance in place at the outset of the transaction. If a loan is taken out to finance the purchase of the property, the bank will usually require a first legal mortgage over the property as security. The bank will need to be satisfied as to the adequacy of the security it will be taking. The bank may instruct the buyer’s lawyers to act on their behalf, or the bank may be separately represented.
Enquiries
Pre-contract enquiries are the questions that the buyer asks the seller as part of the property investigation. Standard forms of enquiries are frequently used in commercial transactions (Commercial Standard Property Enquiries CSPE), but additional enquiries may need to be raised following the results of any searches, surveys or other investigations.
Exchange of contracts
Deposit
A deposit of 10% is usually payable on exchange of contracts and before any bank loan can be drawn down. Sometimes, no deposit or a deposit of less than the usual 10% can be agreed.
Exchange of contracts
Until exchange of contracts negotiations between the parties are not binding and any party can withdraw from the transaction for any reason. If the seller withdraws before exchange of contracts the buyer has no remedy against any losses or costs which the buyer may have incurred.
When contracts are exchanged, the beneficial interest in the property passes to the buyer provided that the contract is unconditional. The legal estate in the property remains vested in the seller until completion.
At exchange, the completion date will be set and the deposit will be handed over to the seller's solicitors to be held in their client account until completion.
Insurance
Once contracts are exchanged, the buyer has an insurable interest in the property and risk in the property usually passes to the buyer. Exchange of contracts therefore marks the point at which the buyer should insure the property.
Completion
Pre-completion searches and requisitions
An official search at Land Registry will be carried out to obtain priority for the transfer and/or the mortgage. Requisitions on title will be raised with the seller's solicitor which may also include an undertaking to discharge any existing mortgage over the property.
Completion
On completion, the balance of the purchase price will be paid to the seller and legal title of the property will pass to the buyer.
Post-Completion
Registration
After completion, the transfer and any mortgage will be registered at the Land Registry.
Land Registry fees
The Land Registry fees for a transaction valued at over £1,000,000 range between £455 and £910.
Value Added Tax (VAT)
The starting position is that all property is not subject to VAT.
An owner of commercial property may choose to elect a commercial property for VAT. If so, VAT will be payable on the purchase price of the property. The current rate of VAT in the UK is 20%.
VAT is not chargeable on residential property.
Stamp Duty Land Tax (SDLT)
Stamp Duty Land Tax is payable within 14 days of completion of a purchase. Late payment will incur automatic penalties and interest charges. To ensure timely payment, the funds for SDLT are usually collected from the buyer at completion.
The SDLT rates for commercial property are charged at 0% up to £150,000, at 2% on the next £100,000 and at 5% on anything over and above that amount.
The SDLT rates for residential property are charged at 0% up to £250,000, at 5% on the next £675,000, at 10% on the next £575,000 and at 12% on anything over and above that amount (i.e. above £1.5m).
Higher charges may apply depending on the identity and tax position of the buyer and the number of transactions.
In the case of a commercial property SDLT will need to be paid on the purchase price and any VAT that is charged on the purchase price.
SDLT is a complex area of law and specific advice may be required depending on individual circumstances, for example, in relation to multiple-dwellings relief or non-domicile acquisitions.
Other taxes
You will be responsible for any corporation tax payable if your purchase is made through a limited company. You may also need to consider capital gains tax. We would be happy to refer you to suitable tax advisors.
Professional fees and disbursements
As well as the Land Registry and search fees, you will also be responsible for any legal fees and disbursements including those of any other professionals involved, such as a surveyor or lawyers acting for the bank. A fee estimate for such costs is usually provided at the beginning of the transaction.
Timeline
The timing depends on the nature and complexity of each transaction. The estimated timing for a straightforward real estate transaction would be between 2-3 months.