The practical implications for conveyancers arising out of the decision in Purrunsing v A’Court & Co & Anor - An article by David Pett Solicitor and Director MJP Conveyancing

HH Judge Pelling QC

In Purrunsing v A’Court & Co & Anor [2016] EWHC 789 (Ch) conveyancers for both the seller and buyer  were held liable for the actions of a rogue seller who committed a £470,000 property fraud.

In this article I examine the findings and provide some thoughts on how conveyancers may wish in the light of the decision to adapt certain parts of their processes. 

Facts

London based conveyancers Home Owners Conveyancing Limited (HOC) (the second defendant) acted for the purchaser (the claimant) of a property which was sold by a rogue seller who was purporting to be the registered owner of a £470,000 property.  The fraudster who claimed to be but was not the registered owner ‘Mr Dawson’ was represented by the Windsor based conveyancers A’Court & Co (ACC) (the first defendant).

By the time the fraud was discovered, the claimant has transferred the purchase monies to his conveyancer (HOC), and these monies had in turn been sent on to the fraudsters solicitors (ACC). Following completion of the transaction ACC then transferred funds to the fraudster to an account held in Dubai.

The issues

ACC the solicitors acting for the purported seller were initially found to have made the payments to the fraudster in breach of the duty of trust it owed to the claimant.

The issues before HH Judge Pelling QC in this case were as follows:

Having acted in breach of trust should ACC be granted relief under s61 of the Trustees Act 1925?  S61 provides:

"If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, … but has acted honestly and reasonably and ought fairly to be excused for the breach of the trust … then the court may relieve him either wholly or partly from personal liability for the same."

Should the claimant’s conveyancers (HOC) be liable to the Claimant for breach of contract or negligence?

In the event both firms of conveyancers should be held liable to the claimant how the liability should be apportioned between the two firms?

The findings – the claim against ACC (the ‘seller’s’ solicitors)

HH Judge Pelling found that ACC had not acted reasonably and were not entitled to relief under S61.

He based this on the following findings:

Upon considering the Money Laundering Regulations 2007 and the Proceeds of Crime Act 2002 he concluded:

‘……..that is that the solicitor concerned is required to look at all of the information available and assess whether it is consistent with the transaction that the client wishes to carry out being a lawful one. That much is obvious from ss.327-329 and s.340 of POCA. As the Note makes clear, that exercise "… may include considering whether the client is actually the owner of the property they want to sell"’.

He added:

‘As I have explained already, that will not be necessary or appropriate in every case in which a solicitor is retained to act for the vendor of residential property. In each case a judgment will be required based on the risk posed by the transaction in question. That is the effect of the part of the Handbook [Conveyancing Handbook set out above, which emphasises the need for a risk-based approach to be taken’.

In short, the Judge stated that a reasonable solicitor carrying out due diligence required by the MLR and adopting as per the Conveyancing Handbook a risk based due diligence approach ought to have considered whether Mr Dawson was the owner of the property he was purporting to sell in order to assess whether the transaction was a lawful one.  I will deal with the practical implications of this shortly.

The findings – the claim against HOC (the buyer’s solicitors)

The finding that HOC has acted in breach of contract and or duty of care was based on the following general principle applicable when considering the extent of the duty of care owed by a conveyancer to a client:

‘That in general a solicitor or licensed conveyancer is not obliged to undertake investigations that are not expressly or impliedly requested by the client but that if in fact a solicitor or licenced conveyancer acquires information that may be of importance to a client, then it is the duty of the solicitor to bring that information to the attention of the client.'

In this case HOC had raised an enquiry with ACC in the following terms:

"Please confirm you are familiar with the sellers and will verify they are the sellers and check ID to support same"

In reply ACC had responded:

‘2) As explained to you over the telephone, prior to being approached to act on the sale we have no personal knowledge of Mr Dawson, but we confirm that we have met him in person and have seen his passport (and retain a copy of the photo page) together with utility bills etc showing his UK address as notified to us’.

There was a failure on the part of HOC to inform the claimant that this question had been raised and also to make the claimant aware of the significance of the reply even though it was found that the claimant had failed to read the replies sent to him.

