Jargon Buster
Suspicious of the sound of a 'sinking fund'? Confounded by a 'contract race'? We've put together a guide to some of the key terminology you may encounter when buying or selling residential property in London.
CONDITIONS OF SALE
The details which determine the rights and duties of the buyer and seller. These may be national, statutory, or the Law Society’s conditions.
CONTRACT
The legal agreement between the seller and buyer of a property which binds both parties to complete the transaction.
CONTRACT RACE
This can occur when two parties have made an offer on the same house. The vendor will sell to the first party to exchange contracts.
COMPLETION
The point at which all transactions concerning the property’s sale are concluded and legal transfer of ownership passes to the buyer.
EXCHANGE OF CONTRACTS
The point at which signed contracts are physically exchanged, legally committing the buyer and seller to the purchase and sale of a property at the agreed price.
FIXTURES AND FITTINGS
All non-structural items included in the purchase of a property.
FREEHOLD
Freehold means full ownership of a property. As a freeholder you will have full responsibility for the maintenance and repairs of the property.
GROUND RENT
When you buy a leasehold property, you're basically agreeing to rent the property for a long time (the length of the lease). Ground rent is literally the rent that you pay for the land the property is standing on. It's normally paid every year or six months, along with the service charge. Some ground rents are nominal amounts which have no monetary value, but have a moral signficance – a 'single red rose', or a 'peppercorn'.
LEASEHOLD
This means that you own the property for as long as is specified in the lease; you are granted the right to live there by the freeholder. At the end of the lease the property again becomes the possession of the freeholder. Just like a tenancy agreement, your lease describes the rights and obligations that you and your freeholder have. The majority of leasehold properties are flats, although some houses are leasehold too.
RIGHT TO MANAGE
The Commonhold and Leasehold Reform Act 2002 gave a new right to tenants of blocks of flats to take over the management of their building without having to acquire the freehold. This came into effect on 30th September 2003.
Numerous reasons exist for exercising this right. The main reason is to ensure the effective management of your building, particularly in circumstances where it is not desirable or practicable to acquire the freehold. Exercising the Right to Manage would allow you to remove the existing managing agents and appoint new ones.
SERVICE CHARGES
The cost of repairing and maintaining external or internal communal parts of a building which is charged to the leaseholder on either an annual or six monthly basis. Service Charges are raised in accordance with the lease on each property.
SHARE OF FREEHOLD
This is when the leaseholders in the building buy the freehold between them. The freehold is held in a company in which all the leaseholders own a share equal to the size of their property. Owning a share of freehold property can give you more control over the management of your building.
SINKING FUND
Depending on how the building is run, leaseholders may be asked to pay a an extra percentage of their service charge into a fund which is held in case major repairs are needed in the future. This is known as a sinking fund. A lease will specify whether the leaseholder must pay towards this fund. The amount to pay will be shown in your yearly service charge statement.
STAMP DUTY
This a government tax which must be paid by purchasers of properties with a value in excess of £125,000, of between 1% and 4% depending on value. Stamp duty land tax is a tax you pay when you buy a property. The rate varies depending on the value of the property (up to 4 per cent), ask your solicitor what the current rates are.
UNDER OFFER
The status of a property for sale, when a seller has accepted an offer from a purchaser but prior to exchange of contracts.