Warranties and guarantees, their value when buying a home

One of the advantages of buying a new home is that it should come with a guarantee from the builder. Likewise, if you are buying a property which the seller has recently improved, it may benefit from a guarantee or warranty covering that work. These can provide peace of mind, but how valuable are they in practice and can you rely on them?

‘Guarantees and warranties can take some of the worry out of owning a home,’ acknowledges Neil Shearer, a conveyancer in the residential property team. ‘However, you should not let them lull you into a false sense of security. Not all guarantees and warranties provide the protection they appear to, and in some cases the benefit may not pass to you as the buyer.’

Here he answers some of your questions and guides you through this tricky topic.

What are warranties and guarantees?

In a guarantee, one party takes on responsibility for the default of another. Strictly speaking, a guarantee must be in writing and signed by the person giving it. For example, a parent company may guarantee the work of its house-building subsidiary. If, because of the latter’s poor workmanship, a house suffers damage during the guarantee period, the guarantor will step in to rectify it even if the builder no longer exists or has become insolvent.

A warranty is a written promise that something is of a certain specified quality. A guarantee may include warranties, but you often find warranties as separate independent documents. The person giving the warranty often does not have a direct contractual relationship with the recipient. For example, a developer asks a builder to construct a new home. The builder then employs an architect for the design input. There is no direct relationship between the developer and the architect, nor between the architect and the buyer of the new home. If the architect fails to do a good job, the developer, and subsequently the home buyer, may find it difficult to claim against them. A warranty helps overcome this difficulty. If there is a design problem, covered by the warranty, the architect is responsible for putting it right, and the person with the benefit of the warranty can enforce this.

Which is better, a guarantee or a warranty?

In practice, the two terms are used very loosely. Indeed, there is often a lot of confusion over them; the term ‘guarantee’ often being used to describe any promise about an item’s quality.

One is not better than the other. They are really just different ways of structuring third-party protection. Some arrangements may even combine elements of the two. For example, a structural warranty can be (and often is) underwritten by a third-party insurer. The most important thing is to understand how the guarantee or warranty works, which means considering its individual terms and conditions. Your solicitor will discuss this with you to enable you to assess the impact on your purchase and home ownership.

When should I expect a guarantee or warranty?

Every situation is different. However, if you are buying a brand-new home from a developer, or one built in the past ten years, you would ordinarily expect a new build warranty. The level of cover varies, depending on the provider, but typically it covers defects in the builder’s work for the first two years following construction. After that, cover is usually limited to major structural problems which arise during years three to ten.

If you are buying an individual architect-designed home, the situation is likely to be more complex. There should be an architect’s certificate or structural warranty. These provide different levels of protection, and it is important your advisor checks the terms carefully. Typically, if you are borrowing to finance your purchase, your lender will require an insurance-backed structural warranty. Your solicitor can advise you on your lender’s exact requirements.

You may also reasonably expect a guarantee or warranty where the property has had recent structural work or some major addition or change. This could, for example, include damp-proofing, new windows or doors, a heating system or solar panels, electrical work, timber treatment, a septic tank or sewage treatment plant, or insulation.

How do I find out about guarantees and warranties?

If you are considering a brand-new home, ask the developer about cover when you are viewing. Over 70 per cent of new builds are covered by the NHBC Buildmark Warranty. However, there is a wide range of options on the market, so it is a good idea to get as much information as you can. You can then assess the benefits and factor this into your decision-making process.

When you are viewing a resale property that has had recent improvements or additions, ask the seller or estate agent whether they are covered by a guarantee or warranty. If you decide to buy it, tell your solicitor. They can then follow up on the documentation.

In any case, as part of their pre-contract enquiries, your solicitor will ask the seller about guarantees and warranties. If you are aware of any work which you think should be covered, mention this to them as soon as possible. This will give them the opportunity to consider any issues early on, which may affect how you approach your transaction.

How good are the guarantees or warranties on offer?

Unfortunately, the existence of a warranty or guarantee does not mean you will automatically be covered if something goes wrong. You, and your professional advisors, will need to assess the protection offered. In doing so, you should consider the following:

  • What are the terms and conditions of the warranty or guarantee? What are the exclusions?
  • How long has the warranty or guarantee left to run?
  • How reputable is the company giving the guarantee? Will it be around long enough to honour any claim?
  • Is the warranty or guarantee insurance backed?
  • Have any claims already been made under the warranty/guarantee, and what impact will that have on any future claim?
  • Can the benefit of the warranty or guarantee be transferred? If so, what needs to happen?

The answers will let you assess the level of protection and whether it meets your needs. If you are borrowing to fund your purchase, your mortgage lender is also likely to have some minimum requirements.

Not all warranties or guarantees are equal. For example, a structural warranty from a reputable provider, underwritten by an ‘A’ rated insurer, should give more reassurance than a guarantee from a company with no track record. Even if the warranty or guarantee is backed by a well-known name, it is important to check it can be transferred to you. Some are not transferable, or are limited in the number of transfers, which could render their value nugatory.

The answers may also highlight further action you, or your advisors, need to take. The benefit of some warranties or guarantees transfers to a new owner automatically. Others, however, require some additional action, such as giving notice.

What should I do if there is no guarantee or warranty?

Knowing which guarantees or warranties cover the property is important for two reasons.

Firstly, it allows you to assess better the level of risk. In the absence of cover where you might expect it, you can consider how likely this is to be an issue in the future, and the cost of remediating if necessary. Take the example of a boiler that is outside its warranty period. Looking at its service history, you could take the view that it should continue to function well for some time. Alternatively, you could decide to factor in the cost of a replacement.