The Judge found:

‘HOC was in breach of contract and/or duty to the claimant in failing to inform him that (a) Additional Enquiry (2) had been raised, (b) that the purpose of that additional enquiry was to attempt to establish a link between the property and the apparent vendor, and (c) the answers received showed that (i) ACC had no documents whatsoever relating to this property, save for those already received (and thus for example they did not have the Deed of Gift of which Mr Beach had made enquiries by the earlier letter from him to Mr A'Court of 16 October 2012); (ii) ACC had no personal knowledge of Mr Dawson, and (iii) ACC had not verified, and could not confirm from the information available to them, or at least had not confirmed from the information available to them, a link between the vendor and the property, and (d) in consequence, there was a risk in proceeding with the purchase.’

The findings – Contribution

The judge found both firms of conveyancers equally to blame having regard to ‘…relative causal potency as well as comparative blameworthiness by reference to the facts and matters…’

The Practical Implications when acting for the seller

It is clear that when acting for any client there is a need to carry out a risk assessment not only on the client but the transaction itself.  In carrying this out one needs to keep in mind the MLR, POCA and Conveyancing Handbook requirements and guidance. 

The case assists in identifying certain risk indicators that any responsible conveyancer would be foolish to ignore.

In this case the solicitors acting for the rouge seller chose to reply blindly on routine money laundering checks ignoring the following warning signs:

They knew that the property was unoccupied

They knew that it was not subject to a charge

They knew that Mr Dawson had given an address that was not either the address for the property or the alternative service address that appeared in the proprietorship register for the property.

It is abundantly clear that faced with these facts that a reasonable solicitor should obtain from a seller documentation of any sort that could establish a link between that individual and the property.  In this case there were two addresses shown for the registered proprietor none of which matched the address given by the rouge seller to ACC.

It should be kept in mind that ACC knew that that a previous attempt to sell the property on behalf of the rouge seller fell through after the then prospective buyer pulled out when the rouge seller failed to provide evidence of employment in Dubai.  

So where a seller produces evidence of identity and of an address which is not that shown on the land Registry title it would be prudent to insist that the seller produces documents or other evidence which shows a connection between the seller and that of the property to be sold.

I also suggest that it may in some circumstances be wise to ask for details of the solicitor who acted on the purchase of the property so that appropriate checks can be made with that solicitor over identity etc

The Practical Implications when acting for the Buyer

It seems to me that the buyer’s solicitor in this case fell foul due to raising a question which probably they did not need to raise.  Remember the Judge in this case found for the claimant because of a failure on the part of the conveyancer to ‘…ensure that the claimant proceeded at all times on an informed basis.’

Therefore one may be best advised not to raise questions that go behind the Land Registry evidence of title since once raised there is then a professional obligation to make sure the client is made aware of any question and to ensure that when the reply comes in that advice is given on the reply and that any ambiguity and or uncertainty is fully addressed.

The rouge seller’s first attempt to sale failed however after the buyer solicitor was asked for evidence of the seller’s employment in Dubai.

It may in the light of this be prudent to raise as standard enquiries the following questions:

Is the seller based in the UK? 

If not please provide evidence of the seller’s employment based abroad.

A fraudster could still get around this and provide fake evidence but with reference to the S61 defence and the findings in this case it would at the very least show some attempt of trying to protect the buyer’s money.

You may also wish to ask whether there have been any previous attempts to sell the property and if there were why these did not proceed.  

Remember however that if you raise the questions do make sure that you receive full and complete replies.

Other implications

It is clear that when receiving replies to enquiries there is an obligation on a conveyancer to ensure the client sees the replies as well as raising with the client any issue within those replies which could influence the client’s decision to proceed with the transaction.   Sending the replies out to the client and asking the client to simply read and digest is not sufficient.

Conclusion

There is nothing remarkable about this decision other than the fact it should act as a reminder to all conveyancers of the need to keep the risk of fraud in mind at every juncture of the transaction and if acting for a buyer not to assume in every case that the seller has carried out full risk based due diligence. 

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 david@mjpconveyancing.com

Stamp Duty Changes - Guide for clients and conveyancers

The Government has now confirmed the rules for higher stamp duty land tax higher rates for purchases of additional residential properties.  These changes will take effect as from the 1^st April 2016

In this article some of the main features of the changes are examined.

The higher rates will be 3% above the standard rates of SDLT but will not apply to purchases of property under £40,000 or purchases of caravans, mobile homes and houseboats. Transitional provisions provide that where contracts were exchanged on or before 25 November 2015 and the purchase completes on or after 1 April 2016 the higher rates will not apply.  A calculator is available on the gov.uk website which calculates the amount of SDLT due on purchases of additional residential properties:https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

If you’re replacing your main residence you will not be liable to pay the extra 3% SDLT if the property you are purchasing is replacing your main residence and that has already been sold.  This is the case even if you already have two or more properties, and you sell your main residence and buy a replacement residence within three years.

