Estate Agents: Unlawful restriction on freedom of choice of conveyancer

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Times are hard for a number of estate agents, and with a sharp fall in commission, a number of agents are focusing more on increasing their secondary revenue streams, particularly referral fees.

We all know that referral arrangements exist and are, at least for now, a fact of life. The question whether agents and linked conveyances are as open about these arrangements as they should, is less clear.

The pressure on agents to maximise secondary income has led to an increasing number of complaints about the unprofessional and unlawful tactic of ‘bad mouthing’ the vendor’s choice of conveyancer in an effort to ‘sell’ the service of their own pet conveyancer.

We have found ourselves the victim of this practice.   Three local agents have made unjust remarks about our service in an effort to deter prospective clients from engaging us.   We have written to each and have not had the courtesy of a response.

This conduct is abhorrent and is on the rise.   The objective is clear.  The agent is keen not to lose the commission that will be gained if the agent can steer the client to the agent’s pet conveyancer.  No regard is had to the wishes of the client or indeed the client’s rights. 

A truly independent conveyancer will undertake due diligence on the legal title without influence from the agent,  and may, for instance, advise the client not to proceed with the purchase if there is a major issue with the title.   The conveyancer may also assist the client to purchase the property at the current market price and not at the value advised by the agent.   In short the conveyancer will act independently to everyone apart form the client. 

The risk for the client who is pushed in the direction of the preferred conveyancer is that the service provided may be strongly influenced by the value to the conveyancer of the high volume of work it receives from that agent.    There will be pressure on the linked conveyancer not to upset the agent who is feeding it with regular work.   The conveyancer would be less likely to advise on issues that could delay or jeopardise the transaction. 

So what is the narrative these agents use to ensure a prospective client goes with their recommendation?

Firstly, its best to use “our conveyancer is local" - There is no great advantage in a conveyancing solicitor being local because nearly all conveyancing tasks are completed using email and telephone.  Just because the conveyancer is local does not mean the conveyancer is any good!

“We use them all the time" - by the very nature of the arrangement, which will not be disclosed,  this is true. However the agent will have no direct control over the pace of the transaction, nor the actions of the other conveyancers in the chain. 

"Our conveyancer  is quick" -  There is no conveyancer who can guarantee a quick service due to the fact that the transaction will only proceed as fast as the slowest party in the chain.   Conveyancers have little control over the delivery time of searches and mortgage offers, for instance. 

‘If you go with your choice of conveyancer you will have problems’  - if a client hears this he or she should run a mile. Though the agent may profess to know about very conveyancer under the sun, the reality is that the agent will have little genuine information on the conveyancer and will not be basing the opinion on any facts.   The very fact the agent has mentioned this should ring alarm bells straight away.  The best advice is to walk out of the agency and look to find an honest agent, or to go the choice of conveyancer direct who  we are sure will point you in the right direction. 

It is both morally and legally wrong to provide false information in the delivery of a service. 

The National Trading Standards' Estate Agency Team issued guidance on property sales in September 2015 which clearly sets out the duties which estate agents, must provide to consumers, what rights consumers and clients have and what redress they have.

The guidelines are far-reaching and legally enforceable and breaches can be prosecuted in the criminal courts, resulting in possible jail terms and unlimited fines.

In particular, unfairness in practice, as defined in the guidance, is defined as results arising from the following:

• Giving false or misleading information to consumers regardless of how delivered, whether verbally, in writing or via telephone. This would cover providing a client with misleading information about the clients preferred conveyancer.
• Exerting undue pressure on consumers including pressuring a potential buyer to use associated services for example to use a particular firm of conveyancers
• Not acting with the standard of care and skill that is in accordance with honest market practice and in good faith.

Furthermore it  is illegal under the Estate Agents Act 1979 for an Agent to force a client to use the Agent’s preferred conveyancer. 

Blame for this practice does not stop with the agent and a client faced with pressure should also report the Agent’s pet conveyancer. 

