Thursday, 30 October 2014

EPC Changes - Are you advising your buy to let clients about these?

The Energy Act 2011 contains a number of provisions which will affect owners and occupiers of property. 

Probably most significant are the proposed minimum energy standards. 

These changes will have a significant impact on the buy to let market and need to be considered now by not only investors, but also lawyers acting for those purchasing buy to let property.

From April 2018, the proposed legislative changes would make it unlawful to let residential or commercial properties with an EPC Rating of F or G (i.e. the lowest 2 grades of energy efficiency).

The significance of this which cannot be under estimated could mean that the marketability of certain properties would become impossible unless they were upgraded to meet the  minimum standards. It is estimated that approximately 20% of non-domestic properties could be in the F & G  rating brackets.

Although not clear at this stage the new minimum standards could apply to all lettings and re-lettings, including sub-lettings & assignments.

Valuations of such properties could be affected if their marketability is diminished and rent reviews for properties in this situation could also be affected. Š

Given this risk to property owners and occupiers it is clear that a full understanding of the energy efficiency of current and future acquisitions of buy to let property assets should be attained.

Thereafter owners and occupiers will need to assess the costs and viability of undertaking retrofits or refurbishments, and possibly bringing forward properties for marketing prior to 2018 or re-gearing leases.

Property owners and occupiers should also seek advice on how property values may be impacted. 

This could lead to a renewed interest in the currently doomed “Green Deal” Scheme.   This may provide a financial solution to support energy efficiency refurbishment and retro-fit projects. Landlords and sub-letting occupiers will need to achieve an EPC “E” rating or have implemented the maximum package of works allowable under the Green Deal (even if they fall short of the “E” rating required).

Those acting for purchasers of buy to let should be aware of these changes and ensure clients are advised accordingly.

The situation is likely to become worse than better given the Government’s aim to see by 2030 a minimum rating of C.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Important questions surrounding the SRA proposal for minimum indemnity insurance

The SRA is introducing a requirement on all firms to ensure they have an appropriate level of cover of indemnity insurance cover in case they make mistakes, but reducing the mandatory minimum level of compulsory cover to £500,000.

The rationale behind this is that the SRA wants to ensure consumers are better protected by, for the first time, requiring firms to make sure they have in place appropriate cover rather than relying on meeting the minimum requirements.  The proposal will also help firms who undertake low value work to obtain insurance at a more competitive level.  Well that’s the theory.

The proposal has yet to be approved by the Legal Services Board though it seems from what is being said that it will not be too long before the LSB confirms its approval.

So what will these changes mean for the consumer and the conveyancer?

For the consumer it will make choosing a solicitor more difficult.   The consumer will need to consider the value of the work to be undertaken (which may not be clear to the client) and then make sure that the solicitor has adequate insurance cover.  I wonder how many lawyers will look to reflect these changes in their marketing material even though advertising one’s insurance cover which would be available in the event of an error may not be the correct signal to give.

It begs the question whether the solicitor will be obliged to disclose its minimum cover in the client care agreement and to impose a duty on that solicitor to advise a new client if it considers the cover it has in place may not be sufficient.   In this situation will the solicitor be required to take out ‘top up’ cover and if so will the solicitor pass that extra cost onto the client.

Looking at these changes for the conveyancing solicitor the questions are far greater and have some interesting consequences.  Will those solicitors who wish to remain on lender panels lose out on the opportunity of reducing the cost of insurance cover? It would be a logical conclusion to reach that the lenders will be asking for a minimum level of cover of £2 million as a condition of membership of their panels.  If this is so, will this make firms who do not undertake lender work more competitive given they will have the freedom to choose and tailor their policies accordingly?

It will be interesting to see whether lenders will also require solicitors who are not on their panel but who act as agents for the purpose of discharging secured loans, to carry a similar minimum level of cover.