Renting a new main residence in the time between disposal and purchase will not prevent the purchase from being a replacement of a main residence unless the period of the tenancy agreed is more than seven years.

If there’s a delay selling your main residence and it hasn’t been sold on the day you complete the purchase of your new main residence you will have to pay higher rates because you own two properties.  However you should  get a refund if you sell your previous main residence  within three years.  There is a simple form to complete which will be available on 1st April. This will need to be completed within 3 months of selling your previous main residence, or within 12 months of the filing date of the return, whichever comes later. This can be completed by the main purchaser of the property which the higher SDLT payment was paid on or by a solicitor acting on your behalf if you provide a letter of consent.

If you are purchasing any properties jointly with other people and any of them already own one or more properties, you’ll need to pay the higher rates.  Ironically this will cause unfairness to certain people who are looking to get their feet on the property ladder.  Take the following example.  A couple is in the process of purchasing a property jointly, which will be their main residence. One of the couple currently owns another property which is rented out and the other is a first time buyer. Surprisingly ( and I say this as the objective behind the changes is to make it easier for first time buyers to find affordable property) the higher rates will apply to the total purchase price as following the purchase one of the joint owners will own an interest in an additional residential property. For joint purchases the higher rates will apply if either of the purchasers own other residential property.

If you’re married or in a civil partnership, buying a property and your spouse or civil partner already owns a property you may still be liable to the higher rates though as is mentioned above you may be able to claim a refund if the interest in the other property is disposed of within 3years.

If you are purchasing a property and at the same time inherit a share in another property which is 50% or less of the market value of the inherited property the inherited share will not be taken into account providing the purchase completes within three years of becoming entitled to the inherited share.  This means the additional tax will not be payable.

It’s worth mentioning in conclusion the following exemptions:

You don’t have to pay SDLT or file a return if:

·         no money or other payment changes hands for a land or property transfer

·         property is left to you in a will

·         property is transferred because of divorce or dissolution of a civil partnership

·         you buy a freehold property for less than £40,000

·         you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000

·         you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential or non-residential SDLT threshold

·         you use alternative property financial arrangements, e.g. to comply with Sharia law

What does this mean for conveyancers?

The first consideration is to ensure that clients are made aware of the changes and of the obligation which rests with the client to provide full and truthful disclosure of the circumstances which surround the purchase. The legislation places the obligation on the client to make the correct declaration and will not require the conveyancer to ‘police’ the system

I do consider however that terms of retainer should make it clear that advice on taxation issues relating to the transaction including stamp duty does not fall within the ambit of the retainer and that if advice is sought is should be taken from an accountant or expert.

If as is usual the conveyancer acts as the client’s agent to submit the stamp duty return then again the appointment letter should make it clear that the return is being submitted on the basis of the information supplied and that the conveyancer does not accept any liability for any information sent which turns out to be incorrect.

All quoting systems should be reviewed and changed and consideration be given to the questions which need to be asked to determine stamp duty liability.

Questions like the following:

·         Do you or your partner ( if applicable) own any other property?

·        If you do is the property you are purchasing to be used to replace your main residence which you are selling or which you have sold within the past years ( calculated with reference to the date on which you estimate you will be completing your purchase)?

If the answer to the first question is yes and the answer to the second question is no then in all likelihood the additional stamp duty will apply.  There may be other exceptions but in general terms this should flush out the information required.

There should also be training sessions arranged for all staff so that the detail of the changes and the examples within the Revenue’s Practice Note can be considered.

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 david@mjpconveyancing.com

Fire and Asbestos within Conveyancing

There seems to be a lot of uncertainty within the conveyancing community as to when and in which circumstances Fire and Asbestos Assessments should be sought.

In this article I attempt to demystify and offer some clarity.  

Fire

The Regulatory Reform (Fire Safety) Order 2005 became law in October 2006 and introduced significant change to workplace fire safety responsibilities. It also  simplified the legislative regime by bringing all fire safety legislation together into one Order. Essentially it introduced the need for employers, building owners and occupiers as 'responsible persons' to carry out, implement and maintain a fire safety risk assessment. That is someone who has been trained to do so!

A 5-step fire safety risk assessment checklist is available to help 'responsible persons' carry out and implement a risk assessment in their premises.

All non-domestic premises including the common or shared parts of blocks of flats or houses in multiple occupation are covered by the Order, and may be inspected by their local Fire and Rescue Authority. Under the Order, Fire and Rescue Authorities have a statutory duty to ensure compliance and enforce the requirements where necessary.