Both the Solicitor's Regulation Authority (SRA) and the Council for Licensed Conveyancers (CLC) make it very clear that its members are meant to ensure that their client has chosen them to act without pressure being exerted on them to do so.

If  a client considers  he or she has been caught up in one of these referral arrangements and have been deprived of a free choice of conveyancer our advice is to complain to the Agent and also to the Regulator of the pet conveyancer. 

We will be happy to provide you with advice on you options. 

And finally….  Do keep in mind that it will probably cost the client  more - ( between £100 and £200) by engaging the pet conveyancer because most of these arrangements work on the basis of the referring agent’s referral fee being added to the fee paid for the 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 01603877067 or via email at davidp@mjpconveyancing.com

Say 'No' to leasehold property

It goes against the grain to advise a client not to proceed with a property transaction, especially when the client has his or her heart set on purchasing the property.  However, as a responsible legal advisor we need to less afraid of saying ‘No’. 

Leasehold property is attracting a lot of negative press of late, and is the focus, as we know, of Government attention .  The temptation is to look at this as yet another ‘scare story, and one which, in time, will blow over. The reality is it is unlikely it will, and if anything, it is likely to get worse before we will see any improvement.  It's therefore dangerous, and potentially negligent, for conveyancers to stick their head in the sand and ignore the many warning signs appearing on a daily basis. 

Doubling rent review clauses and provision for rent increase at regular issues are presenting a major hurdle for those who are looking not only to buy, but also sell, leasehold properties. It was only yesterday that an estate agent called to enquire why we were advising a client to withdraw from a transaction when the agent was aware other properties in the same development had recently sold. 

It is now recognised that it will be more difficult to sell a leasehold property which has a doubling ground-rent charge that rises after 10 years. This doubling of ground rent may have an impact on the marketability and mortgageability of the lease when selling or buying with such a clause. Some lenders may not agree to offer a mortgage on a property with a doubling ground rent. Nationwide has formally started declining mortgage offers which include a doubling ground rent clause.

At present its a lottery as to whether a lender faced with one of these clauses with be prepared to lend. In the light of this, and the ever changing lender landscape, would it be sound advice to allow a client to purchase a property subject to a lease with one of these clauses? I would submit it would not, unless the lease could first be varied to remove the offending clause.  Some conveyancers looking to avoid the delay and cost of seeking a lease variation, advise clients to take out indemnity insurance.  I am not sure I agree with this because insurance only acts as a sticking plaster, and not as a cure. Furthermore, even if the lender is happy to accept insurance there is no guarantee that other lenders will be minded to accept the policy when it comes to sell/remortgage. Moreover, lender policy seems to be changing these days quicker than the wind. 

There is also a danger of some conveyancers becoming too fixated on what the clients lender is saying about the clause and ignoring in the process the best interests of the lay client.  It is unsafe to assume that just because the lender is happy to proceed, that the client will also be content to continue.  The client needs to be made aware of the dangers of purchasing a property with one of these causes in the lease, and in my mind advised not to proceed with the transaction. 

If the client disagrees then a letter setting out your advice should be sent and the client should be asked to confirm instructions in writing notwithstanding the advice. The client should be warned along that this type of rent review clause may:

• be costly to the client as the rent increase (although as it gets more expensive this won't be during the clients life time);

• stop a future buyer from getting a mortgage as mortgage lenders do not like doubling ground rent clauses (it might even prevent the client from re-mortgaging);

• cause an issue on sale as the buyer doesn't want to buy a property with ground rent that doubles; or

• reduce the property's value (the ground rent liability makes the property less valuable).

This represents a serious issue for conveyancers, and until Government makes these clauses illegal, conveyancers should be saying ‘No’ more often than I fear is happening at present.

David Pett - Solicitor  

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Help To Buy – Two steps forward one step back on the Property Ladder?

