Tuesday 18 March 2014

A Watertight Approach to Flood Insurance


With the Environment Agency citing that one in six homes in England are at risk from various forms of flooding, flood insurance has become a much debated topic of late. 

In the third of a series of articles penned by trainees of MJP Conveyancing as apart of the Company's ongoing training programme, Beth Slaughter writes:


Whilst Britain was battered by strong storms earlier this year, the conveyancing industry became inundated with concerns over the availability and affordability of flood insurance for homeowners. With the Water Bill currently passing through Parliament, this article indulges the national obsession with the weather, analysing the current political position as to flood insurance in relation to leasehold property, as well as what issues a potential purchaser of a leasehold property should be wary of when entering the leasehold property market.

Until June 2013, there existed an agreement between the UK government and the insurance industry which permitted individuals to obtain flood risk insurance for their properties even though they might be located in a high risk area and, in exchange, the government promised to maintain its spending on flood defences. This ‘Statement of Principles’ was only ever intended to be a temporary measure and has been criticised for its restriction of customer choice – insurers are only committed to their existing customers and new insurers can decide to whom to offer flood insurance and, additionally, the Statement does not guarantee affordable insurance premiums or manageable excesses for homeowners. The Water Bill Act 2014 has posed an opportunity for the government to turn the tide on the current approach to flood insurance, ensuring that it remains widely affordable and available – this is manifest in their Flood Re proposal, which is due to come into force in 2015. In essence, Flood Re provides that all buildings insurance will carry a levy that will be used to subsidise flood claims from high-risk households, thus reducing the premiums homeowners have to pay. Unfortunately, as currently defined, Flood Re will exclude buildings cover for flood insurance within a variety of sectors including council homes, the private rented sector, and, notably, leasehold properties.

With respect to leasehold properties, it is usually the responsibility of the Freeholder – or Management Company – to insure the building; they, in turn, pass this cost on to the leaseholder through their management charges. Insurance providers thus dub leasehold property to be ‘non-domestic’ and protection under the Flood Re scheme as it currently stands would be void. It has been argued that the decision to exclude leasehold property from Flood Re is politically motivated, as it prevents homeowners subsiding businesses, however, this is a fallacy, as it is the leaseholder themselves that would ultimately suffer. Ironically, the ‘floodgates’ argument has also been cited as a reason for the narrow delineation of property in Flood Re, as expanding the scope of the government’s proposals would push up the levy on all households; as a spokesman for the Association of British Insurers states: ‘Excluded properties should still get insurance, it’s just the cost won’t be capped. Flood Re is designed to focus on areas where the lack of affordable and available cover is most acute. We have to draw the line somewhere’. Both the British Property Federation (BPF) and the Council of Mortgage Lenders (CML) strongly oppose Flood Re as currently defined; the Director General of the CML note that they ‘find it difficult to believe that the original policy intention was to exclude a whole swathe of residential property from the stated aim of ensuring that affordable flood insurance continued to be available across the market’.  


The potential purchaser of a leasehold property has much to consider in respect of flood risk insurance. Under the Law Society regulations, when buying a property a Conveyancer should make the client aware of the potential flood risk to some properties; though conveyancers cannot compel a client to carry out an environmental search and a flood search, these are strongly recommended. Purchasers should note that their legal advisors can report to them on the search results, but cannot comment on any specialist issues which arise in the search – such concerns should be referred to a surveyor. Further information regarding the prevalence of flooding in any given area can also be obtained free-of-charge on the Flood Agency website – http://www.environment-agency.gov.uk/homeandleisure/floods/  - however, visitors to this site should note that it only records flooding in relation to river or sea level changes, and does not provide information about a specific property, whereas specific searches draw on more detailed data. It is for these limitations that purchasers should not solely rely on this website.  

As aforementioned, it is usually the case with leasehold properties that the Freeholder – or Managing Agent – arrange the insurance policy for the building. Purchasers should request a copy of the insurance policy and provide the same to a specialist broker who will be able to advise them as to the adequacy of the cover. Caution should be taken that the policy is sufficient for the particular building in question, incorporating both the internal and external elements of the building. Insurance might notionally cover a building for flood damage, but with heavy caveats – excesses may be large and there may be particular exclusions. Indeed, if flooding becomes an uninsured risk, the leaseholder may be liable to make good any damage depending on the wording of the lease.

