An interest in land/real estate can either be held under freehold or leasehold ownership. Freehold is the highest category of ownership in England and Wales and, in most cases, effectively confers absolute ownership. Leasehold confers rights of exclusive possession and use of land for a limited period of time.
A real estate owner can also give non-exclusive rights, known as easements, to third parties to use the land, such as granting a right of way. If correctly registered, easements are binding on any future owners of the property.
Last modified 22 Mar 2024
Yes. The UK has recently toughened its rules on foreign investment, in line with other major economies. There are two important and recent pieces of legislation which affect foreign investment.
The Economic Crime (Transparency and Enforcement) Act 2022 applies to all UK property. In broad, and simplified, terms, the Act prevents an overseas entity from:
unless it has first become a registered overseas entity and complied with the updating requirements. All overseas entities which already owned UK property were required to become registered overseas entities by 31 January 2023. To become a registered overseas entity, the overseas entity must file information about itself, its managing officers and its beneficial owners (among other things) on the Register of Overseas Entities at Companies House. Failure to comply with the Act will be a criminal offence punishable by significant fines or, in some cases, imprisonment.
Additionally, the National Security and Investment Act 2021 applies to transactions entered into from 12 November 2020. The Act introduces a mandatory and a voluntary notification regime for transactions which could affect national security, which relate to the acquisition of shares or assets and where a sensitive sector is involved (for example, defence). The legislation could also cover the acquisition of land which is, or is proximate to, a sensitive site, such as a government building or site of national critical infrastructure. However, little guidance has been given on the definitions of "proximate" or "sensitive". The regime will also cover foreign to foreign transactions with a UK element (such as an acquisition by one foreign investor of a data storage company in another country, if that company performs services which may impact on national security in the UK). Government approval would be required prior to completion of affected transactions and without it, the transaction would be void.
Last modified 22 Mar 2024
Pre-emption rights are not generally imposed by statute. However, a property owner granting rights to a third party can ensure that the third party is not able to dispose of the property without offering the owner first refusal.
An exception applies in relation to buildings containing residential apartments or flats. If certain statutory criteria are met then a freehold owner cannot sell the building unless it has first offered the building to the owners of the flats, on the same terms. The procedures involved are complex and specific advice should be obtained in each case. Failure to offer the freehold to the flat owners before a sale is a criminal offence.
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Contracts are primarily governed by case law. There are also additional statutory provisions relating to real estate transactions, including the Law of Property Act 1925 and the Land Registration Act 2002 and related regulations.
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For industrial real estate, offices, retail property and hotels, no.
With regard to residential property, different standards and procedures apply that give additional protection to residential buyers. The Government is continually increasing regulation in this area.
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The transfer of real estate to a purchaser must be recorded in writing on a form specified by HM Land Registry.
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The majority of land in England and Wales is registered. Since 1 April 1990 (and before that in some areas) it has been compulsory to register land in England and Wales following any sale. It is also possible to register land voluntarily at any time and HM Land Registry provides certain financial incentives to do so. Despite this, some land in England and Wales remains unregistered (around 13% of all land, according to an estimate by HM Land Registry in September 2019).
Once registered, the details of ownership of the land and certain title documents are made available to the public. Each property has its own ‘register of title’ (sometimes several where more than one interest in that property exists), the accuracy of which is guaranteed by HM Land Registry.
A buyer must register the transfer in order to be able to demonstrate their title to the property in the future.
Registration must take place as soon after the transfer as possible.
Contracts for the sale of land can also be registered to ensure the seller cannot transfer the land to a third party without being subject to the buyer's contract.
Yes, although it is rarely used as a substitute for the buyer's investigation of title to the property and arrangement of searches and surveys except in some large portfolio transactions when many properties are involved and it is not feasible to carry out due diligence on all of them.
Parties may sometimes agree to take out title insurance in relation to a particular issue revealed by the investigations: for example, if a covenant appears to have been breached but no action has so far been taken.
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Following the investigation of title, the parties will enter into a contract for the sale and purchase of the property. There will usually be an interval between the date of the contract and the date when the transfer takes place.
The contract sets out the documents that must be entered into at completion, including the formal transfer and any indemnities required at completion.
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Yes. Buyers should rely on their own investigation of title, searches and survey but in most cases the seller must provide the buyer with an energy performance certificate.
The buyer's lawyer will review the title information provided by the seller's lawyer (including copies of the registered title, if applicable) and will carry out a standard set of searches. The seller's solicitors will also prepare responses to a standard list of queries relating to the property for the buyer's solicitor to review.The parties will not enter into the contract of sale until all investigations are completed. Until the contract of sale is entered into, either party may walk away from the deal.
By law, there is no opportunity to negotiate on an exclusive basis with the seller during this period, although sometimes the parties will enter into an exclusivity agreement.
Last modified 22 Mar 2024
Consent is required from anyone who has lent money to the seller and has a security interest in the property being sold unless the mortgage is to be paid off at completion (which is the most common scenario).
Consent may be required from other parties such as the landlord if the land is leasehold, or a management company where the property is part of a business estate.
In the case of residential property, the buyer generally also needs consent from any other occupiers and confirmation that they will move out.
Restrictions may also be placed on the registered title to a property with the agreement of the owner, preventing a disposition being registered without the consent of another specified party.