The difficulty for First Time Buyers in getting that first step on the property ladder is well documented; the price of homes. The Independent reported in April 2018 that the average house price is now up 8 times on the average earnings. Grim reading for most, and why schemes such as Help to Buy ISA’s, SDLT breaks for First Time Buyers and now Shared Ownership Purchasers are a welcome relief to many looking to purchase their first home. Is the Help to Buy loan really the silver lining in the gloomy cloud of the property market for First Time Buyers? Whilst it offers the additional 5% required to meet that first rung on the ladder is it a false start? 

Home moving company Reallymoving.com have suggested that Help to Buy loans could be as problematic as PPI claims and just as prevalent reporting that 70,000 First Time Buyers could be effected. The market research carried out shows that those using Help to Buy Loans paid on average 8% more for their homes, than those who did not, meaning that the short term gain is actually a loss in the long run. Clearly if there is more debt to pay off then when it comes to selling your property there becomes a real issue in terms of assessing what it is worth. The risk is that your home simply isn’t worth what you have paid for it and therefore you end up having to pay to sell your home.

The scheme works on the basis that you can borrow up to 20% of the property value and you don’t have to pay any of this back for the first 5 years. Subsequently you pay 1.75% for 5 years and thereafter 1% above inflation. Given you can only pay this loan back in either 50% increments, or wholly, and the average Help to Buy loan is  £56,000.00, not many first time buyers are going to have that kind of money. It therefore begs the question; is the Help to Buy loan scheme actually only serving to increase property prices artificially in order that these first time buyers actually have sufficient funds to pay them off!

The Help to Buy loan’s conditions make it very burdensome to pay back, it is not possible to pay in monthly installments, or alongside a mortgage or similar, it must be paid in large lump sums which simply do not suit its target market. The Government and Help to Buy agencies should perhaps realign the Help to Buy Loan with its intended audience to make a more effective and worthwhile product. The success of the Help to Buy loan is that it has helped over 183,000 first time buyers buy their first home, but unfortunately for those in this scheme the worst may indeed be yet to come.

Thomas Barnes  - Trainee Solicitor 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Taking the stress out of moving home

Alongside family and a job, a person’s home is one of the most important parts of anyone’s life. It is therefore only natural to find yourself becoming stressed during the conveyancing process. This blog written by Emma Soulby Trainee Solicitor with MJP Conveyancing, looks to give you some practical advice in order to make the process as stress free as possible. 

1. Start early - in most cases the process will take longer than you anticipated. We recommend that you start looking for a solicitor at least three months before you would like to move. We are able to set up a file whilst you find a property to buy or consider offers. Although the conveyancing process takes 6 to 8 weeks on average, the smart move is to certainly give yourself flexibility to accommodate for any hiccups along the road and reduce the stress you are likely to experience. 

2. Get organised - look for key documentation when selling to make the legal process as smooth as possible. This will help to cut down enquiries which form the middle stage of a transaction. When purchasing, get your finances in order so that your solicitor can complete their source of wealth checks in a timely manner and your lender, if applicable, can get their mortgage offer issued. If in doubt about what you need to do, speak with your solicitor to discuss the next steps to see if there is anything you can get on top of. 

3. Don’t make your own pressure - far too often we come across clients who are living in boxes when contracts have only just been drafted! This undoubtedly causes unnecessary stress. To combat this, consider ensuring there will be sufficient time in between exchange and completion, such as 3 to 4 weeks, to allow you time to pack and to book removals. If you would like this, it is best to let all parties know as soon as possible so that the chain takes this into account when planning and discussing completion. In the same vein, we advise clients not to agree a completion date too early in the process. Having a date in mind at the start of the transaction leads to unrealistic expectations and frustration when a transaction may be progressing well but not in line with your target timeframe and dates inevitably have to be pushed back. Giving notice for rental accommodation before exchange of contracts, for example, is one of the worst things a client can do not least because it risks them being made homeless. 

4. Try to keep communications with the other party to a minimum- you have a solicitor, and possibly an estate agent, for a reason: to act on your behalf. Texting the seller, for example, can sometimes cause stress as the individuals may not appreciate the legal complexities which are being dealt with before a completion date can be agreed. Similarly, please remember that you should not contact the other party’s solicitor. This is a conflict of interest and a breach of professional conduct rules. 

