SQE2 Property Law
Core knowledge areas of leasehold real estate law and practice.Procedural steps for the grant of a lease or underlease, assignment of lease. Remedies for breach of a leasehold covenant. Termination of a lease. Security of tenure under a business lease and more.
Assessment Details
SQE2 oral Interview and attendance note / legal analysis
SQE2 written Legal drafting, legal writing, legal research, case and matter analysis
Core knowledge areas of freehold real estate law and practice
SQE2 Assessment Details
Specification
Financial Services and Markets Act 2000 (FSMA)
Conduct of mainstream investment business requires authorisation by FCA
Conduct of non-mainstream investment business incidental to legal services e.g. conveyancing permitted by SRA, and
permitted by FCA under FSMA
Law Society has issued the Scope Rules, solicitors may only carry on regulated activities that arise out of or are
complementary to provision of legal services to clients e.g. conveyancing, corporate work, and matrimonial, probate, and trust
work. Essentially, non-mainstream investment business falls within the Scope Rules, but mainstream investment business falls
outside the Rules and requires authorisation from the FCA (otherwise criminal offence).
Generic advice falls outside FSMA – not a regulated activity, e.g. different types of mortgage and their suitability for client (in
your circumstances I would recommend a repayment mortgage). If client is seeking non generic advice, should refer them to
independent financial adviser authorised by FCA.
Arranging / giving specific advice about mortgages is a regulated activity requiring prior authorisation from FCA e.g. advice
about mortgage providers, mortgage products, or unless a regulated mortgage is arranged by a person who is authorised under
the FSMA or with a properly authorised financial institution, otherwise mortgage arranged by a person or with a financial
institution which is unauthorized is unenforceable without permission of the Court.
Similarly, offering specific advice on an investment product (e.g. a particular pension company in connection with a pension
mortgage) would constitute a regulated activity, for which the firm would require prior authorisation from FCA.
Professional conduct
Acting for more than one party: Remember and abide by client confidentiality requirements (no disclosure, except where
consented, required or permitted by law). In a conflict of duties, confidentiality trumps disclosure. In a conflict between
clients, you may have to stop acting but cannot reveal why.
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, Money laundering: Disclosure obligations for anti-money laundering purposes overrides duty of confidentiality. Do not “tip
off” client (criminal offence). If information contributing to suspicions come from “legally privileged circumstances” (cf. LPP
or litigation privilege), cannot disclose. Comply with Money Laundering Regulations which apply to all legal professionals
acting in any real property transaction and extend to the proceeds of any criminal activity.
Acting for seller and buyer: Generally not advisable, except for limited circumstances (gifting, transaction between related
parties, no significant risk of a conflict arising). Factors to consider include whether clients’ interests are different, ability to
give independent advice to clients may be fettered, need to negotiate between clients, imbalance in bargaining power between
clients, and whether client is vulnerable. If conflict arises, must stop acting.
Acting for joint buyers / sellers: Possible as long as no conflict exists or is likely to arise, but obtain instructions / verification
from each client individually.
Acting for lender / borrower: Generally OK to act for both borrower and an institutional lender (bank / building society) as
both parties have common intention in ensuring that property is good and marketable.
- Common for residential transactions, but not commercial transactions. There are restrictions under the SRA Guidance on
Conflict of Interests. Cannot act where: (1) There is conflict or risk of conflict, except where the two clients have a
substantially common interest. The Guidance defines “substantially common interest” as a “situation where there is a clear
common purpose in relation to a matter or a particular aspect of it between the clients and a strong consensus on how it is
to be achieved and the client conflict is peripheral to this common purpose”. (2) The mortgage is not a standard mortgage
(i.e. provided in the normal course of lender’s activities) and the mortgage is on standard terms of property to be used as
the borrower’s private residence. (3) You are not satisfied that it is reasonable and in the client’s best interests for you to
act. (4) The certificate of title required by the lender is not in the form approved by the Law Society and the Council of
Mortgage Lenders.
- If acting for both parties and a conflict arises (including if the interest is no longer common), must stop acting unless one
party consents to continue to act for the other.
- Obtain consent from borrower client (in writing) before passing on confidential information to lender, except for prima
facie cases of fraud. Where consent withheld, only disclose to lender elements of file relating to work done for them.
- Familiarise with UK Finance Mortgage Lender’s Handbook. The Handbook provides comprehensive instructions for
conveyancers acting on behalf of lenders in residential conveyancing transactions. Part 1 includes general instructions,
Part 2 includes lender specific instructions, and Part 3 includes standard instructions to be used where a conveyancer is
representing the lender but not the borrower.
Taking instructions
Seller
Obtain basic details: Name, telephone, email, current address, details of property to be sold and agreed price
Obtain evidence of identity to satisfy money laundering regulations – drivers’ license / passport for individuals, company
registration information etc. if representing company
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, Ascertain whether property owned by more than one person / joint tenants / tenants in common (registered land: check
Proprietorship Register of the title for restriction on sole owner disposition; unregistered land: consult latest conveyance to
present owners, which should state whether they are joint tenants / tenants in common). If joint, ask the other to confirm wish
to proceed with sale (cannot receive instructions through 3P per Conduct Rule).
Can let client have Property Information Questionnaire to complete and return.