Finally, as the CML demands flood insurance as standard, considerable increases in insurance premiums and excesses could affect the affordability – and even viability – of mortgages. The Law Society notes that lenders are increasingly likely to investigate the flood risk of a property when undertaking a valuation and may impose requirements on the mortgagee as a result of their findings. Difficulties in obtaining mortgages and insurance may impact of the saleability of leasehold properties, reducing the number of potential purchasers and purchase price alike. 

Purchasers should consider that if a property is in a high risk flood zone, it does not necessarily that they should not purchase the property; the purchase price could be re-negotiated to allow monies to be invested in flood resistance measures on the property, such as non-returning valves and self-raising barriers.

 With an estimated five million leasehold properties in England and Wales and approximately 840,000 thought to be at risk of flooding, issues surrounding the accessibility and affordability of flood insurance is no small matter. As Ian Fletcher, the Director of Policy at BPF, notes: ‘every property that is occupied is somebody’s home and investment. Flood doesn’t discriminate between freehold and leasehold…and it is of small comfort having contents cover if the building itself is left uninhabitable’. Perhaps the Government will rescue thousands of leaseholders in an eleventh hour amendment to the Water Bill; if not, individuals are best to err on the side of caution when buying leasehold property so that they are not submerged under spiralling insurance premiums.

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

Friday 14 March 2014

Caveat emptor - Leasehold buyers beware!

The difference between freehold and leasehold is if you own a leasehold property you do not own the building or the land it sits on, instead you have the right to occupy the property for a fixed period of time. 

Here, writes Charlotte Ribbons, Trainee Solicitor with MJP Conveyancing, are some areas savvy leasehold buyers need to make sure they are clued up on before purchasing: 

The 'term' of the lease is important. This can typically be between 99 and 999 years. Mortgage companies will usually require there to be 70 years remaining on the term before they will lend. This is an area cash buyers should not ignore because if you later come to sell the property to a buyer needing a mortgage this will matter! It can be costly and time consuming to extend the lease term; what might seem like a 'bargain' may not be in the long run. 

Ground Rent - know your figures! This is the rent payable to the Landlord or Freeholder. It can be fixed or escalating. Your solicitor should draw this to your attention. Where there is a complex escalating clause you may need to seek further advice from a surveyor. 

Service Charge - it's important not just to know what this years’ service charge is going to be but what future service charge costs are likely. The Lessor Pack should include the statements of accounts for the last three years. Does the charge keep increasing? If so, why? 

If the accounts aren't in a healthy state this should ring alarm bells. Find out more about the Management Company and how efficient they are. The best way to do this is to speak to existing tenants and see what they have to say. 

It is possible that the service charge accounts for the current year are not yet finalised. In this circumstance your competent solicitor may seek a ‘retention’ to cover this. This would mean a sum of monies from the sale proceeds are held back to pay for this cost once the amount is known. 

Survey - the importance of having a survey carried out cannot be emphasised enough. Whilst the Lessor Pack can reveal major works which are anticipated, a survey will also be a valuable tool in this regard. If major works are required, once you become the owner of the property you will be responsible for paying a proportion of the cost. What may seem like a bargain may not be quite the investment, once factoring in paying towards the cost of a new roof!

Flooding- Just because you may be occupying the third floor does not mean flooding will not affect you! If the ground floor is flooded you will not be able to access your property, structural damage may be caused and key elements such as lifts may not function. Estimates from the British Property Federation and Leasehold Knowledge Partnership show 70,000 leasehold properties are at high risk of flooding. 

This could leave you at risk to potentially huge increased premiums, particularly as it is still unknown, but considered likely, that leasehold property will be excluded from the national flood subsidy scheme.  

The key to purchasing a leasehold property is to make sure you know exactly what you are purchasing, what your obligations and what the likely costs are now and in the future! 

Disclaimer: Please note this article does not constitute as legal advice and is for reference only. 


Thursday 13 March 2014

Wind Farms: Friend or Foe to a home buyer?

Wind turbines  are on the increase and  this is of no surprise when the  UK is known to be one of the best locations for wind power in the world. 

The UK is ranked as the world's sixth largest producer of wind power, having recently overtaken France and Italy. 

Wind power delivers a growing fraction of the energy in the United Kingdom and at the beginning of January 2014, wind power in the United Kingdom consisted of 5,276 wind turbines.

The odds of encountering one of these turbines or a planing application for one to be installed are increasing.  The importance of identifying the location of a turbine and of any planning application when moving home  has now therefore become a feature of the legal due diligence involved when buying a new home. 