5. Empty your plate - as one of the most important aspects of your life, it is astonishing when we sometimes find a client who is getting married or going on holiday at the same time as moving. This increases the pressure you will be feeling regardless of how the conveyancing process is going. Although circumstances cannot always be helped, do try to handle one matter at a time so that you can give it your full attention and experience as little stress as possible. 

Emotions will always be a part of the moving process so these practical tips aim to give you an insight into the common pitfalls we see clients make as solicitors. Going into a transaction organised and with an open mind will make the process as stress free as possible.

Emma Soulby - Trainee Solicitor 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

The Insurance Distribution Directive and Conveyancing - Are you ready ?

The Insurance Distribution Directive (IDD) will introduce  as from the 1st October, 2018 a new regime for those involved in insurance sales, even if selling insurance is not your primary business.

The IDD is designed to strengthen insurance customer protection, and will also apply to all businesses involved in the insurance supply chain, including where insurance is sold alongside other products.

So this will cover, for instance, the proposal and supply of defective title indemnity insurance. In this article I will look at the role adopted by most conveyancers when it comes to acting as a facilitator of indemnity insurance products. 

The SRA advised: “All firms should therefore assess their own individual practices and make sure they are… able to comply with the revised rules.”  The SRA has yet to issue confirmation of final rule change, though this is expected to be published shortly. 

Suppliers of indemnity insurance have also been slow off the mark to provide guidance and revised documentation even though these changes were due to be introduced back in February of this year. 

What is meant by insurance distribution activities?  

This will cover advising on and proposing contracts of insurance as well as carrying out work preparatory to the conclusion of contracts of insurance.  Most conveyancers who facilitate  indemnity insurance will fall within the category of “Ancillary Insurance Intermediary’. That is service providers and distributors of goods who distribute insurance products on an ancillary basis.

What are the requirements for engaging in insurance distribution activities as an ancillary insurance intermediate?

There needs to be evidence of registration with the your regulator to undertake such activities. 

Those involved need to be of good repute and possess  appropriate knowledge and ability to advise on and propose insurance products.   

This will entail training on products and on what formalities need to be addressed when engaging with clients.  The specific requirements for individuals to undertake 15 hours CPD relating to the provision of Insurance Intermediary Activities do not apply.

A  manager must be appointed to ensure compliance and records must also be kept to demonstrate  compliance. 

What are the rules on remuneration?

The IDD is keen to avoid conflict of interests when it comes to advising and supplying insurance products.    

This will therefore prevent a conveyancer from making  any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to the conveyancer or their employees to recommend a particular insurance product to a client when the solicitor could offer a different insurance product which would better meet the client's needs.

This will also mean a conveyancer will to be able to be paid a commission  or other advantage  for the supply of indemnity insurance without full accountability to the client. 

What information needs to be given to the client at the point of the retainer?

The client care agreement will need to be reviewed. Precise and clear information on the what what the conveyancer can do and not do under the IDD needs to be given.  The conveyancer’s regulator must be stated and the complaints procedure for dealing with complaints about the provision of and advise on insurance products must  be made clear. 

What information must be given before the indemnity insurance cover is put into force?

The requirement for a demand and needs statement remains and is extended. 

(a) sets out the client's demands and needs on the basis of the information provided by the client;

{b) where a recommendation has been made, explains the reason for recommending that contract of insurance;

(c) reflects the complexity of the insurance contract being proposed;

There is an obligation  to also provide the client with objective and relevant information about the insurance product in a comprehensible form to allow that client to make an informed decision while taking into account the complexity of the insurance product and the type of client. This shall be provided by way of a standardised insurance product information document ("IPID") on paper

The IPID 

This will be supplied by the  indemnity insurance supplier and shall include:

(a) information about the type of insurance;

(b) a summary of the insurance cover, including the main risks insured, the insured sum and, where applicable, the geographical scope and a summary of the excluded risks;

(c) the means of payment of premiums and the duration of payments;

(d) main exclusions where claims cannot be made;

(e) obligations at the start of the contract;

(f) obligations in the event that a claim is made;

(g) the terms of the contract including the start and end dates of the contract; and

(h) the means of terminating the contract.

