Introduction to property transactions - Key elements and str...

Learning Outcomes

This article outlines the key elements and structure of freehold and leasehold property transactions in England and Wales, including:

• Main stages of a property transaction and core legal features
• Distinctions between freehold and leasehold estates
• Structure of conveyancing and the role of title investigation
• Contract formation, exchange of contracts, and completion
• Key legal documents and terms used in property transactions
• Core pre‑contract searches and enquiries
• Standard conditions governing residential and commercial contracts
• Allocation of risk on exchange and insurance considerations
• Pre‑completion checks and completion mechanics
• Remedies for delayed completion
• Leasehold‑specific steps such as landlord’s consent and authorised guarantee agreements
• SQE1‑style scenarios and MCQs for practice

SQE1 Syllabus

For SQE1, you are required to understand the structure and process of property transactions, including both freehold and leasehold estates, with a focus on the following syllabus points:

• The main stages of a freehold and leasehold property transaction
• The distinction between freehold and leasehold estates
• The process of title investigation and deduction of title
• The function and content of contracts for sale and leases
• The significance of exchange of contracts and completion
• The key legal documents and terms used in property transactions
• Core pre‑contract searches and enquiries and caveat emptor
• Use of the Standard Conditions of Sale (SCs) and Standard Commercial Property Conditions (SCPCs)
• Allocation of risk and insurance, pre‑completion checks, and post‑completion filings
• Leasehold assignment, landlord’s consent and the authorised guarantee agreement (AGA)
• Remedies for delayed completion and the notice to complete

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What are the two main legal estates in land in England and Wales?
2. At what point in a property transaction do the parties become legally bound to complete?
3. What is the primary difference between a freehold and a leasehold estate?
4. What is the purpose of investigating title before exchange of contracts?

Introduction

Property transactions in England and Wales are structured around the transfer or grant of legal estates in land. The two principal types of estate are freehold (absolute ownership) and leasehold (a right to occupy for a limited period). Understanding the key elements and structure of both freehold and leasehold transactions is essential for SQE1.

The Stages of a Property Transaction

A typical property transaction is divided into three main stages:

• Pre-contract stage: Initial instructions, investigation and deduction of title, searches and enquiries, and contract negotiation.
• Exchange of contracts: The point at which the agreement becomes legally binding.
• Completion and post-completion: Transfer of legal title, payment of the purchase price, and registration of the new owner.

Risk and responsibility for insuring the property usually pass to the buyer on exchange under the SCs/SCPCs, so buyers should arrange buildings insurance to start immediately on exchange. Where a transaction forms part of a chain, exchange is normally coordinated across all linked transactions using the Law Society formulae for telephone exchange.

Key Term: freehold estate
An estate in land that gives the owner absolute and indefinite ownership, subject only to statutory restrictions and third-party rights.

Key Term: leasehold estate
An estate in land that gives the tenant the right to occupy and use the property for a fixed period, subject to the terms of a lease.

Pre-Contract Stage

The transaction begins with the seller's solicitor preparing a pre-contract package, including evidence of title and a draft contract (for freehold) or draft lease (for leasehold). In residential matters run under the Law Society Conveyancing Protocol, the package typically includes the Property Information Form (TA6/PIF), Fittings and Contents Form (TA10/F&C), evidence of title and any planning/building regulation documentation the seller holds. For leasehold, additional information is often supplied via the LPE1 pack, including ground rent and service charge details, recent accounts, building insurance, and management company information.

The buyer's solicitor investigates title to ensure the seller can lawfully transfer the estate and that there are no adverse rights or defects. This is undertaken alongside pre‑contract searches and enquiries, commonly comprising:

• Local authority search (LLC1 and CON29; optional CON29O as relevant), revealing local land charges, planning permissions/conditions, proposals, enforcement and highways information
• Drainage and water enquiries (CON29DW)
• Environmental, flood, mining and chancel repair searches where appropriate
• An index map search for suspected unregistered land or to check pending registrations

Enquiries are raised to clarify title, use, boundaries, planning/building regulation compliance, disputes, occupiers and services crossing the property. Replies to enquiries and the PIF can be relied upon; misleading replies may give rise to misrepresentation remedies.

Key Term: investigation of title
The process by which the buyer's solicitor checks the seller's right to sell and identifies any issues affecting the property.

Key Term: deduction of title
The process by which the seller provides documentary evidence of their ownership and right to sell the property.

Key Term: caveat emptor
“Let the buyer beware.” The buyer must discover defects and adverse matters by searches, enquiries, survey and inspection; the seller has limited duties of disclosure.

Contracts and Leases

Once title and other matters are satisfactory, the parties negotiate and agree the contract for sale (freehold) or the lease (leasehold). The contract sets out the terms of the sale, including the property description, price, deposit, completion date, and any special conditions. For most residential transactions, the Standard Conditions of Sale are incorporated; for commercial transactions, the Standard Commercial Property Conditions are commonly used.