As well as the check-list setting out what is required within an adequate risk assessment, an on-line form is available to help check the extent to which the assessment will comply with legislation.Fire risk assessment guidance: 

http://www.sure-firesolutions.co.uk/documents/PAS-79.pdf

What does this mean for conveyancers?

It is clear that when acting on the purchase of a leasehold property or a freehold property where there is shared land or facilities a copy of the fire assessment should always be sought. If the seller is not able to supply it the seller should be asked to obtain an assurance from the Freeholder/Management Company one will be sought and made available within a reasonable period of time.  

Health and Safety  legislation has the allowance of 'reasonable steps' being taken to comply. If there is a plan in place to assess at some stage in the future  this may help to avoid immediate enforcement action and it might therefore be wise to ask the seller to provide confirmation from the Freeholder/Management Company that there is at least a plan in place to undertake the assessment.

If the client is to acquire an interest in the Freehold/Management company then there is a need to warn the client of the risk of enforcement for so long as it takes to supply the assessment.  

Asbestos

As like the above the common areas of domestic buildings e.g. halls, stairwells, lift shafts, roof spaces give rise to a ‘duty to manage’ asbestos under the Control of Asbestos Regulations 2012.

The duty requires you to manage the risk from asbestos by:

■ finding out if there is asbestos in the premises (or assessing if ACMs are liable to be present and making a presumption that materials contain asbestos, unless you have strong evidence that they do not), its location and what condition it is in;

■ making and keeping an up-to-date record of the location and condition of the ACMs or presumed ACMs in your premises;

■ assessing the risk from the material;

■ preparing a plan that sets out in detail how you are going to manage the risk from this material;

■ taking the steps needed to put your plan into action;

■ reviewing and monitoring your plan and the arrangements made to put it in place; and

■ setting up a system for providing information on the location and condition of the material to anyone who is liable to work on or disturb it.

Essentially this means the Freeholder s legally bound to identify the presence of suspected asbestos containing materials.

What does this mean for conveyancers?

It is clear that when acting on the purchase of a leasehold property or a freehold property where there is shared land or facilities a copy of the assessment and records should be sought. If the seller is not able to supply the assessment the seller should be asked to obtain an assurance from the Freeholder/Management Company one will be sought and made available within a reasonable period of time.  The client should be warned that there is no assessment and to make the client’s surveyor aware of this and to seek advice.

If the client is to acquire an interest in the Freehold/Management company then there is a need to warn the client of the risk of enforcement for so long as it takes to supply the assessment.

Remember as a Freeholder the assessment once prepared need to be made available to all contractors (particularly electricians, gas-fitters and plumbers) carrying out work on the premises and if the assessment proves to be incorrect  the client as a Freeholder could end up in Court.  The client should be advised to get a competent gas fitter or electrician round (or even asbestos surveyor) and see if there are  suspect materials. If found the client should either get them analysed or get a full survey carried out.

Further guidance can be found here: http://www.hse.gov.uk/pubns/INDG223.pdf

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 Mortgage Credit Directive - Guidelines for Conveyancers

The Mortgage Credit Directive (MCD) introduces a European framework of conduct rules designed to foster a single market for mortgages and to protect consumers.

The MCD will be implemented in the UK by the Financial Conduct Authority (FCA).  The Rules are effective from 21 March 2016, although firms can elect to adopt the majority of them from 21 September 2015.  This will assist lenders in managing pipeline in the absence of any transitional rules. 

Any ‘new agreement’ entered into after 21 March 2016 will need to be MCD compliant and therefore, lenders will need to review their pipeline and ensure that, where required , additional disclosure is given to customers, along with the offer of a 7 day reflection period

The MCD, once implemented, will impose various requirements on lenders, including:

Assessing affordability:

Lenders must conduct an affordability test, looking at consumers' income and expenditure to ensure that they can afford the mortgage. This requirement to undertake an affordability assessment is different from the requirements of the Consumer Credit Directive 2008 and will apply when a lender takes on an existing borrower from another lender or when advancing additional borrowing to existing customers; however, there will be no requirement for an affordability assessment where a borrower switches products with an existing lender unless there is an additional borrowing and/or changes to the terms affecting affordability.  This could make it difficult for older purchasers for example to purchase but to let properties if as is likely the lender will be looking to the mortgage being paid in full before retirement.