Last modified 22 Mar 2024
Yes. The contract must be in writing and signed by each party. It must contain all the terms of the sale, including details of the land to be sold and the price, as well as the date when the transfer will take place and the documents to be entered into on that date. Two copies of the contract are prepared: one is signed by the buyer and one by the seller. The contract is then exchanged, with the lawyers sending the documents signed by their clients to each other.
A typical contract sets out the date when the transfer will take place and the documents to be entered into on that date. It might also contain provisions regarding how the property will be managed between exchange and completion, and how any income will be allocated between the buyer and the seller, particularly where completion will be some time in the future or if the sale concerns an investment property.
Contracts also invariably contain provisions relating to insurance and what would happen if the property is damaged before completion.
In real estate transactions, payment of a 10% deposit on exchange of contracts is usual.
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No warranties need to be given by law, and warranties related to the state and condition of the building are very rare. However, it is common practice for sellers to give a level of ‘title guarantee’ confirming that there are no defects in the title and undertaking to assist the buyer in registering as the new owner.
Any matters which the seller has already disclosed to the buyer or which should be revealed by the buyer's searches are excluded from the seller's guarantee.
Since warranties are not compulsory they can be varied to suit the parties involved in the transaction.
Any claims under the title guarantee need to be made within 12 years of the date of the transfer deed.
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The buyer has the right to terminate the contract and/or to claim damages reflecting any losses suffered. Contracts will often modify this legal right so that the buyer can only terminate a contract if the error resulted from fraud or recklessness, or where an asset differs substantially from the buyer's expectations.
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lanning, construction and environmental laws may all apply. The Building Safety Act 2022 and ancillary regulations are now in force, increasing the regulation around building and fire safety and potentially exposing investors and developers alike to substantial criminal, financial and reputational consequences. Depending on the use of the property, buyers may also need to consider energy efficiency regulations, employment law and health and safety rules.
Part of the buyer's investigation will cover the site's planning history and, in particular, whether the buildings have been duly authorised and the current use of the property is permitted by law. There are also statutory regulations relating to building works, and buyers should verify that the property complies with these.
Last modified 22 Mar 2024
Generally, a person who causes environmental pollution or contamination, or knowingly allows it to continue, is primarily responsible for its clean-up. If that person cannot be found or pursued, then environmental legislation allows local authorities to approach the current owners and/or occupiers of the land.
Buyers should therefore take careful note of any environmental issues identified in the survey and should seek to apportion liability for these or adjust the price of the property accordingly.
Last modified 22 Mar 2024
When a seller demonstrates its title to a buyer they should also provide information on the site's planning history and show how the existing use is authorised. If a buyer is planning to change the use of the property they will need to consider the local plan, setting out the local authority's policies for each area. Receiving consent to a change of use can be made a condition of the purchase contract, although the application process can take some time.
A buyer will typically also raise specific enquiries with the local authority about the planning history of a property but a fee will be payable.
Last modified 22 Mar 2024
In the case of a substantial proposed development local authorities will usually require the developer to enter into a development agreement. In exchange for planning permission, the developer must comply with certain obligations, including, for example, making specified payments or carrying out public works.
As well as imposing a payment under the development agreement, the local authority will usually require the developer to pay all of its fees. Other statutory bodies, for example, water authorities, may also require development agreements.
Last modified 22 Mar 2024
Local authorities and certain other bodies have powers of compulsory purchase where the acquisition of land is necessary for a proposed development. Compensation is available based on the value of the land acquired.
Procedures for compulsory purchase can be protracted, but most cases are concluded by negotiation between the acquiring authority and the real estate owner.
Last modified 22 Mar 2024
When acquiring an interest in non-residential real estate, the buyer must pay stamp duty land tax (SDLT). For a non-residential real estate acquisition SDLT is charged at 2% on the part of the value paid for the real estate falling between £150,000 and £250,000 and 5% on any part of the value paid above £250,000. If the asset consists of residential property higher rates of SDLT may apply. For Welsh properties see the website of the Welsh Revenue Authority: there are different rates and thresholds and the tax is referred to as land transaction tax.
Value added tax (VAT) does not automatically apply to the purchase of land, although in a few cases (such as newly built properties) the seller must charge VAT. Sellers will often elect to charge VAT so that they can recover any VAT incurred in relation to the property. Generally, VAT is charged at a rate of 20%.
In the case of investment properties, the transaction may be treated as the ‘transfer of a going concern’ which does not attract VAT on the purchase price, although the conditions for obtaining this treatment are complex.
Where VAT is payable, SDLT will also be payable on the amount of the VAT.
Last modified 22 Mar 2024
Generally, stamp duty at a rate of 0.5% (of the consideration given for the shares) is payable if the company is a UK company. No stamp duty is normally payable on the sale and purchase of shares in non-UK companies, unless it is a non-UK company that has a share register in the UK.
There is no legal requirement as to who pays stamp duty but, in practice, it is almost always paid by the buyer.
Last modified 22 Mar 2024
Which legislation applies to property transactions?
Contracts are primarily governed by case law. There are also additional statutory provisions relating to real estate transactions, including the Law of Property Act 1925 and the Land Registration Act 2002 and related regulations.
Last modified 22 Mar 2024