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ACQUISITION PROCESS:
KEY STAGES
• The general position in the United Kingdom is that any
individual or legal entity, whether resident or non-resident
can purchase property. There are, therefore, no foreign
direct investment restrictions. Although the following briefly
summarises the process involved in the direct acquisition
of property it is often the case in practice that high value
properties (or portfolios of properties) are acquired indirectly
through a variety of different corporate vehicles including
through buying shares in a real estate investment trust (REIT)
or investing in units in a property unit trust.
Marketing
• The marketing of commercial property is usually carried out
on behalf of the seller by a property agent.
Negotiation
• Commercial negotiations commence once an interested party
has been identified.
• Until a formal sale contract is agreed, signed and dated
(“exchanged”) neither party is legally bound and so there is
flexibility to conduct negotiations without the need to worry
that binding legal commitments may arise unintentionally.
This is the case even if the parties sign “heads of terms”
recording the principal commercial terms of the transaction.
• A serious buyer may require an exclusivity period within
which to try to agree terms with the seller and lawyers may
be instructed to draw up an exclusivity agreement giving
the buyer a period of time within which to undertake its due
diligence and “exchange contracts” for the purchase.
• Subject as mentioned above lawyers would usually only
get involved once the seller and buyer (via their respective
agents) have agreed terms.
Pre-exchange
• Once terms have been agreed the buyer’s lawyer will
investigate the seller’s title to the property and carry out
due diligence. Generally a seller of property is not under an
obligation of disclosure to the buyer and the principle of
“caveat emptor” (let the buyer beware) is adopted.
• It is also likely that the buyer will instruct a number of other
professionals to advise it on the transaction. By way of
example surveyors will almost certainly be asked to carry out
condition surveys of the property and any buildings on it.
Sale contract
• The sale contract will be negotiated by the parties’ lawyers
and will contain all the terms agreed between the seller and
the buyer including any special conditions required to deal
with matters revealed by the buyer’s due diligence.
• The buyer becomes legally bound to complete the purchase
and the seller to sell, subject to any conditions specified in
the sale contract, once the sale contract has been exchanged
(formally entered into).
• Typically a deposit of between 5% and 10% of the purchase
price is payable by the buyer on exchange. If the buyer fails to
complete the purchase then the seller may retain the deposit.
Transfer
• The sale of the property will be completed on the date
specified in the sale contract by way of completion of a
separate document known as a “transfer”. Sometimes
completion will take place on the same day as exchange
although often there is a gap between exchange and
completion.
• The balance of the purchase price will be paid on completion.
• The transfer needs to be registered at HM Land Registry.
Although as between seller and buyer title to the property
passes on completion the buyer will not become the
legal owner of the property until it has been registered as
proprietor at HM Land Registry. It is the responsibility of the
buyer’s lawyers to ensure that this happens.
DIFFERENT LEGAL SYSTEMS
• It should be noted that for principally historical reasons the
United Kingdom actually has three different and distinct legal
systems – one each for England and Wales, Scotland and
Northern Ireland.
• Whilst there are many similarities between the three systems
and certain “laws” that apply throughout the whole of the
United Kingdom there are also important differences between
the systems. This is particularly relevant to the arena of
property law where the location of the property will determine
which legal system is employed, for example a property in
Scotland will be subject to the underlying property law of
Scotland and not that of England and Wales.
• The high-level summary of “Property Law” and the
“Acquisition Process: Key Stages” set out above is based on
the position under the law of England and Wales. A brief note
of some of the key differences in the Scots and Northern Irish
legal systems follows.
Scots law
• The terminology used differs markedly. For example under
Scots law absolute ownership is known as “heritable” title.
It is very similar, but not identical, to the English and Welsh
concept of “freehold”.
• Long leasehold titles are not so common in Scotland. Indeed
any new long leasehold titles may not be granted for more
than 175 years.
• Commercial landlords and tenants under the Scottish system
are not subject to the same statutory restrictions as impact
the landlord/tenant relationship in England and Wales and
are, generally speaking freer to contract as they see fit.
For example, business tenants do not have an automatic
statutory right to renew their lease (although there is a limited
protection for shop tenants).
• A servitude is the nearest Scottish equivalent of an easement
and a standard security (a statutory creation) is the Scottish
equivalent of a legal charge.
• The sale contract in Scotland is normally created by means
of formal letters exchanged between the parties’ solicitors
(known as “missives”). The sale contract is exchanged when
the missives are concluded. It is also fairly unusual for a
Scottish sale contract to include a deposit.
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