Estate agents: Most sellers use an estate agent to market their properties and negotiate on sale price. Agent normally charges
seller a percentage of selling price as commission, due on exchange of contracts and paid out of sale proceeds on completion.
Ask to confirm agreed sale and purchase price, whether paid any preliminary deposit, and whether any other terms agreed.
Tell client will write to existing mortgagee, requesting deeds and asking for confirmation of loan currently outstanding. Ask
for mortgagee amount number (need mention in letter).
Buyer
Obtain basic details and evidence of identity to satisfy AML regulations: Same as above
Is there more than one buyer. If so, explain co-ownership options: Joint tenancy (buyers can own legal and equitable estate
together – right of survivorship applies (deceased’s share in property automatically passes to survivors on death, good for
married couples / cohabitees and those contributing equally to purchase price)) / tenancy in common (buyers can own
individual and transferable shares in the property – good for unmarried couples, those not in a stable relationship or have
children from a previous relationship, unequal price contributions or for business partners; will require declaration of trust
document to be prepared prior to completion (state financial contributions and share of beneficial interest in property, Land
Registry Form JO can be used to declare their interests, so there is no uncertainty as to distribution of future sale proceeds, also
advise party to make / update wills on completion).
Advise buyer to carry out survey(s) before exchange of contracts: Let the buyer beware + problems may affect purchase price,
ability to secure mortgage / require additional expense to remedy (which may be ongoing) + consider neighbouring property
(especially if property attached to neighbouring property), drainage (property served by mains drainage and maintainable at
public expense – if private, need expert’s report on condition because client will incur future costs of maintenance) and wiring
also need surveying + commercial premises need comprehensive and environmental survey + survey types (basic valuation:
establishes property’s value on open market – prospective mortgagee will normally commission this to verify whether property
charged is adequate security for proposed loan, home buyer’s valuation and survey: most popular, compromise that gives
more information but need to read carefully the small print e.g. surveyor will not inspect unexposed / inaccessible areas like
roof space or below floorboards, full structural survey: Ought in theory reveal true state and condition of property but note
any small prints – usually for high value, old property, or if client wishes to alter property structurally). If have problems, ask
for reduction in purchase price / withdraw from transaction.
Advise on stamp duty land tax (SDLT) liability (consider apportioning purchase price between land and contents where
allowed and accurate) and CGT liability for subsequent disposal.
Ensure buyer aware of deposit requirement, amount, method of holding and has sufficient funds.
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, Client care (both seller / buyer)
Costs: Must give clients the best possible information as to costs both at outset and as the matter continues, including cost
breakdowns by profit costs, VAT, disbursements etc. Estimates acceptable and usual practice (just make sure to include
everything, and reserve right to vary if transaction takes longer or becomes more complicated). Confirm fees with clients, and
any subsequent variation, in writing. Fixed fees means no variation.
Client care: Include as needed depending on client status (one off transaction, firm on retainer, regular client). Advise clients
in writing on right to complain and complaints procedure – clients’ complaints must be handled promptly, fairly, openly and
effectively. Agree services level. Explain your and your client’s responsibilities. Advise of name and status of person dealing
with the matter and name and status of overall supervisor. Advise on process and timescales, including buyer’s responsibility
to ask questions, seller’s responsibility to answer them and for buyer to pay SDLT if applicable. Ensure sufficient funding
available for buyer / seller to meet their obligations.
Law Society Conveyancing Protocol (part of syllabus – latest is 2019): Not designed to be used in purchase of new build
homes; assumes acting for lender + client, and both buyer and seller have mortgage lenders.
Cybercrime: Firms must be alert to risk of cybercrime in conveyancing, especially mail hacking regarding the destination of
completion monies. Clients should be advised of risk of email fraud, warned against sending bank details by email.
Tell client next steps, will write to confirm advice.
Indication of time of whole conveyancing exercise (around 2 months).
(Seller) Draft contract
Preliminaries: Need title deeds / official copies / leasehold documents, as required. Check for current occupancies (vacant
possession a contractual requirement, so vacancy required on or before completion / property is sold subject to tenancies (fully
disclosed)).
Seller disclosure requirements: Ensure all encumbrances ascertained (from title deeds / documents / client interview etc) (e.g.
V right of way (on Charges Register), V overriding interest e.g. in actual occupation, local leases less than 7 years, X registered
charge in favour of bank i.e. mortgage (though on Charges Register, will be discharged on completion upon receiving proceeds
of sale)), excluding unconcealed physical defects (because of caveat emptor). Seller must disclose latent encumbrances (not
apparent from inspection / non-physical). Breach of duty = right for buyer to rescind contract and claim damages.
Formalities: Contract must be in writing and incorporate all terms (LPA (MP) 1989) and signed by each party.
Contents:
- Party details, particulars of property and particular and conditions of sale (postal address of property and plan /
measurements as needed i.e. for part sales and title number and class (registered land)).
- Contract generally incorporates Law Society’s Standard Conditions of Sale with added or modified conditions to reflect
the nature of the transaction and wishes of the parties (via special conditions).
- Deposit (normally 10% of purchase price) payable on exchange of contracts usually to be held as stakeholder, except where
transaction is part of a chain (for buyer, risk in allowing deposit to be held as agent for seller if seller defaults).
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