Providing advice:

Minimum standards must be applied when providing advice to consumers.

Disclosure:

Lenders must provide a "European standard information sheet" (ESIS) to enable consumers to shop around. This will replace the existing "Key Facts Illustration" (KFI) which applies in the UK - firms will be able to continue to use the KFI document until March 2019 but may need to make "top-up" disclosures to meet the new requirements

Staff training:

Lenders will be under a duty to act fairly and professionally and must ensure that staff have the appropriate level of knowledge and competence.

There will be a new requirement to provide a borrower with a "binding offer", which will prompt an entitlement to a seven-day period of reflection. Current practice is usually to make a conditional offer subject to further checks. The making of a "draft" or "indicative" offer will still be permissible provided that a binding offer is issued at a later stage.

Binding offers may still contain conditions, for example, a material change in circumstances or fraud.

Consequences for conveyancers

There will be a need to check the offer of mortgage carefully to check the lender requirements for acceptance and also the length of the reflection period.  Many lenders are either allowing a 10 day reflection period (to account for postage time) or aligning the reflection period with the existing offer expiry date (which can be up to 6 months).  It is clear that the offer can be accepted by the borrower within the reflection period. This will essentially bring the reflection period to an end.

If the lender requires the offer to be accepted this will need to be done before the advance can be relied upon.

An important amendment was made to clause 10 of the CML Lenders’ Handbook on 1st February 2016 which clarifies that , in cases where the mortgage lender does not already require a formal acceptance from the borrower, that the current practice of the conduct of borrower in drawing down the loan, acts as acceptance of the mortgage offer, and creates the contract; this in turn, in cases where the draw-down happens before the end of the reflection period, confirms that the customer has brought the reflection period to an end by their conduct.

This seems to suggest that where there is no formal requirement for acceptance of the offer then the submission of the COT will be viewed as an acceptance of the offer and the automatic termination of the reflection period.

Under the changes though it is not clear is seems the mortgage offer once issued will not be capable of being extended.  This means a fresh offer will be required and this could cause delay.

This means conveyancers are when submitting the COT saying to the Lender that the client accepts the offer and has no longer to think about it.  For this reason conveyancers should look to amend terms and conditions along the following lines.

‘If you are a buyer and using a mortgage to purchase you should be advised by your mortgage broker of changes to the law which relate to your mortgage offer.   If you have not  then please refer back to your broker and ask for information on how the Mortgage Credit Directive may affect the issue and acceptance of your mortgage offer.

Under these changes your lender is required to provide you with at least 7 days to reflect on the offer before deciding whether you wish to accept it.  Your lender or broker are required to advise you on how long this period is and whether they require you to formally accept the offer before it will become a live offer.  It is therefore very important to consider this information carefully.

It is also important for you to keep in mind that when we apply to your lender for the release of mortgage funds you will be providing us with your authority to accept the mortgage offer on your behalf and to dispense with the reflection period if this is still  active. In other words by singing these terms and conditions you will be providing us with authority to bind you to the offer of the mortgage.  IF THEREFORE YOU DO NOT WISH FOR THIS TO HAPPEN IT IS IMPORTANT TO LET US KNOW IN WRITING STRAIGHT AWAY.

Please also keep in mind that if you offer of mortgage is allowed to expire you will be required to apply for a new mortgage.  Extensions to your existing offer may not be allowed.  Responsibility for checking and monitoring the expiry date rests with you and we will not accept any liability for loss which may arise from the expiry of the offer’ .

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 david@mjpconveyancing.com

Help to Buy ISAs - Destined to fail the first time buyer

There is  a great deal of buzz surrounding the Government backed Help to Buy ISA Scheme ( available since the 1^st December 2015)  and in this article I look to explore the 'ins and outs' of the scheme as well as assessing whether it is likely to be successful.

How does it work?

You open an ISA account and the Government will top up your savings by 25% according to how much you add to the account.

You can add in the first month £1200 but there after you can only add a maximum of £200 per month.  You will only be entitled to the Government bonus once you have accumulated £1600.

The maximum amount you can save in a Help to Buy ISA is £12,000.

So the minimum Government bonus is £400 ( once you have reached the minimum amount ) and £3,000 if you accumulate the full 12,000 ( which will take around four and half years).

Help to Buy ISAs are available to each first-time buyer, not each house, so if you’re buying a property with your partner, for example, you’ll be able to get up to £6,000 towards your deposit.