Key Term: contract for sale
A legally binding agreement between seller and buyer setting out the terms for the transfer of a freehold or leasehold estate.

Key Term: lease
A legal document granting a leasehold estate, specifying the rights and obligations of landlord and tenant.

Key Term: Standard Conditions of Sale (SCs)
The Law Society’s standard conditions generally used for residential sales; they address matters such as risk, completion, remedies, and title.

Key Term: Standard Commercial Property Conditions (SCPCs)
Standard conditions commonly used for commercial property transactions; they provide detailed provisions suitable for business assets.

Under the SCs/SCPCs the contract will address:

• Specified incumbrances (adverse matters to which the buyer agrees to take subject)
• Title guarantee (full or limited title guarantee to be given in the transfer/assignment)
• Deposit (typically 10% of the price), completion date and contract rate for compensation on delay
• VAT positioning for commercial property (e.g., “price plus VAT” where the supply is standard‑rated or the seller has opted to tax)

Exchange of Contracts

Exchange of contracts is the critical milestone where both parties become legally bound to complete the transaction. The buyer usually pays a deposit (commonly 10% of the purchase price) at this stage, typically held by the seller’s solicitor as stakeholder. Exchange is often effected by telephone using Law Society formulae, with identical contracts exchanged and dates inserted. In a chain, exchanges are synchronised on the same day.

Risk in the property generally passes to the buyer on exchange, so the buyer should insure from that moment unless the contract states otherwise.

Key Term: exchange of contracts
The formal process by which the parties swap signed contracts, creating a binding agreement to complete the transaction on the agreed date.

Completion and Post-Completion

Between exchange and completion, solicitors carry out pre‑completion checks to protect the buyer’s position and ensure the funds and documentation are in place. Typical steps include:

• Pre‑completion title search to secure priority (OS1 for transfer of whole; OS2 for transfer of part) giving a priority period, usually 30 working days
• Insolvency checks (bankruptcy search against individuals; company search at Companies House where relevant)
• Final pre‑completion enquiries for practical matters via the Completion Information and Undertakings form from the seller’s solicitor (e.g., mortgage redemption, keys, meter readings, account details)
• Drafting and signing the transfer deed (TR1 for whole; TP1 for part) and, if applicable, the mortgage deed
• Issuing the certificate of title/report on title to the lender and requesting drawdown
• Collating balances from the buyer to complete

On completion, the buyer pays the balance of the purchase price, and legal title is transferred. The seller's solicitor provides the executed transfer deed (or lease), and undertakes to redeem any existing mortgages. Keys are released and possession passes to the buyer.

After completion, the buyer’s solicitor submits the SDLT or LTT return (within 14 days for SDLT in England; within 30 days for LTT in Wales), lodges the application for registration at HM Land Registry within the OS1/OS2 priority period (using AP1 for registered titles, FR1 for first registration of unregistered land), and, if applicable, registers any company charge (MR01) within 21 days at Companies House.

Key Term: completion
The stage at which the purchase price is paid, legal title is transferred, and the buyer takes possession.

Key Term: transfer deed
The legal document used to transfer ownership of a freehold or leasehold estate from seller to buyer.

Key Term: completion information and undertakings
A standard form provided by the seller’s solicitor before completion, confirming practical arrangements and including undertakings such as mortgage redemption.

Key Term: certificate of title
The solicitor’s certificate/report to the lender confirming good and marketable title and requesting advance of mortgage funds.

If completion is delayed, contractual compensation at the contract rate may be payable. Where failure to complete persists, a notice to complete can be served, making time of the essence and starting a fixed period (usually 10 working days) to complete. Failure may entitle the innocent party to rescind and seek common‑law damages, subject to the contract’s limitations.

Key Term: notice to complete
A formal notice served after a failure to complete on the due date, making time of the essence and starting a period (usually 10 working days) within which completion must occur.

Freehold vs Leasehold Transactions

The main distinction is that a freehold transaction transfers absolute ownership, while a leasehold transaction grants a right to occupy for a limited term under a lease. Leasehold transactions involve additional considerations:

• Lease terms, including user, repair, insurance, alterations and alienation covenants
• Ground rent, service charge budgets and historic accounts
• Rights and reservations benefiting and burdening the demise
• Landlord or management company requirements (e.g., deeds of covenant, compliance certificates)
• Registration of leases exceeding seven years

When assigning an existing lease, the outgoing tenant’s covenants pass to the incoming tenant by privity of estate. Under the Landlord and Tenant (Covenants) Act 1995, the outgoing tenant under a “new lease” is generally released on assignment but may be required to give an authorised guarantee agreement (AGA), guaranteeing the immediate assignee’s performance of tenant covenants until the next lawful assignment.

Many leases restrict assignment and underletting, commonly requiring landlord’s consent. For business leases, consent must not be unreasonably withheld or delayed where the covenant is qualified.

