The world of property sales can often seem like a labyrinth of complex terms and jargon. Understanding house sales terminology empowers both seasoned homeowners and first-time buyers to make informed decisions and ensures a smoother and more transparent property transaction process. This guide sheds some light on the terms commonly encountered during house sales.
Freehold vs Leasehold
Freehold is when you own the property and the land it sits on outright. You have full control over both the building and the land, subject to any restrictions or covenants affecting the property. In contrast, leasehold means you own the property for a fixed period, with exclusive possession of the property but not the land it stands on. The land is typically owned by a third party, and you may have to pay rent and or service charges (e.g. to cover freeholder incurring costs for maintenance of common areas, repairs, insurance etc).
The legal process of transferring property ownership is called conveyancing. It involves various steps, including property searches, reviewing contracts, raising enquiries and handling the exchange of funds and on a purchase dealing with Stamp Duty Land Tax, serving notices on the freeholder (in a leasehold property) and ultimately registering the property in your name with the Land Registry if you are the purchaser.
The completion date is when the property officially changes ownership. On this day, the buyer receives their mortgage advance, if applicable, pays the remaining balance, and the keys are handed over. If you are the seller, you are required to vacate the property once all funds are received.
A property chain is formed when multiple buyers and sellers are linked because each transaction depends on the success of the previous and subsequent ones, for example you may be selling your property, and buying a property at the same time and your seller may in turn be purchasing property and so on, so each transaction is linked in a chain to each other. Chain-free transactions are generally more straightforward, as usually the transaction is nondependent on other transactions and other parties being ready to exchange and complete at the same time.
Gazumping and Gazundering
- Gazumping: Occurs when a seller accepts a higher offer from another buyer (or ask for more money) after already agreeing on a lower one. Usually at the final hurdle, shortly before exchanging contracts.
- Gazundering: Happens when a buyer reduces their offer just before the exchange of contracts. Usually at the final hurdle, shortly before exchanging contracts.
Exchange of Contracts
The point in the process where the buyer and seller exchange signed contracts. This is where they legally commit to the transaction and agree a completion date. At this stage, the buyer usually pays a deposit of 10%. Neither party will be able to withdraw from the transaction at this stage without significant penalty under the contract. The buyer will be at risk of losing his deposit if he does not complete on the agreed date.
A survey is an inspection of the property’s condition. It can range from a basic valuation to a more detailed structural survey. This is usually carried out by the buyer, shortly after the deal is agreed.
EPC (Energy Performance Certificate)
A document providing information about a property’s energy efficiency. It includes recommendations to improve energy performance and provides an energy rating for your property. This is carried out by qualified assessor and is required before you market a property for sale and letting.
A tax paid by the buyer on properties over a certain value. The rates vary depending on the property price and circumstances of the buyer, reliefs are also available to buyers. This is usually payable by the buyer within 14 days of purchasing the property and is typically dealt with by the buyers’ solicitor as part of the post completion process.
The buyer’s solicitor (or sellers’ solicitor) retains a sum of money until the seller addresses certain issues, like repairs, finalisation of service charge, major works, etc. Depending on the agreement relating to the retention, the sum of money is usually returned once the works, etc. has been carried out, or after a set period, or a reduced sum may be returned depending on the terms of the agreement such as if the funds were utilised to cover some repair works.
Legal documents proving ownership of a property. In modern transactions, these are often held electronically by the Land Registry and can be downloaded online. Many properties remain unregistered with the Land Registry. Your solicitor will be able to advise you on this. If your property remains unregistered, you will need to provide all the paperwork that you have to your solicitor in relation to the property, so ownership can be established through these papers.
A document from the seller’s mortgage lender detailing the amount needed to pay the mortgage in full and made up to a specified date. The statement will also contain details of any other fees you may owe to the lender, including any early repayment charges.
Covenant and Restrictions
A Covenant on Title is a legal obligation or promise related to the use of the property. A restrictive covenant is a covenant restricting the use of the property in certain ways. These are often outlined in the property’s deeds. It outlines what you can and cannot do on the property, for example, it may state that you can only use the property as a dwelling, that you will maintain the fences and that you cannot use it as a place of business, etc. All owners must comply with these covenants and restrictions.
A restriction entry on the title will restrict you from selling the property, for example, you may need the consent of the freeholder to sell the property or a consent of a third-party who may have an interest in the property, such as a lender.
The Land Registry is a government office that is responsible for maintaining a public register of properties in England and Wales. They provide details of ownership and any charges on properties registered.
Navigating the property market becomes significantly more manageable when armed with an understanding of the basic terminology. So, whether you are a buyer or a seller, whether you are considering a freehold or leasehold, pondering over the completion date, or concerned about a potential situation, being fluent in the language of property purchases and sales ensures a smoother and more informed transaction process.
This is not legal advice; it is intended to provide information of general interest about current legal issues.