Your Government bonus will go straight to the mortgage lender. It doesn’t sit in your account, it earns no interest, and you only get it if you buy a home. If you don’t decide to buy a home nothing apart from the bonus is lost since you can still subject to notice requirements of the supplier of the ISA, withdraw the savings.

Who qualifies ?

You need to be a first-time buyer and must be aged 16 or over.

It can be used to buy any home worth under £250,000 (or under £450,000 in London). It will not be available to those who wish to buy a property to let or an overseas property.

You can use a Help to Buy ISA with any mortgage.

The scheme is limited to one Help to Buy ISA and you can’t open a Help to Buy ISA and a normal Cash ISA in the same tax year.

The ISA will only be available to open until 30^th November, 2019 but if f you opened your Help to Buy ISA before then you can keep saving into your account. You must claim your bonus by 1 December 2030.

Does the Help to Buyer ISA represent a good deal?

According to The Money Advice Scheme it is:

 ‘…………..a no-brainer if you’re a first-time buyer saving for a mortgage deposit. You can earn up to 4% interest tax-free and then the state will add 25% free cash, and it could be £1,000s, on top of what you save’

So what are the drawbacks?

In truth there are not many.

If you are looking to purchase now or within the immediate future before house prices begin to accelerate further Help to Buy ISA  is not really going to make a big difference. If you were to start an account now and run with the £1200 initial deposit you could be eligible for the tax free bonus of £400 within 3 months of opening the account.

The bonus cannot be used to pay other costs, such as legal fees. It can only be used towards the purchase price.

You may find it difficult to find a conveyancer who is prepared to handle the conveyancing of a property which is funded in part by your ISA savings and the government bonus.  This is because the government as you will see below has limited the fee a conveyancer can charge for the extra work to £50 plus VAT.   Some conveyancers may take the view that the fee is unlikely to cover the actual work involved and decide not to take this work on.

What is the role of the conveyancer?

The solicitor or conveyancer will make the application for the bonus on behalf of the client, confirm that the client has declared their eligibility to receive the bonus and confirm that the property being purchased meets the eligibility criteria. This involves submitting the relevant documentation, including a payment request, and, once received, applying the bonus funds towards the purchase of the property.

Solicitors and conveyancers may charge the client up to £50 plus VAT to fulfil their role as part of the scheme.

To be able to act for clients the conveyancer must register with the Scheme.  This involves an application and vetting process which is to be handled by a third party – Lender Exchange.

Once registered the conveyancer for his or her £50 will be required to do the following.

Firstly to make the bonus application on behalf of the client, and confirm that the client  has declared their eligibility and the property being purchased meets the eligibility criteria.

This involves sending an application for the bonus to the Administrator, submitting the relevant documentation to the Administrator, submitting a payment request following approval, and holding the bonus to apply to the purchase of the property.

The conveyancer is also required to verify that the client is acquiring an eligible interest in land, that the acquisition is funded by a non-buy-to-let mortgage (unless exceptions apply) and that the value of the property is up to £250,000 or £450,000 depending on the location of that property. 

If the conveyancer has reason to believe that the client  is not eligible for a bonus, he or she should not proceed with the bonus application.

It is said the process will be simple and straightforward. Only time will tell.

Some questions

A cash free bonus can only, on the surface, represent a good deal for a first time buyer,though limiting the amount of the monthly contribution and delaying for four and half years the opportunity to purchase a property with the full bonus, must beg the question whether the benefit  of the bonus will be lost given the current rate of house inflation.

On the same note and given the figures are not house price index linked how many properties with a property tag of £250,000 and less will be available in four and half years’ time?

Applying an arbitrary cap to the extra-legal fee a conveyancer can charge, without any apparent engagement with the industry and regard to the amount of extra work involved, is unlikely to win favours and could lead to clients finding it difficult to find a conveyancer willing to assist with a purchase.

Conclusion

This may appeal in main to parents who are keen to find a tax free vehicle for assisting their children with their savings to be used towards the purchase of a property in the future.

I question however whether it will have wider appeal and indeed value unless the bonus is linked to the  House Price Index and the Government does something soon about making more affordable homes available for first time buyers.

As for what can only be described as a token payment to the conveyancer, it is clear once again  the conveyancer has been chosen as easy prey to subside the administration of the scheme, especially when you consider how much £50 plus VAT will be ‘worth’  in 2019/20 when, if successful, the system will kick in.

At present this represents nothing other than a political murmur falling well short of what is actually required to provide real help to the first time buyer.

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 david@mjpconveyancing.com

Conveyancers Duped by Million Pound Property Fraud - Was it Avoidable?