In a conveyancing transaction we may be faced with a number of professional parties who have different levels of indemnity insurance cover.  How will the conveyancer with say a minimum of 2 million pounds  of cover, and who may in the event of a negligence claim need to seek a contribution, know the level of cover of the other professionals in the same chain?  The level of indemnity cover of the solicitor acting for the other party may be become a standard question for conveyancers to answer at the outset of a transaction. 

A difficulty might arise when it becomes clear that the other solicitor involved only has reduced cover - would you need to advise your insurer and seek clearance to proceed as well as informing your client’s lender?  If clearance was not provided would you then write and advise that you client is not able to proceed with the transaction unless the other solicitor ‘tops up’ its insurance?
Some insurers may make it a condition of cover that the solicitor conveyancer will not be able to undertake work in a transaction without knowing and checking the level of the insurance over of the others involved.

This also begs the question what happens if the solicitor refuses to disclose its insurance cover level. There may be scope for suppliers such as Lawyer Check to collect this data (if it can) and to make it available as part of its existing service.

All of these questions clearly point to the need for the Law Society and the SRA to set out clear guidelines on what will be expected of a solicitor not only in the discharge his or her duty to the  client but also in the course of a conveyancing transaction.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Wednesday, 29 October 2014

What is a Flying Freehold?


Some people may have heard of these but are unsure what they are. And although they are rare it is important to know what they are for when they do appear.

Flying Freehold

A flying freehold is a section of a freehold property that is structurally above another person's property and not connecting with ground level. Flying freeholds arise when part of one property is built on top of part of another property and so the upper property owner does not own the building or land underneath the "flying" part. A common example of this is where a room or part of a room is over a shared passageway in a row of terraced houses. A flying freeholder is subject to the risk that the subjacent owner may fail to maintain and repair its property, which may damage or prejudice the structure on which the flying freehold physically rests. A subjacent owner can be required to physically support and repair in relation to the freehold above it.

So what implications does this have when you are looking to purchase a property that may be subject to a flying freehold? The main concern is whom the obligations of support, maintenance and repair fall on and can those obligations be enforced. The problem here is that the burden or obligations of a positive covenant generally cannot be passed on from owner to owner, as they do not follow the land unlike restrictive covenants. In order for a positive obligation to perpetuate each owner needs to enter into a Deed of Covenant to observe and perform the positive obligations.

Through the passage of time, as flying freeholds tend to affect older properties, these obligations can become lost and the chain of a deed of covenant can break down. This therefore means that without this chain the property is left with no rights of support, access and repair.

There are solutions to this problem, the first being to enter into a Deed of Mutual Easement and Covenants with the neighbouring property. Both property owners enter into a deed of mutual easements and covenants, granting the necessary rights of support and protection, access for repair and maintenance for each other’s properties and imposing obligations on both parties to keep their own property in repair and insured and to reinstate if damaged. This is of course reliant on the co-operation of the neighbouring property owners and can add further time and money to a transaction.

The second solution is to obtain an indemnity insurance policy for a flying freehold. This is not the ideal solution as it simply papers over the cracks of the problem and does not fully resolve it. A primary concern with flying freeholds is not necessarily the rights to repair and maintain but the rights of access to be able to carry out repairs. An indemnity policy does not grant this.

Lenders are reluctant to lend on flying freeholds for these very reasons. They want to ensure the security for the mortgage is sound. As conveyancers we are bound to follow the guidelines set out in the CML handbook (http://solicitorsnews.blogspot.co.uk/2014/09/a-solicitors-dual-duty.html). One of the key points they ask in relation to flying freeholds and indeed freehold flats is that we can certify that the title is good and marketable. If the rights have been lost, do not exist or are difficult to obtain then the marketability of that property is reduced.

Freehold Flats

Very little explanation is needed as to what these are as it is right there in the name, it is a flat which is held and sold as freehold as opposed to leasehold.

The problem with this type of property is that very few lenders will lend on these. Going back to the CML handbook the first requirement to meet on this type of property is “the property must have all necessary rights of support, protection, and entry for repair as well as a scheme of enforceable covenants that are also such that subsequent buyers are required to enter into covenants in identical form”.