Your conveyancing lawyer needs to make sure the environmental search result covers wind energy and to ensure you are altered if there is a turbine in the immediate vicinity of the property you are looking to purchase. Your advisor should also recommend a planning search to see if there is any application before the council for the installation of a turbine.   This is not a standard search and therefore you should always ask your lawyer to carry one out if wind farm activity is a concern. 

Buying a property in the immediate vicinity of the property could affect the value and if you are borrowing money your lawyer will be required to report the finding to your lender.  This is because the valuation on which the loan offer could be affected. More to the point its not advisable to purchase a property which you may then have problems re-selling in the future. 

So why would a turbine in close proximity have impact on the value of the property?

Visual Impact

Some people like the sight of a turbine but many others find the turbine a ‘turn off’. 

Lighting 

If the turbine is over 200 feet in height it has to have a light attached.  This could be a static or flashing light.  It could be viewed by some as a nuisance. 

The flickering of light caused by the wings of the turbine as they turn can also create a nuisance for those living in close vicinity especially in bright and sunny weather. 

Noise

The turbine does emit a noise.  The impact of this depends on the terrain, the direction of the wind, and the wind pattern.  The noise resembles that of a refrigerator and can travel for several hundred feet.  It commonly considered that those living more than half a mile away are unlikely to be troubled by the emission of noise. 

Health 

There is no evidence that turbines are likely to have a direct affect on health. 

However a 2008 guest editorial in Environmental Health Perspectives published by the National Institute of Environmental Health Sciences, the U.S. National Institutes of Health, stated: "Even seemingly clean sources of energy can have implications on human health. Wind energy will undoubtedly create noise, which increases stress, which in turn increases the risk of cardiovascular disease and cancer.

Lawyers are not environmental experts nor are they valuers; their duty is to make the client aware of the existence of the turbine and advise a client to discuss the implications of its location and proximity with a surveyor as well as an environmental expert so as to ensure an informed decision is made before the client commits to the purchase. 


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

Wednesday 5 March 2014

Reconstructing your conveyancing practice




Moving to a new conveyancing approach with technology at its heart, which allows you to keep track of any transaction at any time - and potentially involves lawyers for the other side - is a painful but necessary process, says David Pett as he shares his own recent experience:



Service Charge – Could the monopoly finally be coming to an end?


Forward

Our business attaches a high value to training and as such we actively encourage all of our junior staff to compile articles on subjects which are of interest and which contain elements which will be of interest to consumers. 

In the first of these articles which forms part of our current training programme running for the next two months involving leasehold Kris has chosen a topic dear to any one which has purchased a leasehold property in the past.      

The article focuses on the hidden costs of purchasing a leasehold flat or house and of the efforts being made to bring about the long overdue changes needed to ensure this sector of the housing market is adequately regulated.

Kris would welcome your feedback and can be contacted at KristianN@mjpconveyancing.com

David Pett Director
5/3/2014

Kris writes:

As conveyancing business with over 100 live leasehold transactions at any point in time, a major conflict which we attempt to placate and pacify on a daily basis is the freeholder versus leaseholder battle of power.

We act as a bearer of bad news for both buyers and sellers alike. Buyers often lambaste the service charge budget as a ‘hidden cost’ before they've even made it over the proverbial threshold, whereas sellers grumble at the expense and length of time it takes the autocracy like institution that is their management company to produce a standard sales pack.

As a neutral in the on-going saga, I have always felt that it is the freeholder who dictates the balance of power. The seller is unable to sell without the freeholder’s intervention and likewise, the buyer is unable to register their purchase without seeking the infamous ‘certificate of compliance’ from the management company. However, much like the Boston Tea Party signified the beginning of a turning of the tide in the American War of Independence, it appears that the Office of Fair Trading have sparked a similarly rebellious (but considerably drier) attitude among leaseholders.

Times are changing

The Office of Fair Trading (OFT) will fully investigate the love-hate relationship at the centre of the leasehold property market and has pledged to issue a report by the end of 2014. In particular, the OFT will seek to identify:

1.   Whether managing agents and freeholders have the same interests as leaseholders in, for instance, keeping down costs for maintenance work or building insurance;

2.   Whether leaseholders have adequate interest on decisions taken by freeholders on the appointment of managing agents and the supply of residential property management services;

3.     Whether there is true competition between property managers;

4.  Whether the choice of contractors and services to leasehold properties may be unfairly influenced by links with associated companies;

Rachel Merelie, Senior Responsible Officer for the investigation comments that “Service charges for the maintenance of a building can be substantial and we want to make sure that leaseholders are getting a fair deal”.

Monopoly


In my opinion, the current market is far too slanted in favour of the freeholder and whether leaseholders do get a ‘fair deal’ is largely dependent upon chance.

As responsible conveyancers, it is our duty to alert any potential leasehold purchaser of the added (and often unexpected) costs that they will be liable for throughout the entire term of their ownership. Does the building require a new lift? Yes – then as a leaseholder you will be expected to pay for this. What about landscape gardening? – check, decoration of the lobby? – check, tropical fish for the aquarium? – check.

A competent conveyancer should flag up the service charge budget in the management pack for you to study in depth, and the decision about whether this is fair and reasonable should be made well before, returning to our cliché, you ‘cross the threshold’.

The same should be said of selling a leasehold property.

A complaint we often find levied upon freeholders is that leaseholders are not made aware of the substantial (almost always triple figure) costs and turnaround times involved in obtaining a leasehold management pack – the notorious skeleton key when it comes to selling a leasehold property.

Relying on best practices we always seek to obtain this figure for prospective purchasers prior to completing their transaction so that, in years to come when they decide to sell the property, they do not find themselves burdened with this unexpected and untimely cost.

Again, this serves as a further example of when you should push your conveyancer to seek all the information on your behalf rather than neglect due diligence in favour of a quick completion.

Advantages amongst the autocracy

Buying a leasehold property should not be considered a completely wasted investment however:

1.   There are clearly defined rules in place which will prevent neighbours devaluing your     property;

2.    If you are ‘time-poor’, it makes perfect sense for somebody else to address maintenance issues on your behalf;

3.    There is a clear agreement upon what proportion you are to pay if urgent remedial work is necessary on the building;

4.    Statutory protection for leaseholders does exist;

5.    Historically, leasehold properties are marginally cheaper than their freehold equivalent.

At MJP, we utilize an online case management system called Quick Conveyance that puts all those ‘need to know’ facts figures into one place at your fingertips for you to consider and weigh up prior to buying your leasehold property. We make sure the lease, the management pack and all leasehold enquiries are made available to you online in PDF format so that the only time you are truly ‘in the dark’ with your leasehold purchase is when you turn the lights off to settle down for your first night’s sleep post-completion.

For a competitive quote, please call our New Business Team, available 24/7 at www.mjpconveyancing.com .

By Kristian Nelson, Trainee Solicitor at MJP Conveyancing

Thursday 27 February 2014

The death of simultaneous exchange and completion?

The time between exchange and completion has shortened considerably and more and more transactions are concluded through  simultaneous exchange of contracts and completion.

The recent Court of Appeal decision in Santander v R. A. Legal Solicitors has cast serious doubt on whether this practice is exposing conveyancing solicitors to the possibility of a breach of trust claim

The decision at first instance in Santander v R. A. Legal Solicitors  [2013] EWHC 1380 (QB)  confirmed and clarified the Court of Appeal's decision in Nationwide v Davison’s [2012] EWCA Civ 1626 as to when solicitors should be relieved from the consequences of their breach of trust.

The facts are as follows.  R A Legal Solicitors had acted for the purchaser of a property, for which Santander’s predecessor, Abbey National, had made mortgage funds available to the buyers solicitors to facility the buyers purchase.

Unknown to the buyer’s solicitors, those solicitors acting for the seller had been acting dishonestly, and the buyers solicitors had transferred the purchase sums before a first charge in favour of the lender had been acquired and an existing charge discharged.

The Queen's Bench Division held that, whilst the buyer’s solicitors had acted in breach of trust in releasing the funds advanced, the they were relieved of all liability in respect of that breach since the shortcomings of the solicitors handling in relation to the transaction were not an effective cause of the lender’s loss.

On appeal, the Court of Appeal did not agree and  found in favour of the lender finding:

“The failings of RAL ( buyers solicitors ) formed part of a larger picture of the shoddy performance of a conveyancing transaction from start to finish, which leaves me in no doubt that it would not be fair to excuse the firm from liability, in whole or in part.”

Significantly, and central to the success of the appeal  is the fact the Buyers solicitors  sent an unqualified certificate  of title to Abbey on the 13th July, even though they were waiting to inspect a copy of a 1986 Transfer. Their view was if the Transfer contained anything untoward Abbey’s money could be returned. This was done in order to speed up the eventual process of exchange and completion.

Condemning this practice the Court of Appeal stated:

“The appropriate way of dealing with delays is to persuade lenders to move faster or remit the funds to be held to order in advance of an unqualified CoT. To my mind the pretense that the investigation of title has been completed when it has not is a method of dealing with that difficulty which borders on dishonesty. The submission that unqualified CoTs are given frequently prematurely makes this misconduct all the more serious.”

This was one of many failings on the part of these solicitors and which viewed collectively pointed to a firm who had acted recklessly with the handing of money belonging to a third part to whom the solicitors owed a duty of care.   The other failings included the incomplete submission of requisitions, the submission of the mortgage monies to the seller’s solicitors in the absence of an undertaking to hold the monies to the order of the solicitors, failure to check the replies to requisitions and a total disregard of the completion code.

Rob Hailstone of the BOLD Group which represents a number of conveyancing practices today issued a very helpful note on the lessons to be learned from this decision and which act as a timely reminder to all practitioners to carry out an urgent review of processes.    I have set out these ‘lessons’ below.

More significantly however are the questions this decision leaves unanswered relating to the duty of care owed to a lender in circumstances where a simultaneous exchange and completion take place. 

The questions are as follows:

Is there a breach of our obligation to the lender to submit a COT in circumstances where we have certified that we are satisfied there is a good and marketable tile, but we have yet to exchange contracts?  Or putting it another way, should we only ever submit a COT once exchange has taken place?

If  a COT can be submitted before exchange, is it permissible given the CoA ruling to send mortgage funds over to the sellers lawyers (after making checks on the solicitors and checking carefully replies to requisitions) in readiness for completion providing we have a full and satisfactory undertaking from the sellers solicitors to hold the monies strictly to our order?

If is not then does it follow that simultaneous exchanges and completions on mortgage related transactions should no longer take place?


Here are Rob’s tips (rh@boldgroup.co.uk)


·         Raise your requisitions making sure that all relevant questions have been specifically highlighted and asked

·         Make sure that the replies to requisitions correspond to the correct questions, are specific, detailed and accurate

·         Do not submit your CoT until all title investigations have been completed to your satisfaction

·         Do not hold on to the mortgage advance if completion is delayed, without consent from the lender

·         Make sure that the Completion Code applies and it has been formally agreed to Complete by Post

·         Make sure that you receive all outstanding documentation by post immediately after completion, including any undertaking or form of discharge

·         Take correct and swift action if completion does not take place, outstanding documents are not received and/or vacant possession is not granted

·         In an ideal world (the judges seem to think we work and live in one), do not submit a CoT until exchange has taken place and do not agree a completion date that is less than five working days from exchange. Maybe we should get lenders to stipulate that this has to occur, thereby eliminating the dangerous and stressful practice of simultaneous exchange and completion?

Friday 24 January 2014

Good News for Home Buyers - Cost of moving is set to reduce in Spring

The cost of buying a home is to be reduced shortly following an announcement from the government agency responsible for maintaining the register of property titles, The Land Registry.  

If you have purchased a property you will be aware that on the sale of any property the buyer’s solicitor has to apply for registration of the transfer with the Land Registry, and pay a fee for the service.

The good news for home buyers is that the Land Registry has announced that it will be halving the fees it charges home buyers as from 17 March, with the immediate consequence that the transfer fee for an average-priced home will fall from £190 to £95.

This registration fee is payable after the purchase transaction completes, so the benefit of the reduced fees will be passed on to buyers whose purchases are completed on or after 17th March.

The amount of the fee is based on a scale varying with the purchase price.

This reduction has come about due to the Land Registry’s electronic Document registration Service (e-DRS) which allows buyers’ solicitors to submit the majority of transfer applications digitally.   This has also led to a reduction in the time it takes to register the title with the Land Registry. 

Here is a guide to the new fee structure for the electronic submission of applications.

Purchase price
Old fee
New fee
£0 to £50,000
£40
£20
£50,001 to £80,000
£70
£20
£80,001 to £100,000
£120
£40
£100,001 to £200,000
£190
£95
£200,001 to £500,000
£270
£135
£500,001 to £1 million
£540
£270
Over £1 million
£910
£455

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

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