The news of a property fraud reported in the Daily Mail (http://www.dailymail.co.uk/news/article-3356929/The-thieves-stole-wife-s-house-sold-1-3million.html ) at the weekend should send a chill down the back of all conveyancers across the land. 

A young woman — who paid the full amount with no mortgage — had been duped into handing over £1.35 million to the a person purporting to be the legal owner of the property. 

The money was last seen on its way to a bank in Dubai.

The real owner was totally oblivious to the fraud until the Land Registry smelling a rat declined to register the property in the name of the young woman. 

There were two primary fraudsters.  One who took out a rental agreement on the property before the property was placed on the market, and the other who stole the identity of the real owner.  Between them they were able to fool the letting agent, the selling agent and both the selling and buying conveyancers. 

This was a fraud perpetrated at the highest level.  

So what could have been done to prevent it?  Probably not very much given the sophistication of the perpetrators. 

The question of whether negligence lies with either the seller or the buyer’s conveyancers must also be a vexed issue. 

So what lessons as conveyancers can we learn from these circumstances?

From a sale perspective there was nothing on the surface which would have alerted the seller’s conveyancer.  The ID supplied for the registered owner, that is the seller, was fake but unless it was obviously fake there was not much more one could expect the seller to do to identify the fraudulent  activity. 

Interestingly, had the seller made use of the Land Registry Alert procedure there is a possibility that the true owner would have been alerted about the proposed sale when the purchaser  undertook the OS1 search before exchange. Clearly conveyancers should all be advising buyer clients, especially the Buy To Let clients, to register for this type of alert. Failure to do so may in the future be viewed as a negligent omission. 

So what additional checks or alert factors should conveyancers as result of this incident consider?

Property of high value with no mortgage are at highest risk especially if they are rental properties. Conveyancers dealing with this type of property should perhaps check on the internet to see whether the property has been advertised for let recently.  In this case the fraudster tenant had only just taken out a rental agreement and had, which is unusual, paid the rent in cash. 

If instructed on this type property perhaps conveyancers should also look at the ID documents more closely and always arrange for the file to be referred to a senior member of staff for a second review. 

Suspicion should be heightened if the registered proprietor is abroad and there is a third party purporting to act for the owner. In this case the property had been put on the market purportedly on behalf of the owner by the person who had taken out the rental agreement.  Its unknown whether this was known to the seller’s conveyancer. 

Another alert factor is the instruction for the sale proceeds to be transferred to an account based outside of the Country.  If a conveyancer is instructed to transfer any funds abroad following a sale, there is now, I would suggest a strong, good argument  to pause and to take a more detailed look at the circumstances.  At the very least, the transfer should be referred to a Partner or other senior colleague for checking. 

So in short conveyancers acting in transactions of this type should keep a close eye on transactions involving:

• Property with high value with no mortgage of other charge 

• Property where the seller is shown as living at an address which is different from that of the property

• A seller looking to sell through an intermediary

• The transfer of funds to an account held abroad.

From a buyer's perspective perhaps there is now a case to consider raising some extra enquiries when it can be seen from the Land Registry Document that the property to be purchased is held by a registered  proprietor who is not in occupation and or which is occupied by a tenant.

Questions of this type which conveyancers may wish to  consider include:

1 Please produce from the letting agent references for the tenant and confirmation on how the rent has been paid i.e whether in cash or by cheque as well as confirmation that all standard money laundering and identity checks have been carried out on the tenant.

2 Please confirm the date on which the tenant took up occupation.

3 Please confirm that the funds to be transferred on completion are to be paid into a bank account held in the UK.  If the funds are to be paid into an account abroad please confirm that these will be held by you for 48 hours before the funds are remitted ( the reasoning here is that if the buyer turns up on completion to find the property occupied without vacant possession ) there may be some time available to prevent the funds from being remitted.  In the present case this would not have helped as the property was vacant at the time of completion.  If the buyer’s conveyancer  had known that the tenancy agreement was only granted prior to the marketing of the property and was now being sold with vacant possession then this may have rung some alarm bells. 

I am not sure whether these questions will find favour with the sellers solicitors but at the very least they may put the sellers solicitors on notice that the transaction is a high risk one and as a consequence raise the level of vigilance.

At the end of the day detection of fraud to a large extent is based on instinct and more often luck.   All practitioners can do is to ensure all the standard checks are carried out and that staff are trained on what to look out for and to remain vigilant throughout the 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 david@mjpconveyancing.com

Are you prepared for the Stamp Duty changes?