Key Term: authorised guarantee agreement (AGA)
A guarantee given by an outgoing tenant on assignment of a “new lease” (post‑1995), guaranteeing the immediate assignee’s performance of tenant covenants until the lease is next lawfully assigned.

Key Term: landlord’s consent to assignment
Consent required under a qualified covenant before a lease assignment; for most commercial leases the landlord must not unreasonably withhold or delay consent.

Title Investigation: Registered and Unregistered Land

For registered land, the seller provides official copies of the register and title plan. The buyer reviews:

• Property Register: description of the land and appurtenant rights
• Proprietorship Register: ownership, class of title, and any restrictions (e.g., Form A restriction for tenants in common)
• Charges Register: registered charges, adverse notices (e.g., restrictive covenants), easements, leases and other encumbrances

Registered titles may also be affected by overriding interests (e.g., the rights of persons in actual occupation, legal easements that meet statutory criteria, and short legal leases), which can bind a buyer despite not appearing on the register. Where third‑party rights appear, a notice protects the right; a restriction controls registration of dealings to ensure compliance with terms (e.g., overreaching requirements).

Key Term: official copies
Certified copies of the Land Registry entries and title plan, used as evidence of registered title.

For unregistered land, the seller provides an epitome of title, including a chain of deeds going back at least 15 years. The buyer checks an unbroken chain of ownership, clear description of the property, proper execution and stamping of deeds, and registered land charges.

Key Term: epitome of title
A chronological bundle of deeds and documents proving ownership of unregistered land.

Land Charges searches (K15) are made against the names of estate owners since 1926 for their periods of ownership to reveal registered restrictions such as:

• D(ii) restrictive covenants
• D(iii) equitable easements
• C(iv) estate contracts
• F home rights (Family Law Act 1996)

Verification of original deeds is performed at or before completion. An index map search checks whether any part of the land is registered or subject to a caution/pending application.

Worked Example 1.1

Scenario:
A buyer is purchasing a freehold house. The seller's solicitor provides official copies of the register showing a restrictive covenant prohibiting business use. The buyer intends to run a business from home.

Answer:
The buyer's solicitor should advise that the restrictive covenant will bind the buyer after completion. The buyer may need to seek a release or indemnity insurance, or reconsider the intended use.

Worked Example 1.2

Scenario:
A tenant wishes to assign a leasehold office to a new business. The lease requires landlord's consent to assignment.

Answer:
The tenant must apply for landlord's consent, and the landlord cannot unreasonably withhold consent if the lease is a commercial lease with a qualified covenant. The assignment cannot proceed without consent.

Worked Example 1.3

Scenario:
On inspection of a registered title, the register is clean of adverse entries. The buyer notices a person living in the property who is not the legal owner and who claims a right to remain.

Answer:
The occupier may have an overriding interest if they have a proprietary interest and are in actual occupation. The buyer’s solicitor should make specific enquiries of occupiers before exchange; if undisclosed, the interest may not override. If the interest is confirmed, obtain a written waiver or ensure vacant possession on completion.

Worked Example 1.4

Scenario:
Contracts are exchanged with completion due on Friday. The buyer’s funds are delayed, and completion does not occur.

Answer:
Under the SCs/SCPCs, contractual compensation at the contract rate is likely payable. The seller can serve a notice to complete, making time of the essence; the buyer must complete within the notice period (usually 10 working days), failing which the seller may rescind, forfeit the deposit, and seek damages.

Exam Warning

In SQE1, questions may test your understanding of the difference between freehold and leasehold estates, and the legal effect of exchange of contracts. Always check whether the scenario involves absolute ownership or a time-limited right to occupy.

Revision Tip

When revising, focus on the sequence of steps in a property transaction and the function of each key document. Practice identifying whether a scenario is freehold or leasehold.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The main stages of a property transaction: pre-contract, exchange, completion, and post-completion
• The distinction between freehold (absolute ownership) and leasehold (time-limited right to occupy) estates
• The purpose and process of title investigation and deduction of title
• Typical pre‑contract searches and the caveat emptor principle
• The function and content of contracts for sale and leases and the use of SCs/SCPCs
• The legal effect of exchange of contracts, including risk and insurance
• Pre‑completion checks, completion mechanics, and post‑completion filings (SDLT/LTT and registration)
• Remedies for delayed completion and the role of a notice to complete
• Leasehold‑specific considerations: landlord’s consent, service charges, ground rent and the authorised guarantee agreement (AGA)
• The key documents and terms used in freehold and leasehold transactions

Key Terms and Concepts

• freehold estate
• leasehold estate
• investigation of title
• deduction of title
• contract for sale
• lease
• exchange of contracts
• completion
• transfer deed
• official copies
• epitome of title
• caveat emptor
• Standard Conditions of Sale (SCs)
• Standard Commercial Property Conditions (SCPCs)
• certificate of title
• completion information and undertakings
• authorised guarantee agreement (AGA)
• landlord’s consent to assignment
• notice to complete