In an ordinary flat sold as leasehold these rights would all be contained within the lease. The lease would provide for payments from each leaseholder to contribute toward maintenance, repair and insurance. With a freehold no such document exists, therefore each freeholder is responsible for his or her own unit. But if you have a block of freehold flats and there is a problem with the roof, who has the responsibility for repair? If a unit on the second floor does not have insurance and then floods their property affecting the unit below, who is responsible for the repair? Does the unit on the ground floor have to claim on their own insurance, pushing up their own premiums?

The final key point to consider from the CML handbook extract above is rights of access. Again in a leasehold flat these rights would be contained within the lease. As conveyancers we need to ensure that you as the purchaser have the relevant rights to access your property. With a freehold flat where are the rights of access to the property contained, and where are the rights of access through communal areas to a second floor flat for example.

As stated above, very few lenders will lend on a freehold flat. But even if you are a cash buyer it is an investment which would need serious consideration. At some point in the future you may want to sell this property and lenders will be unlikely to provide potential buyers with a mortgage. In practice freehold flats are rare but they are something you need to be aware of, especially those reliant on a mortgage.

Article written by Michael Riches - Trainee with MJP Conveyancing  



MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Friday, 17 October 2014

Lender's Certificate of Title

When a client is reliant on a mortgage to fund their purchase of a property, there are certain requirements which a Solicitor must meet before they are able to request the mortgage advance from the lender in anticipation of completion. Solicitors request mortgage monies from the lender by submitting a form known as the Certificate of Title – COT for short; this article provides a guide of the process leading up to, and including, completion.

Before your Solicitor is able to submit the Certificate of Title, the Solicitor must ensure that all outstanding matters have been resolved, as, by submitting this request, the Solicitors is providing their confirmation to the lender that they have complied with, and satisfied, their requirements as outlined in the Council of Mortgage Lenders Handbook – the CML. A Solicitor must be able confirm the property has a good marketable title.  Such matters include, but are not limited to, the following:

Ø  ID checks have been carried out
Ø  Any potential gift elements connected to the transaction have been considered and acted on appropriately
Ø  All enquiries with the seller’s solicitors have been resolved to a satisfactory standard
Ø  All search results have been returned, reviewed and are clear of issues.
Ø  The valuation report has been considered and is clear
Ø  Client’s details, the purchase price and property details concord with the mortgage offer. Also, any special conditions attached to the mortgage offer have been considered.
Ø  Any prejudicial issues affecting the valuation of the property must have also been reported to the lender during the course of the transaction and resolved.
Ø  Confirmation that there are no onerous covenants or lack of rights of access or services to the property.

Once the above conditions have been satisfied, a transaction is able to proceed to exchange and completion, for which, a Solicitor will require a signed Contract and Transfer Form (though the latter is needed for completion more than at the point of exchange), confirmation that the client has approved the completion statement, an agreed completion date, deposit funds and confirmation that buildings insurance is in place.

It is important to note that standard practice usually dictates that 10% of the purchase price of the property acts as a deposit on exchange; furthermore, a Solicitor will require buildings insurance to be in place before they are able to proceed to exchange of Contracts – your insurance cover note should have your lender noted as an interested party.

Each lender will require a period of notice from receiving the certificate of title to releasing the funds which can be up to 10 working days (although usually 5 working days). This can sometimes lead to a delay in the exchange process as if a Solicitor is giving the lender less than their required period of notice they will need to obtain written confirmation from the lender that the mortgage advance will be released on the date of completion before committing you to exchange Contracts.

It is important to note that your Solicitor is only able to release the mortgage funds on the completion date if they hold sufficient funds to complete the purchase of the property, pay all stamp duty land tax and registration fees. This will mean that although after completion your Solicitor has 30 days to submit to the Inland Revenue the duty payable they will require you prior to completion to ensure they would sufficient cleared funds to enable them to do so. 

Article written by Charlotte Ribbons Trainee Solicitor 


MJP Conveyancing are solicitors who provide residential conveyancing services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Monday, 13 October 2014

The Law Society Conveyancing Portal - Destined for failure?