In his Autumn Statement this week, the Chancellor announced a 3 percentage point surcharge on stamp duty land tax (SDLT) for people buying a buy-to-let or second home from April 2016.  For example, on a home worth £275,000, SDLT would rise to £12,000 from £3,750. A significant jump. 

Below are some of the common questions raised along with some guidance though please do note that the legislation has yet to be implemented, and that there could be changes made to the proposals during the consultation process.  It is therefore important not to rely on this guidance without first checking with your conveyancer. 

Are there any exemptions?

The change will not apply to buyers of caravans, mobile homes or houseboats, nor, subject to a consultation, to companies or institutions owning more than fifteen residential properties.

When will this all happen?

1st April 2016

On what value of purchase will it apply?

Treasury documents released immediately after the speech suggested  that the first £40,000 would be tax free. It was however later confirmed that while purchasers who buy a property below £40,000 won’t have to pay the additional 3%, for all purchases above that, the 3% extra tax applies on the entire price. Currently, the rate for stamp duty is 0% on properties up to £125,000, then 2% on any sums over and above £125,000 to £250,000. Properties sold at £250,000 to £925,000 pay 5%, then it is 10% above that. These rates remain the same for standard residential buyers though 3% extra will be added if the property is to be used as a buy-to-let or second home.

If I have already exchanged contracts before the changes were announced will I be affected ?

If you have exchanged contracts on a property caught by these changes before the announcement was made,  but completion is on notice and there is a possibility you will complete after 1st April 2016, my view, having regard to how previous changes have been introduced, that  the increased surcharge is unlikely to apply. 

If I have exchanged contacts after the announcement but are due to complete the transaction after 1st April 2916 will I be required to pay the extra tax?

Probably yes, though there may be ways of avoiding this if you are able to gain possession of the property under license before completion, though do remember that if you are looking to do this there is a requirement to pay the Stamp duty within 30 days.  

There are other options  including the payment of 90% of the purchase price before the deadline or making the consideration partly rent and partly premium, and paying some rent before April.   The best advice is to speak with your conveyancer and seek advice. 

If I am thinking of purchasing a buy to let or second home what do I need to do to ensure that I do not have to pay the extra tax?

Putting it simply make sure you complete the transaction before the 1st April 2016. 

Think also about setting up a corporate vehicle to purchase the property.   Your solicitor or accountant will be able to advise you on what this involves.   Do keep in mind that if you have a property portfolio in your own name and are looking to transfer the ownership of existing properties into a limited company do ensure this is done before the 1st April 2016 otherwise the surcharge will apply to those transactions.  There could also be capital gain tax implications on which advice should be sought. 

Can I purchase the second home or buy to let in my husband or partners name?

I would not advise this as an option as I am sure the Revenue will be alert to this and make sure there is no gap in the legislation to allow this to happen.  There already exists legislation around 'connected persons' and I anticipate this will  be expanded upon to make sure this glaring and obvious situation does not become a loophole.  

What effect is this likely to have on the market?

This together with the recently announced changes to tax relief will make buy to let to the amateur landlord less attractive.  This could cause a shortage of rental properties and may lead to existing landlords pushing up rent.  Developers may also reign back on new builds if the demand for buy to let is no longer high. 

It could also lead to landlords offering to pay less for buy to rent properties and have the effect of making investment property cheaper. This my have been one of the intentions behind the change. 

It is likely that we will see a surge of purchases of this type of property before the deadline and this could in the interim force prices up if there is a mad rush

What should I expect from my conveyancer?

If there is a rush your conveyancer may find it difficult to cope with the large number of cases and may decide in an effort to control the large flow of work to increase fees for this type of work. I read recently that it is estimated as many as  50,000 buy to let transactions could be rushed through before the deadline. 

Clearly it is important to make sure your conveyancer is aware of the purpose of the transaction  and the need to complete before 1st April next. Your conveyancer may be reluctant to give a guarantee and require you to pay the fee irrespective of whether it completes in time. 

Where are the grey areas?

What is the position when a spouse or cohabiter breaks up with a partner and still has an interest in the jointly owned property.  Does the purchase of alternative accommodation count as a second home. Likewise where a property is purchased due to short term relocation for work where the existing property has yet to be sold. 

Hopefully the details will be ironed out once the consultation process is concluded and the legislation is passed.  Until then all you do is to work with what is known and to keep the deadline of the 1st April firmly in mind. 

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 david@mjpconveyancing.com