Buying & Selling
A brief summary of the exchange of documents required between solicitors acting for the purchaser and vendor of leasehold property (or freehold buildings with the benefit of leasehold land) and the Manager of the property.
The Manager is usually a Residents Management Company (RMC), Right To Manage Company (RTM) or an appointed Managing Agent.
The process of selling a property subject with leasehold interest is different to that of buying a totally freehold property as the purchaser is buying the remaining term of the lease which is a contract with rights to leasehold property for the remainder of the lease term and has joint responsibilities with and to the other properties with a leasehold interest. The purchaser will be required to pay Service Charges to cover a share of the costs of the block (or blocks) [often called Common Parts] for major repairs, maintenance and buildings insurance etc. and also for the upkeep of the grounds [often called Common Areas or Estate Charges]. It is therefore important that the purchaser understands the implications of the obligations being entered into.
1. Pre-Contract Enquiries
In order to provide advice to the purchaser, the purchaser’s solicitor will make enquiries of the vendor’s solicitor. These enquiries will include questions concerning the lease and obligations of the owner and RMC/RTM. A standardised questionnaire has been produced for this purpose by the British Property Federation together with the Law Society, and the Royal Institution of Chartered Surveyors (RICS). The purchaser’s solicitor may use either this questionnaire or a variation of it to raise questions.
The vendor’s solicitor will forward the questionnaire to the Manager for completion and return to the vendor’s solicitor. Depending on the replies received further questions or clarification may be required. The Manager will also be asked to make available a number of documents including; copy accounts, estimates of future service charges, insurance documents, minutes of meetings and documents relating to the RMC or RTM such as Articles of Association.
2. Deed of Covenant
As the purchaser was not a party to the original lease it is normal to request that the purchaser enter into a Deed of Covenant to agree to abide by the terms of the Lease.
The Deed of Covenant for the leasehold properties is a short document that new leaseholders sign to confirm that they will adhere to the terms of the original lease.
3. Membership of the Residents Management Company/RTM Company
The purchaser is usually required or expected to become a member of the RMC and/or RTM. This gives the purchaser the right to have a say in the running of the company. In order to become a member, documents need to be produced dependant on the type of company.
a) For companies with a share capital. The seller will sell their share in the company to the purchaser. In order to register this transfer the RMC will require a Stock Transfer Form signed by the vendor together with the Share Certificate for the share being surrendered. If the share certificate is missing or has been lost the vendor should complete an Indemnity Form instead of supplying the share certificate.
b) For companies limited by guarantee (most RTM companies are limited by guarantee). The purchaser will need to complete and sign a Membership Application Form The purchaser also guarantees (hence limited by guarantee) to pay an amount (usually one pound) if the company goes bust.
4. Additional forms required by the Manager
a) Notice of Assignment from the purchaser’s solicitor. This will provide the purchaser’s name(s) and address and details of any mortgage on the property.
b) Warranty Form agreeing to do (or not do) certain things, for example to ensure the safety of other residents in the block such as having smoke detectors fitted and not to use naked flame heaters in the property.
5. Payment of Service Charges
The Manager will require that all the Service Charges due in advance to the end of the year following the date of completion (sale date) are paid in full (even if the vendor had entered into an arrangement to pay in instalments). The purchaser’s and vendor’s solicitors will apportion the amount paid for the period after the date of completion and account for this as part of the completion statement.
6. Registering the assignment of the lease/sale of property
On receipt of the required forms and payment of assignment fee the Manager will register the lease assignment/sale of the property. The Manager will issue:
a) A Share Certificate and/or Membership Certificate to the purchaser or their solicitor.
b) Send an acknowledgement to the purchaser’s solicitor.
c) Write to the purchaser requesting contact details etc.
7. Check-list of items for solicitors
___ ____/____/____ Pre-Contract Enquiries form issued with fee?
___ ____/____/____ Completed Pre-Contract Enquiries form received back?
___ ____/____/____ Service Charges paid to end of current financial year?
___ ____/____/____ Stock Transfer Form completed (if applicable) and sent?
___ ____/____/____ Notice of Assignment/Sale and Mortgage sent with fee?
___ ____/____/____ Deed of covenant sent?
___ ____/____/____ Surrendered Share Certificate or Indemnity Form (if applicable) sent?
___ ____/____/____ Completed Membership Application form (if applicable) sent?
___ ____/____/____ Completed Warranty Form sent?
8. Fees payable to Managing Agent
A standard flat fee (including VAT) is charged rather than a variable hourly fee as follows:
Responding to Pre-Contract Enquiries by email. (Usually paid by vendor)
Providing pre-populated Stock Transfer Form (if requested) by email
Assignment/Sale including; Receiving and checking Stock Transfer Form and surrendered Share Certificate. Recording membership in statutory books of RMC/RTM company, issuing Membership Certificate and/or Share Certificate, receiving warranties form, acknowledging Notice of Assignment and Mortgage and updating new leaseholder’s contact details. If RTM has been exercised notification of assignment to Freeholder/Landlord. (Usually paid by purchaser)
In rare cases no pre-contract enquiries are made. This results in additional work in advising the purchaser for which a fee is chargeable
Providing copy documents by email or via web-link
Providing hard copies of documents – (per document)
Please note that the above summary has been provided in good faith and no warranty to its accuracy is provided and no liability will be accepted for errors or admissions.