Unfair constraint on free choice of legal regulator

Changing from one regulator to another should not be difficult and should not be restricted due to the exclusive and unnecessarily stringent arrangements operating between one regulator and the insurance industry. 

How on the one hand can you introduce the flexibility of choosing a regulator that suits your business, and which will benefit the client, and then with the other hand have a rule which places a financial burden of such a magnitude that the cost of switching becomes totally prohibitive.  It simply does not make sense and makes a mockery of not only the role of the Legal Services Board but also the legal profession as a whole.

So, you wish for example to switch regulator from the Solicitors Regulation Authority ( SRA) to the Council of Licensed Conveyancers (CLC). A logical move if you are a conveyancer because  you wish to be regulated by a regulator who understands conveyancing and who has a focused interest in how the conveyancing profession should be allowed to be developed.   You make the choice with business interest in mind and with the knowledge that you clients will benefit because of the Council’s insight into and knowledge of the conveyancing industry.  A regulator that is niche and which does not at least for now wish to be all things to all people.

A perfectly logical decision therefore and one which should be easy to implement.

To be fair the process of applying to the CLC is straight forward and unless there are major issues in the way you run your business, the application should be approved without too much difficulty.   The problem however is with the SRA and its agreement with the insurance industry.   Under  Participating Insurers Agreement (PIA) when one changes regulator this acts an automatic  trigger for ‘run off’ indemnity insurance.   The so called logic is that because PII policies are written on a “claims made” basis rather than the “losses occurring” basis used in general insurance, responsibility for the claim rests with the insurer in place at the time of the negligence.  If therefore at the time the claim is made there is no longer an insurance policy  in place which accords with the PIA the client may find him or herself uninsured.  

The theory behind this is that the PIA minimum term insurance is superior in terms of coverage to the insurance which is required by the CLC.  I say in theory  because having had some brokers to interrogate the differences they do not seem to  be that significant and far reaching.   To begin with, the minimum term insurance will still pay out on a claim if the solicitor does not pay the premium or where there has been bad faith on the part of the solicitor which has led to the claim.    Interestingly when the Insurance Act 2015 is introduced later this year the latter of these two difference will offer little comfort as the insurer will be able to void the claim in the event of fraud and or deliberate or reckless failure to disclose relevant facts.  It’s not clear at this stage how this will operate with within he PIA.

Essentially therefore, there is very little difference although when one looks at the cost of insurance there is a substantial and a totally unfair difference in annual premiums.   The cost of minimum term insurance and non-minimum term is staggering and does gives rise to the question of whether as a profession we have and continue to be been mugged when it comes to the extortionately high PII premiums charged.   A conveyancing business with a million pound turnover and a clean claims record would with the CLC be looking to pay a premium of around £15,000 compared to a premium of £80,000  for minimum term cover.   How can this be justified?   The same risks apply irrespective of regulator. The only conclusion is that you are paying £65,000 for the added consumer protection provided by the minimum terms.  The fact that the claim will be paid in the event of the wrongdoing of the conveyancer or the failure of the solicitor to pay the premium.  One in reply may ask with good reason why should an insurer pay out in these circumstance in any event.  More importantly why as a profession should we paying higher premiums to address the risk presented by the less honest members.  Why should we be deprived of the opportunity to choose the type and scope of cover we consider as a professional outfit will address the risk of a client raising a claim?

So the SRA as the situation currently stands will not allow a SRA regulated firm to choose its regulator unless it is satisfied that there will be adequate minimum term insurance in place to cover past claims ( for six years)  The practical consequence of this is that although with the CLC, you current year’s insurance could for example be   as low as £15K,  to make the switch and obtain the SRA waiver you would need to put into place a run off minimum term insurance policy which sticking with the present example, could cost as much as  £200,00 plus!

A nonsense and a major barrier to the freedom and benefits of choosing your regulator.

To be fair to the SRA the above unfairness and restriction on competitiveness has been identified and the SRA has began a consultation process with the view to removing the ‘run of’f requirement on change of regulator (http://www.sra.org.uk/sra/consultations/removing-barriers-switching-regulators.page).

Crispin Passmore, Executive Director for Policy at the SRA, commenting on the process stated:

"Firms should be able to switch to the regulator they feel is right for their business more easily than is currently the case. Legal businesses are increasingly owned by, and employ, a range of lawyers and non-lawyers, so choosing a regulator is an important business decision. Facilitating choice is a good way to encourage a modern, competitive market that provides affordable and accessible services.

"The Legal Services Board ensures minimum standards of client protection are maintained by all legal services regulators. Nonetheless, we have to be careful that removing unnecessary bureaucratic obstacles for firms does not create potential risks for the clients of firms wanting to switch. We want to get the right balance between encouraging a competitive market and ensuring the interests of those using legal services continue to be protected, so we are keen to hear views on how best to do this.

"If there are options that we have not thought of that should be considered, we are very open to ideas.”