What obligations are there when recommending to a client which insurance cover to run with?

Where a conveyancer recommends a contract of insurance, the client must be informed this is made on the basis of a fair analysis of the products available within the market.  This will involve looking at a  sufficiently large number of insurance contracts to enable a recommendation of a product which would be adequate to meet the clients' needs.   This will for example involve looking at the extent of the cover, whether the cover has an escalation clause, the rating of the insurer within the market and the conditions of the cover.  In other words making sure the client can make an informed decision about the product. 

If you are only using one provider of indemnity insurance the time may have come to look to other providers for comparable products or to a provider that can supply you with a list of  number of similar products for selection. 

Conclusion 

In practice if an indemnity policy is required it is often requested by the buyers conveyancer. If this is the case and you are acting for the seller given the above you should be saying it is for the buyers conveyancer to look for the policy and to determine which policy would be suitable for their client.  It would not be appropriate nor advisable for the buyer’s conveyancer to allow the buyer to accept a policy put forward by the seller without checking its suitability and carrying out an analysis of the market. 

If a policy is required the key is to ensure the client is presented with all of the information required under the IDD and is left to make the decision on which policy  designed to address the relevant defect he or she wishes to take out.   Providing  the appropriate policy required to address the defect is correctly identified  one should be  looking to only provide general advice to clients on the difference in insurer ratings and   the benefits of escalation clauses  when proposing insurance options. It should be made clear that cheaper cover may not always be the best option. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

‘Buyer Beware’ - Tips to avoiding post completion issues.

We all like to imagine our dream homes being exactly the way we envisaged upon completion.

Being able to move in with no issues and taking our time to replace items such as the boiler and improve rooms such as the kitchen and bathroom. Unfortunately our dreams are not always a reality on completion.

The unfortunate reality of purchasing a property in England and Wales is that the risk is  entirely with the buyer. It is for the buyer to inspect everything in as much detail as possible and for the buyers Conveyancers to raise adequate enquiries to eliminate as much of the risk as possible. This is really where your detection skills are put to the test.

We cannot stress enough the importance of inspecting the property as thoroughly as possible. Ensuring you not only view the property but test the items within it. Asking the seller to switch on the heating in the middle of summer can seem a bit excessive however it will reduce any doubt over the state of the boiler - a costly post completion situation we all too commonly see. Ask the seller, when was the boiler last serviced, if this was not within the last 2 years or if they do not have the report it may be worthwhile asking for it to be serviced prior to exchange of contracts.

Another equally important factor is to ensure that you commission a home buyer survey prior to exchange. It may seem daunting looking at the results but as your conveyancers we can view the home buyers survey and advise on any specific issues to be concerned with. If  necessary we can then raise further enquiries with the sellers solicitors. Our recommended  surveyors can assist and details can be found on our website : www.mjpconveyancing.com 

Finally if there is anything that is of particular concern to you but you do not feel this has been dealt with during the course of the enquiries do let us know. Once exchange has taken  place the seller is not obligated to respond to any further enquiries and it is therefore  important anything you wish to raise is dealt with pre exchange.

Post completion issues really can hinder your enjoyment of purchasing a new property, do  not be caught out inspection is the important key.

 

For further advice on post completion issues please do not hesitate to contact our dedicated  team - completions@mjpconveyancing.com or sophie.goodman@mjpconveyaning.com

Sophie Goodman

Trainee Solicitor

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

The Dreamvar Appeal- Strict Liability for identity imposter fraud cases?

The long and much awaited Court of Appeal decision in Dreamvar (UK) Ltd v Mishcon de Reya and the linked claim in P & P Property Ltd v Owen White and Catlin LLP, has now landed, and for the conveyancing industry, landed with a big bump.