A new online conveyancing portal purporting to simplify and speed up the house-buying process, has entered the final stages of development and is scheduled to be launched to the conveyancing profession in Spring 2015.

The new online service, called Veyo ( named after a small town in the US?) , is a joint venture between The Law Society and Mastek UK, a global IT solutions specialist.

Its aim is to bring together all the processes from client instruction to completion, including checks and documentation prepared and undertaken by solicitors and licensed conveyancers in the sale and purchase of residential properties.

At its  recent launch there were some bold statements made  about this new system

“Veyo will shift the balance of power and give the profession greater control.” Jonathan Smithers, Vice President, The Law Society

  “Veyo will transform the way we do conveyancing.” Desmond Hudson, Chairman


   “Veyo will be secure, efficient and transparent” Elliott Vigar, CEO, Veyo

Conveyancers will be asked to pay a licence fee and a charge per transaction. The likely costing will be announced later this year, with a view to getting firms signed up from January 2015 onwards.

To justify the charge being the industry is told that Veyo will “reduce your costs of undertaking a conveyancing transaction and, fatten your margin.”

The investment?

A staggering £10million pounds has, or will have been invested in developing Veyo with the Law Society setting up a company to develop the system owning 60% of the shares and Mastek UK holding a 40% interest.

Money well spent?

Only time will tell but one must question the size  and  safety of this investment when it was not too long ago that the Law Society was left with egg on its face when its joint venture with MDA Advantage  to produce a Home Information Pack offering became one of the most famous IT debacles of recent times.   The cost of that project failure has never been released but it is clear that a sum not too far off that already spent on developing Veyo was lost. 

Spending such a large amount of members money on a project which claims to be there to support the CQS Protocol also begs the question whether the money would have been far better spent on looking to reform an antiquated conveyancing process ( last reformed in 1925) and or on extra staff and other resource for a Scheme which is clearly buckling under its own success. Why run with a new project and look to advance this with haste whilst  there  remain major cracks in the infrastructure of CQS? 

It is evident from speaking to some major conveyancing IT providers that the offer of making existing and proven systems available to the Law Society when the idea was first mooted, was not well received.  In fact the feedback is that quite a number of those technology companies were given the ‘cold shoulder’ in a way which had  caused much alienation.   Its surprising  that the Law Society chose not to go to a recognised supplier but instead decided to re invent the wheel and in the process spend a large chunk of money which could have been utilised on a  far more deserving project. 

My firm decided back in 2011 to invest in our own technology and with one developer we were able to develop an online conveyancing case management system which I know performs 80% if not more of the functions which Veyo say it will be offering.  The cost of our investment  baas peanuts in comparison. I acknowledge the Law Society is looking for robustness and security and I accept this accounts for part of the cost.   However there are plenty of Technology providers out there who could have delivered at a much reduced cost. 

There must also be some concern over the commercial aspects of the ‘partnership’. Like many of these joint ventures the actual terms of the arrangement will not be made public even though a large chunk of the investment has come from the Law Society's members. One thing for sure the commercial partner will not be making a hefty investment  without assurances that the project will be providing its shareholders with a sizeable profit within a reasonable amount of time.   This means  Veyo will need to pay for itself within 12 to 18 months and much of the early revenue will be dependant on a heavy take up of the system. It will also probably mean a high license fee and transaction cost.  

The dependancy on licence and transaction fees must give rise to the fear of ‘lock in’ arrangements with the CQS sitting at the top of the tree.  How long will it take before all CQS  members will be required to renew and  or apply for panel memberships through Veyo? Making membership of Veyo as a pre - requisite for joining or continuing with CQS must also be announcement waiting to happen. 

On top of this we will soon surely see restrictions on the use of third parties through Veyo. It will clearly follow that only preferred suppliers of ID checks, Searches will be available to the users of the portal.  To make money and to ensure its longevity I fail to see how the Law Society can avoid passing down the same route as those companies which run and operate successful referral platforms.  