I agree the client has to be protected but if as is available insurers are prepared to offer conveyancers looking to switch cover for past claims and which will meet claims providing the conveyancers have not failed to provide full disclosure and paid the premium then I am not sure how it can said the client will not be protected.   To claim otherwise would suggest that CLC conveyancer clients are at more risk than SRA conveyancing clients.  If this  so shouldn’t the public be made aware of this ?

It seems to me that the insurance industry has been able with the full acquiesce of the SRA to hide behind the PIA and charge inflated PII rates making it more expensive for SRA insured back conveyancers to compete with other regulated conveyancers.   This cannot be allowed to continue and as a profession we need to stand up and support the SRA with the proposed changes which could if implemented lead to reduction in the level of PII insurance premiums across the board.

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 conveyancers over charging on ‘mum and dad’ assisted property transactions?

Introduction

The principle behind the insurance is that it protects the mortgagee’s (i.e. bank lending the money) title in the property if the donor of a gift or informal family loan goes bankrupt and  the donor’s creditors make a claim to the money as part of the donor’s assets.

But is it necessary?  Do all conveyancers actually understand the applicable law?

Background

The conveyancer is under a duty to both client and the client’s lender to ensure they obtain “a good and marketable title to the property and free from prior mortgages or charges and from onerous encumbrances which title will be registered with absolute title” (Solicitors’ Regulation Authority Handbook).

If there is a gift from a family member ( or a discounted purchase price when purchasing from a family member) or an informal loan the donor on the face of it will acquire an interest in the property. Gifted deposit insurance provides protection if the donor becomes insolvent and creditors of the donor make a claim putting the property at risk as well as the lender’s security.

The Law

The law behinds this is S339 of the Insolvency Act 1986 provides that if a bankrupt has within the previous five years “entered into a transaction with any person at an undervalue,” then “the trustee of the bankrupt’s estate may apply to the court for an order” to restore  the gift to the donor for the benefit of the creditors.

However S342(2)(a) offers the lender with protection stating that if an order is made under S339  this will not …. prejudice any interest in property which was acquired from a person other than that individual and was acquired in good faith and for value, or prejudice any interest deriving from such an interest”. Essentially the bank is protected from a Section 339 order by S.342 as long as it acts honestly and doesn't knowingly aid dishonesty. Its title in the property is therefore protected and in no way placed at risk .

The only time a  lender may not avail itself of this protection if the lender knew both that there was a gift/transaction at an undervalue and that the donor was already insolvent or a petition of bankruptcy had been presented when the gift was made. Hence the need for the conveyancer to carry our ID and bankruptcy checks against the donor.

Interestingly if this situation was allowed to arise then gifted deposit insurance would not assist in any event.

If the gift was specially made to put it beyond the reach of creditors, an order could be made under  Sections 423–425 of the Insolvency Act to restore the position to that before the transaction at an undervalue. Section 425 however would protect the lender if its interest was “acquired in good faith, for value and without notice of the relevant circumstances”.  Again unless the lender was aware of what was going on the lender would not be affected by the insolvency.

Council for Mortgage Lenders Handbook

This states:

‘If you are aware that the title to the property is subject to a deed of gift or a transaction at an apparent undervalue completed within five years of the proposed mortgage then you must be satisfied that we will acquire our interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against our security being set aside. If you are unable to give an unqualified certificate of title, you must arrange indemnity insurance (see section 9)

‘You must effect an indemnity insurance policy whenever the Lenders’ Handbook identifies that this is an acceptable or required course to us to ensure that the property has a good and marketable title at completion’.

Practical Implications

Providing the checks on identification and bankruptcy come back all clear,  it would seem from this analysis that an unqualified certificate of title could be given to the lender where there is a gifted deposit.

Is there a need to obtain a letter of postponement from the donor, that is a ‘gift letter’.  Probably yes in terms of good practice though the Land Registration Act 2002 does provide that a mortgagee has priority over any claim that the donor may have for the return of the gift,

Conclusion

By blindly insisting on indemnity insurance which appears on the above analysis of the law to be wholly unnecessary it seems conveyancers are not acting in their clients best interests.   

At the time the Insolvency ( No2) Act 1994 ( which made amendments to S342 (2) (a)  was passing through the then House of Lords Lord Coleraine said:

“the saving in that section [of the Insolvency Act] for a third party purchaser for value and in good faith will no longer be negatived merely by the purchaser’s knowledge of an earlier transaction at an undervalue or preference … the effect of the clause should be to speed conveyancing and greatly reduce the need for insurance in the cases where problems arise” (Hansard 1994 vol 554 at para 348).

Clearly the insurance industry is also very much guilty in terms of selling and promoting an insurance which seems to offer no purpose other than as a comforter to conveyancers.

There should also be a call made on the Council for Mortgage Lenders to review and to amend the Handbook to make the requirements  for seeking indemnity insurance on a gifted deposit clear and more in line with the Insolvency legislation.

Source :   *Gifted deposits and indemnity insurance: a risk assessment, Nick Piška, Conv. 2015, 2, 133-147  (Subscription required)

 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

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