In both cases a fraudster posed as the legal owner of the property.  Each buyer instructed solicitors to act in the purchase and each transaction completed.  The sale proceeds were unwittingly released to the fraudsters and the fraud was only discovered after the money was completely out of reach.  The buyers were left high and dry and took action against their advisers.

In Dreamvar, the purchaser sued the solicitors acting on the purchase as well as the selling solicitors and selling agent. Even though the judge at first instance had no issues with the purchaser’s solicitors conduct of the transaction they were found liable.

On appeal the Court of Appeal has attempted (and in many areas failed) to provide clarity on the following issues, and unfortunately the news for conveyancers and their insurers is not good.

Breach of warranty

The Court of Appeal found that as the selling conveyancers signed the contract in P&P there was a warranty that the selling solicitor’s client, that is the imposter, possessed the authority to transfer the title, and that as the buyer placed reliance on that warranty the selling solicitors remain liable for the losses.

It’s not clear what the position would be had the imposter signed the contract and not the seller’s solicitors. What is clear is that if the seller had included in the special conditions within the contract a clause to the effect no warranty as to the true identity of the seller is given, and that any reliance on any a warranty to this effect is unjustified, the decision might have been different. 

In practice this could give rise to a stand off between the seller and the buyer and it is clear urgent guidance from insurers, the Law Society and the CLC is required. The late intervention of the Law Society in this appeal represented a lost opportunity to make a marked impact on the decision and as always it is the practitioner which has been left with uncertainty and unnecessary risk.

Breach of Duty

Some good news! As anticipated the Court held a seller’s conveyancer does not owe a duty of care to a buyer.

Breach of Undertaking

The Court held that the undertaking that forms part of the Code for Completion covers the situation where the funds are received from a buyer in a situation where as in these cases the seller is not the legal owner of the property. Therefore, by releasing the funds to the imposter, the seller’s conveyancer had breached the undertaking.  This gives rise to not only professional difficulties, but a sellers conveyancer could also find themselves on the end of enforcement action under summary jurisdiction.

I would suggest there is a need for seller’s conveyancers to look to modify the Code and make it clear that the authority to receive is on the understanding that all reasonable efforts to identify the seller as the owner have been made, and that as no warranty to that effect can be given, the undertaking should be viewed as amended in these terms. 

Again, guidance from the insurance industry and the professional bodies is needed sooner rather than later.

Breach of Trust

Further bad news for the conveyancer.

The questions addressed were:

Should the buying conveyancer be excused from their liability for breach of trust under section 61 of the Trustee Act 1925 when they had acted properly, and whether the seller’s conveyancer is liable for breach of trust at all when they innocently release the money to the fraudster.

As for the seller’s conveyancer it was held there was a breach of trust as there was not a genuine completion – it goes without saying that completing the transaction on behalf of the fraudster and not the true owner is not a true completion.

Unfortunately, little if any guidance on what would constitute grounds for establishing a successful s61 defence was given. If these cases go onto the Supreme Court, which is probable, then hopefully some useful guidance for the industry may be given.

Clearly, carrying out good AML checks and having regard to what are now well-established red flags (vacant property, no charge, large sale price) would be a good start.  Making sure in these cases that there is evidence tying the client to the property should now be a routine check. However, given the exemplary conduct of the buyer’s solicitors was not found to be sufficient to justify a S61 defence, it is questionable whether a S61 will still be an option, irrespective of the steps a conveyancer takes.  This is bad news on all fronts as it could lead to a sizable increase in PII premiums.

It also gives rise to the possibility of the seller’s conveyancers saying to the buyer’s conveyancer that they may wish to perform their own checks on the seller before proceeding. The buyer’s conveyancer may in turn advise their client whether they wish to proceed with a transaction where there is no warranty given as to the identity of the seller. In other words, putting the risk at the door of the buyer. In Dreamvar the first purchaser pulled out for this very reason. 

Conclusion

It seems we are close to seeing a strict liability era for conveyancers who unwittingly find themselves on the wrong end of imposter fraud of this type. How the insurance industry reacts to this remains to be seen.

David Pett – Property Law Solicitor

15/5/18