We should all be calling on the Law Society to disclose its future plans and details of its business plan for this project for the next 3 years.  I suspect this will fall on deaf ears. 

Take Up 

I was told not too long ago by the Project Manager that a survey had been conducted and the results of this gave a clear indication that a large number of conveyancers have already committed to subscribing to Veyo.   This may be so, but its surprising that none of the large players in the industry have following the recent launch stepped forward to record their support and commitment to the system. I also question why the survey data has never been released. If supportive of the large investment why have we not had sight of it?

The sale literature around the system boasts ‘A system made by conveyancers for conveyancers’  I am sure we would a all like to know which conveyancers were involved in the development as its clear that the Law Society is very far removed from grass root conveyancing and would not be best placed to advise on how processes work on a day to day basis. 

Integration 

There will we are told be third party integration kits. The Law Society say most of the Legal IT providers have said they will integrate with Veyo.  Surprisingly none of those suppliers have as yet come forward. I suspect they may be waiting for the commercial terms of the arrangement to be published before going public. 

There may exist conflicts between the commercial objectives of Veyo and other IT providers and going forward this may prevent the widespread use of Veyo.  Why would a large conveyancing business having already invested a large amount of time in securing and training with a current supplier wish to spend further time and money on either switching or having to change work flows etc to accommodate what in many cases would be an unnecessary ‘add on’.

Lenders

I was told that one of the aims of Veyo is to facilitate the movement of money between conveyancers on completion.   This is an ambitious step but would suggest that the Law Society has been working with Lenders.   Bearing in mind the large investment already made in this project it is again worth recording that as yet none of the major lenders have come forward and given their backing to this project. On the contrary they have instead focused their attention on establishing and promoting a different system namely the Lender Exchange. 

The Exchange had a shaky start but has found its feet; I suspect Veyo is likely to face a more difficult introduction and having not it seems engaged with the Exchange during development this could in due course prove to be a fatal  error of judgment. 

Viability 

Unless the Law Society and or  PII insurers decide to compel all of those undertaking conveyancing to use Veyo ( which is most unlikely) it seems that that the system like many others before it may be destined for failure.  Its no good having a hub to communicate with others , when some of the conveyancers in a chain have chosen not to use the system. 

Conclusion 

It is far too early in the day of course to pass judgment on a system which has yet to be released and which continues in the meantime to be nothing other than a concept.  

However for this to work and to be successful there needs to be complete transparency on the commercial arrangement as well as low start up fees.  There will also be a need for the Law Society  to win the hearts and minds of the conveyancing community.  This may be difficult given its appalling track record and its continuing failure to connect with those who operate at  grass root level. 

David Pett - Director and Solicitor 

MJP Conveyancing  are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Thursday, 2 October 2014

The Death of Leasehold Exit and Sub-Letting Fees?

There is great speculation surrounding the future of fees charged by Freeholders and or Managing Agents on the subletting of leasehold property.

This follows news that the Law Commission is going to examine the right to charge such fees as well as leasehold exit fees charged when selling or renting out a retirement flat.

According to the Leasehold Knowledge Partnership speculation is rife that such fees will be outlawed for good. 

The Partnership reports on its website:

‘This means anyone selling or renting out a retirement or non-retirement flat should keep all documentation with a view to making a claim in two and half years time’.

It adds:

‘LKP is deluged with inquiries about subletting fees, often where freeholders and their managing agents are plucking figures from the air for a sublet consent.

The tribunals have dealt with countless cases, but there is no binding decision on what would be a fair sublet consent (most freeholders have to give consent to a sublet, usually followed by the word “such consent not to be unreasonably withheld”.

The retirement sector is further complicated because some sublet fees are contributions to the contingency fund and some are set at one per cent of market price.

One family at Gibson Court, in Hinchley Wood, Surrey had to pay a sublet fee of £2,500 into the contingency fund last January.

McCarthy and Stone this month dropped the one per cent contingency charge at all sites where it is the freeholder in favour of an £80 plus VAT fee’

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk