Tuesday 2 December 2014

Implications for conveyancers of the draft Consumer Rights Bill

Introduction

The UK Government has announced plans to merge all existing UK consumer protection laws and regulations. On 23 January 2014 the draft Consumer Rights Bill (the “Draft Bill”) was introduced into Parliament and is currently under review. It is likely that the Draft Bill will come into force during late 2015/early 2016.

There are four distinct sections of the Draft Bill relating to Goods, Digital Content, Services and Unfair Terms, that will impact retailers and their dealings with consumers.

The implications of some of these changes for conveyancing lawyers and their relationship with their clients are likely to be far reaching and will clearly need to be made the subject of early consideration.

Here are details of the main proposals in so far as they impact on the supply of conveyancing services.

Pre-contractual Information

The Draft Bill seeks to provide clarity on what representations and statements will be incorporated into the contract as terms, giving contractual force to any spoken or written representations and anything that is taken into account by the consumer when deciding to enter into the contract or when making any decision about the service after entering into the contract.

Those working in new business and who speak with potential clients when supplying a quote and securing business will clearly need to exercise care following these changes.  Representations about price, about fixing a price and later altering it, the likely duration of a transaction and the status of the fee earner who will be dealing with the work will all  become the subject of scrutiny and could unless due care is exercised automatically become terms within the client care agreement.

Representations within websites could be treated and viewed similarly.

A review of website content and pre establishment of client care processes will be essential to avoid future problems should issues with the client and the delivery of the service arise.

Statutory Guarantees

The Draft Bill sets out statutory guarantees that services will need to be performed with reasonable care and skill, within a reasonable time, and for a reasonable price, if this has not been expressly agreed.

This begs the question of what amounts to a reasonable time for the delivery of the service. How long should it take a conveyancer to complete a transaction is like asking how long is a piece of string.  Conveyancers will tell you that they can only go as fast as the slowest party in the chain permits. So what will happen if despite best effort a delay occurs due to the failing of a third party which places the conveyancer in breach of the statutory guarantee as to time?   

Will the legislation expect conveyancers to become ‘whistle blowers’ on the failings of their counterparts, lenders, search providers and other suppliers? 

Clearly to avoid all of these possible ramifications client care agreements and agreements with suppliers will need to be re drawn to ensure the inclusion of express terms on not only the timing of the completion of the transaction but also price. 

If there is any uncertainty over the price for the job it is clear this legislation will give the courts to impute a ‘reasonable’ price for the job. It will be interesting to see what bench mark will be used to determine the reasonableness or otherwise of a conveyancing charge.   Interestingly what is reasonable could excess what many conveyancers routinely charge for the work!

Statutory Remedies

Under the Draft Bill, two tiers of statutory remedy in relation to services are proposed. The Tier 1 remedy provides that the retailer should either redo the element of the service which is inadequate, or perform the whole service again. The Tier 2 remedy allows the retailer to provide a reduction in the charge to cover the element of the service that has not been provided with reasonable care and skill.

It appears at this stage that a disgruntled client will have two options - either to make a complaint about the solicitor to the Legal Ombudsman or to take the solicitor to the small claims court and allege breach of the terms of the statutory guarantee.  It is unclear as to whether the client would first have to exhaust the solicitor’s complaint process and the Legal Ombudsman procedure before going to court, but what is certain the introduction of these changes will undoubtedly fuel more complaints than are presently pursued.

Once again the solicitor faced with an unjustified complaint will be left with the dilemma of either fighting the complaint or settling it knowing that if it proceeds it will result in loss of time and expense.   

Fairness Test

The existing fairness test would continue to apply to all terms of the contract other than the price or subject matter, both of which can be excluded from the application of the fairness test provided they are “transparent and prominent”. The prominence test proposed by the Draft Bill is whether the term has been brought to the consumer’s attention in such a way that the average consumer would be aware of it.

This may mean that if as is often the case the client care letter/agreement runs to several pages it will be necessary for the client to be presented with a one page summary of the main terms and conditions as well as exclusions.

Transparency Test

Under the Draft Bill, all written terms offered to a consumer must be “transparent”, which is a change from the current test of “plain and intelligible”. Transparent is deemed to mean plain, intelligible language and, if in writing, legible. The Competition and Markets Authority is expected to prepare guidance on this new requirement.

No more legal jargon!  Most conveyancers already produce client friendly client care agreements; however it is clear that if a term or condition is not clear any ambiguity will be construed in favour of the client.  Moreover there will be little scope for attempting to hide terms or argue that terms were implied through custom or oral representation.  There will need to be complete transparency on fees and on added fees if a fixed quote is given.

The “Grey” List

The Draft Bill proposes to add three new terms to the current “Grey List” of terms presumed to be unfair. These include:

• disproportionately high charges in the event that a consumer decides not to conclude or perform the contract, or for services which have not been supplied;

Greater care and clear terms on what fees will be charged in the event of an abortive sale/purchase will need to added to the client care agreement if not already present and it is clear that punitive charges will not be permitted.  

• terms allowing the retailer to determine the characteristics of the subject matter after the contract has been formed; and

• terms which allow the retailer to determine the price after the contract has been formed.
There should be care taken when looking to include provision for additional charges for the work since if the terms are not made clear and there is absolute transparency the terms could be held to be unfair and unenforceable.

Conclusion

Practitioners should be prepared to review and update their procedures, both online and in-house, in order to comply with the new changes when they come into force.

There is scope for conveyancers to use these changes to introduce more realistic pricing for the supply of their services bearing in mind that when looking at the delivery of terms of the statutory guarantees and requirement for reasonableness it may mean that for the first time for a long while both the Courts and the client will be required to look more carefully at the vast amount of work and car and skill and  which goes into conveying a property.  

By David Pett - Director and Solicitor with MJP Conveyancing - Residential conveyancers 

Friday 21 November 2014

Veyo - Raising more questions than its answering

Heather Cameron of Today’s Conveyancer recently interviewed Veyo’s Chief Executive, Elliott Vigar, in an effort to learn more about Veyo’s product which is scheduled for release in Spring 2015. 

Despite a recent statement to the contrary, Mr Vigar has now placed on record his company’s intention to release (into an already congested market), an online system which will essentially provide conveyancers with a case management portal.

On being asked what exactly makes Veyo unique from other similar conveyancing systems, Mr Vigar stated:

"Veyo not only covers the entire chain comprehensively, securely and quickly, but most importantly it’s unique because it allows conveyancers on both sides of the transaction to communicate in real time with each other, their clients and other stakeholders in the transaction. It has been designed with considerable input from licensed conveyancers as well as solicitors to ensure it meets the needs of the industry.”

Interesting comment.  

To begin with its difficult to see how the system can monitor the ‘entire chain’ without first ensuring every conveyancer in the chain is part of the Veyo system.  Mr Vigar does not explain how Veyo is looking to achieve this especially when Veyo  as far as we know is not going to be a compulsory product. 

Secondly, it seem strange for Mr Vigar to suggest that conveyancers do not already speak with each other in ‘real time’.  Speaking on the telephone and communicating via email must clearly, must it not, constitute ‘real time’ communication. Furthermore, most case management systems already provide collaboration tools and to claim that Veyo will be unique in this area is simply disingenuous. 

On being pushed on the subject of Veyo’s USP Mr Vigar stated:

"Conveyancing professionals have been in real need of a solution that improves communication and collaboration between everyone involved in the home buying transaction process for a long time now. Veyo is being designed as a complete, end-to-end, transactional solution and unlike any other on the market.”

He added:

"Veyo provides the perfect solution by streamlining the process, reducing the administrative burden, enabling seamless communication and thereby both saving conveyancers time and money, but also speeding up and increasing confidence in the home-buying and selling process for consumers.”


It will be interesting to see what other legal software suppliers make of these remarks bearing in mind many of the competitors in this areas have been up and running and providing good, solid and well tested products for many years.  These competitors know the market inside and out and already have systems which provide an ‘end to end’ solution as well as communication and collaboration hubs.   

Most good solutions help conveyancers to streamline processes and reduce administrative burdens.  Those systems also help conveyancers to save time and money as well as to keep  clients informed of progress. 

There still therefore seems to be nothing new on offer. 


Turning now to the consultation process we are again being told that Veyo has come about due to ‘considerable input from licensed conveyancers as well as solicitors’.  Despite being asked the question several times Veyo has still not disclosed which conveyancers were consulted during the focus group phase of development.  

On this subject Mr Vigar explaining the process in more detail stated:

"The Society conducted a rigorous nine month tendering process and talked to more than 20 potential partners to ensure we got this decision right. Mastek was successfully selected because it takes such an agile and collaborative approach to technology. Its overwhelming expertise, experience and pedigree in developing enterprise class solutions with an emphasis on security, robustness and handling sensitive information make it the perfect partner.”

It is clear there was a form of tendering process and that several suppliers of case management systems were invited to attend the Law Society and demonstrate their offerings.  Looking back I wonder how many of those suppliers ( who will soon be competing with Veyo ) now regret taking part in this exercise.  

The choice of Mastek is surprising not because of any question mark over its pedigree but more to do with its  lack of track record in the legal technology market.  It is equally puzzling to note that it has only been within the last 4 weeks that Veyo has established contact with  The Legal Software Suppliers Association (LSSA), the UK industry body for legal systems developers and vendors.  

At the recent user group meeting of the BT legal software suppler Tikit users if the technology were told that Veyo had no contact with Tikit until very recently and that when the call came  it transpired that Veyo was asking for help!  Tikit made it clear that it views Veyo as a competitor though it will be happy to integrate its system with Veyo but only if the customer is prepared to pay for the installation. 

Despite the product being promoted as  ‘designed by the industry, for the industry’ it seems Mr Vigar does not possess a background in conveyancing.  In his defence he explained:

‘’Whilst not at the coal face, however, having trained as a barrister and having amongst other roles, previously run the Law Society’s regulatory policy function for a number of years, I have strong legal experience." 


As for pricing there is still no news according to Mr Vigar:


"At this point it is still too early to confirm, as we are still considering a couple of different pricing models and variations and discussing possible options." said Elliott.

"What is likely to be the case though is that Veyo will be based on an annual, per license fee coupled with an individual transaction fee. We believe that using Veyo will actually save conveyancers money by making the entire conveyancing process quicker and more efficient."

"Currently, we’re working to ensure that our pricing structure works for law firms of all sizes. This is because one of the benefits of Veyo is that smaller firms will have access to the kind of advanced technological system that normally only larger, more technically able firms have, bringing improved efficiencies for all and greater financial rewards. We are clear that Veyo should not adopt a pricing model that prices any firm out of its use."

So where does this leave us?

In short, no further forward, though we do now know that Veyo is a conveyancing case management system meaning that only those conveyancers who do not have an existing system or on that needs to be replaced will be interested in the product.  This must be correct since why would a conveyancer already running a good and reliable case management system wish to spend more money on purchasing Veyo?

I have no doubt that Veyo will provide the Law Society with a good and sophisticated piece of kit and that they will secure some business, but as I have previously written I do believe that they have in their haste to get this product to market, missed a trick or two.


Heather Cameron’s full article can be found here: 

Thursday 20 November 2014

New duty to warn other conveyancers of client's suspected fraud?

Scotland’s supreme civil court’s decision in Frank Houlgate Investment Company Ltd v Biggart Baillie LLP [2014] CSIH 79 has raised some interesting questions about transactional fraud and could have an important impact on conveyancer’s liability when they act for a dishonest client. 

The facts involve an investment company, the plaintiff, which lent money to the client of  the solicitor, the defendant.  The security for the loan was not owned by the client  and was in fact worthless.  During the course of the transaction the solicitor became aware of he client’s attempt to defraud but nonetheless continued to act and as a consequence of the fraud the investment company suffered a loss. Acting on the instruction of the client the solicitor did not warn the representative of the investment company of the fraud.

The three judges of the CSIH all agreed that the client’s solicitor was liable to the investment company for the losses , although they were not unanimous regarding the basis for that liability.

Lord Menzies held that the solicitor was under an obligation immediately to disclose to the investment company’s representative,  the that the client had admitted fraud and that the security was worthless. That obligation flowed from a continuing implied representation to the other party to the transaction that they are not aware of any fundamental dishonesty or fraud which might make the security for the transaction worthless. Notwithstanding the duty of confidentiality the solicitor was incumbent on a solicitor to act honestly at all times.  Not surprisingly Lord Menzies further held on the facts that he would have found the solicitor liable as an accessory to fraud in any event.

Lord Malcolm  relying  instead on Donoghue v Stevenson held that the solicitor was liable in negligence. He held that it was ‘preferable simply to rely upon the broad concept of culpa [fault], in the sense of failure by a professional to use the care and skill required in the circumstances’. He added: ‘In the present case the actionable negligence arises because [the defendant] came to learn of the fraud and knew, or should have foreseen, that further harm to the pursuers could ensue if he did not take care to protect them.’

There remains a question mark about the soundness of Lord Malcolm’s reasoning since there appears to  little authority around to support the existence of a duty of care by a solicitor to a third party, though the more interesting aspect to this decision is the obligation  to override the duty of confidentiality once a solicitor becomes aware of fraud. 

The bearing of a Scottish decision on practice in England may not be direct, but the case does give rise to some interesting questions.  If these circumstances were to happen in England it is clear the  solicitor  once knowing of the fraud should have immediately desisted from undertaking any further work ( without doing anything to ‘tip’ the client off ) and to then report the incident to the Solicitor Regulation Authority and the National Crime Agency   If there was then no intervention by the SRA/NCA the solicitor should have then terminated the retainer.  The question is whether in the light of the case of Frank Houlgate there would also be a duty once the retainer came to an end to bring the matter to the attention of the other parties in the transaction remains unclear.  How far would that duty extend?  Would the solicitor need to alert another solicitor appointed by the client when approached for the release of the file following the termination of the retainer?

The other question of interest which emerges from this case is that if a solicitor comes across  information, if considered properly and in line with SRA and Law Society obligations,  would show that the client could be acting dishonestly, but the solicitor fails to read or to appreciate the importance of that evidence, would that be sufficient for a lender of other third party to rely on the decision of Houlgate and seek redress for loss. Could this now present a lender with an alternative route to the solicitor’s insurers when loss is sustained due to fraud?


Only time will tell though one thing is for certain it is an argument which I am sure a lender will look to run sometime in the very near future. 

Article by David Pett Director/Solicitor - MJP Conveyancing

Monday 17 November 2014

Veyo's Fundamental Flaws

The Law Society’s joint venture with Maestek UK has become a hot topic of conversation within the Legal Community and has in the main courted a great deal of  negative press from property practitioners.  The product to be delivered by Veyo is described on Veyo’s website as a ‘revolutionary home conveyancing portal’ offering to save practitioners ‘time and money’.  Speaking at a recent conveyancing conference Veyo’s Chief Executive, Elliott Vigar, announced that the launch of the product is still on schedule for spring of next year.

In this article I look to examine and discuss those areas of Veyo’s business model in which there is I believe some fundamental, and perhaps fatal, errors.

I must begin however with a disclaimer as well as a declaration of self-interest. I am not an expert in legal technology; though I must disclose that in 2011 I designed and built a risk and case management system (Quick Conveyance) with the help of one full time programmer.  The system was built on a ‘shoestring’ but has proved largely successful and has helped my business process around 30,000 transactions since it was launched.  The cost of building the developing the system (which boasts the majority of the features of Veyo) has been no more than the salary of a full time programmer.  Contrast this with the news that Veyo has and continues to consume millions of pounds of investment, not only in relation to build but also in marketing and promotion.

The first feature of the business model to consider, and an aspect which is pretty fundamental to any new business venture, is the question of identity.   Is Veyo a communication and compliance hub for the benefit of those who subscribe to the Law Society’s national Conveyancing Protocol, or is it a case management system for those undertaking conveyancing. Or is it both?  For any product to achieve successful traction in the market for which it is designed and promoted, it must be capable of being clearly understood by the target market.   Unfortunately from what has been disclosed and presented to date the message is far from clear.   At the recent Society of Licensed Conveyancer’s Conference held in Derby those representing Veyo (Des Hudson, former Law Society Chairman and Mr Vigar) were clearly confused.   In response to questions from practitioners it was clear that they themselves do not know whether they are entering the highly competitive market of legal case management systems, or whether they have a system which is designed to supplement existing case management systems.  From reading the literature and despite a clear statement from Veyo to the contrary, it seems obvious to everybody other than Veyo that they are offering nothing unique or different.  Veyo is a case management system which is no different from most of the other case management products out there and which are far better established.

So what would have I done differently?   To begin with I would have consulted with both the practitioners and the legal technology industry at an early stage and looked to see what I could have done to supplement rather than compete with existing offerings.  Why re-invent the wheel?  Veyo swears blindly that it has consulted and carried out extensive focus group exercises.   I am no business guru, but even a candidate from the BBC show the Apprentice could see that there is very little evidence that if this did take place, little if any reliance has been given to the feedback.    The case management market is saturated with similar products and products with lengthy and successful track records.  Why do we need another case management system?   For a practitioner who has already invested a significant sum of money in a case management system there is little incentive to switch or spend money on integrating with Veyo. It simply does not make any commercial sense.
Keep in mind that Veyo claims its system will speed up the conveyancing process and help to save cost.   This strap line simply does not inspire confidence.   It is reported that Veyo will need to charge a license fee and also a transaction fee.  It is not clear how much these fees will be, but based say on a license fee of £2000 per user and a transaction fee of £15, a business which handles 2400 transactions each year and has 20 fee earners would be looking to pay Veyo £76,000 per annum.  If the business already operated a case management system then it would be looking to pay this on top of its existing commitment without any apparent additional benefit.   This hardly demonstrates a saving.

The lack of identity caused by flawed business development investigation was avoidable.   The Law Society could have looked to introduce for example a system which acted as communication hub to bridge existing case management systems and offer a ‘negotiation room’ and or a ‘chain matrix’.   An idea that would not have competed against existing and established systems but which brought something new and innovative to the table.  One question which springs to mind is why the Law Society not look to reviving the Land Registry’s failed at a chain matrix. The idea of the system was to reduce the uncertainties of house buying by allowing all parties in a chain to see what stage of the process had been reached by everyone else. It was to be the centrepiece and public face of a scheme to computerise the entire conveyancing process. However, the scheme was postponed at the end of 2007 after a pilot showed little interest from conveyancers or their clients.  I am sure that with full and proper consultation with conveyancers and the legal technology industry there could have been some merit in looking to resurrect this project particularly if there was some appetite evident from private investors.

The other significant failing has been the lack of engagement with the target market.  Veyo is either naive or extremely arrogant in its approach to the presentation and marketing of its product.  This is not a current issue but goes back in time to when the product was first devised.    Veyo claims it held focus groups and consulted with grass root conveyancers but has up until now failed to disclose details of that consultation.   The legal sector is a difficult market place at the best of times.  Those selling to lawyers find it difficult to engage interest and to earn sufficient trust to then sell.   Veyo seems to be oblivious to these factors and seems to believe that conveyancers will come forward in sufficient numbers and sign up.  I suspect this is a highly optimistic view and indeed the recent announcement by Myhomemove might suggest that conveyancers have already turned their back on Veyo.  Myhomemove, the UK’s largest provider of mover conveyancing services, recently selected Lexis Visual files 2014 as the firm’s next generation workflow and case management system.

To succeed in the legal sector there needs to be a sense of belonging and unfortunately this has been lacking in the approach adopted by the Law Society in the development of Veyo.  I am sure if there had been effective and extensive consultation with conveyancers in its development conveyancers would have been warmer and more receptive to Veyo’s introduction.

It may not be too late to save Veyo providing those behind it begin to listen to the feedback and perhaps look to redesign the product.   It needs a unique selling feature and to demonstrate that for the money it will demand that it is actually adding to and improving the conveyancing experience for the conveyancer and client.

Veyo - Raising more questions than it is answering : http://bit.ly/1p5U1t3 

By David Pett Director of MJP Conveyancing 

Thursday 30 October 2014

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

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

Probably most significant are the proposed minimum energy standards. 

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

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

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

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

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

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

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

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

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

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

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

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

Important questions surrounding the SRA proposal for minimum indemnity insurance

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

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

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

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

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

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

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

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

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

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

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

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

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

Wednesday 29 October 2014

What is a Flying Freehold?


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

Flying Freehold

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

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

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

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

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

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

Freehold Flats

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

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

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

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

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

Article written by Michael Riches - Trainee with MJP Conveyancing  



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

Friday 17 October 2014

Lender's Certificate of Title

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

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

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

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

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

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

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

Article written by Charlotte Ribbons Trainee Solicitor 


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

Monday 13 October 2014

The Law Society Conveyancing Portal - Destined for failure?

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

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

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

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

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

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


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

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

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

The investment?

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

Money well spent?

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

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

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

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

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

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

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

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

Take Up 

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

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

Integration 

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

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

Lenders

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

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

Viability 

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

Conclusion 

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

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

David Pett - Director and Solicitor 

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

Thursday 2 October 2014

The Death of Leasehold Exit and Sub-Letting Fees?

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

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

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

The Partnership reports on its website:

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

It adds:

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

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

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

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

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

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

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