Secondly, it allows you to control that risk and to address any issues. For example, if you are concerned about the structure of the property, you could ask your surveyor for their opinion or seek the advice of a specialist, such as a structural engineer. It may also be possible to obtain a structural warranty retrospectively. You could consider reducing your price to reflect the cost of this or requiring the seller to get one as a condition of your purchase.

How we can help

We have a wide range of experience in all types of conveyancing transactions, including new build and custom-build. If you instruct us, we will confirm which warranties and guarantees cover your purchase and the protection they provide. Equally as important, where there is an issue, we will work with you to explore ways to reduce any associated risk, for example, through taking out a warranty retrospectively or negotiating a price reduction.

For further information, please contact Neil Shearer in the residential  conveyancing team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

The internet of things buying a smart home

A house which ‘thinks’ for itself, adapting the ambient temperature minute-by-minute, watering your plants while you are away, controlling access based on biometrics. That may seem like the stuff of science fiction or Grand Designs. However, many of us have already incorporated smart devices into our homes, from smart lights you control from your mobile phone to video doorbells.

‘As technology develops, fully or partially automated homes and buildings are becoming an option and more developers are building homes which incorporate modern technology,’ says Neil Shearer, a conveyancer in the residential property team with. ‘However it is not as simple as agreeing to keep the washing machine, as buying a smart home also involves the transfer of hardware and software and related privacy issues. So, it is important to choose a solicitor who fully understands them.’

Here he answers some of your questions.

What is a smart home?

In a ‘smart’ home the appliances can be controlled remotely or automatically, generally through the internet by using a smart phone or tablet. Systems may be hardwired or wireless, the devices usually connecting through a hub. Depending on the level of sophistication, they may even communicate with each other. For example, a motion sensor may tell a light to turn on when someone enters the room, a weather station monitors rainfall and tells an automated irrigation system when to water the garden.

However, the term ‘smart home’ covers a wide range of possibilities. On the one hand, an owner may incorporate some off-the-shelf products, such as LED smart lights or a video doorbell. On the other hand, a high-end property may benefit from an entire bespoke automation system, featuring integrated lighting, climate control, entertainment systems, and security.

Why have a smart home?

Many people appreciate the ability to manage items remotely. A smart thermostat can let you turn the heating on before you arrive home. In ‘holiday mode’ your smart system will automatically switch the heating on when the temperature dips, protecting your pipes from frost damage – even when you are away.

Smart devices can help save you money and manage your home more efficiently. For example, smart radiator valves can reduce your heating bills by between 10 and 20 per cent. Others like the security and convenience these technologies can offer. For example, you can programme your garage door to open when you approach, or to alert you when someone tries to gain unauthorised access.

With a professional platform, you can personalise your system to respond to your individual needs and preferences. Not surprisingly, a recent survey revealed many homebuyers are prepared to pay a premium for a smart home.

Are there any disadvantages to a smart home?

While providers try hard to make their products as simple and intuitive as possible, some devices work better than others – as demonstrated with the roll out of smart meters for gas and electric.

While you may be confident with technology, is everyone in the household going to be as comfortable? Before committing yourself, make some practical enquiries. Check how easy it is to override the system manually. Most (but not all) systems rely on the internet to work. You should also know what to do if there is a service interruption. This is particularly important with security features; nobody wants to find themselves locked out of their home.

Is the company that installed and services the system still in business? Who will you be able to call if you do have a problem, and what response time is likely?

Some devices may also leave you vulnerable to malware or hackers, who may harvest your personal data. So, it is important to manage these risks. Only use reputable suppliers, regularly update your devices, and ensure your network is secure and password protected.

How can my conveyancer help if I am buying a smart home?

Smart homes are a relatively new concept, and the conveyancing process has yet to catch up. The standard Property Information Form, which the seller completes as part of the conveyancing process, for example, does not refer specifically to smart devices. Similarly, the standard fixtures and fittings form does not expressly cover things like smart thermometers or security systems.

If you are buying a smart home, or expect certain devices to pass on sale, tell your solicitor. They can then ensure the documentation reflects this and avoid any confusion over what should happen on completion.

Some systems may also benefit from a guarantee or warranty and, where possible, the seller should transfer these to you on completion. Depending on the individual circumstances, your solicitor may also suggest an amendment to the contract to ensure the seller takes any action necessary for the devices to work as intended following your purchase. Being clear about what needs to be done before completion, and setting out who should do it, will ensure a smooth transition. You can then focus on enjoying your new home.

What should I look out for when buying a smart home?

When buying a home with smart features, you should always clarify with the seller what is staying and what they are taking with them. Some items, such as smart thermostats and security cameras, are usually fixed to the wall and it is usual for them to remain. However it is worth checking, as occasionally sellers remove them or substitute them with a basic generic version. Listing each included device, in writing, can avoid misunderstandings later.

You should also discuss how transferring them will work in practice. This will usually involve the seller resetting their devices, clearing any data and reverting to the default password. After your purchase, you can then reset the password and take over the account. Sometimes you may need to take additional action. For example, if your new home has a Hive heating system, you may need to purchase a new hub.

If you are buying a fully automated home, you should try to find out as much as you can about the original installation, the platform, how it currently functions, and how to transfer the account. Ideally, the platform should manage all the individual devices, creating a fully integrated system. However, it is important to check its current functionality, and that you have all the components necessary for a successful transfer, including the cost of any subscriptions. It is not unheard of for a new owner to encounter ‘ghost’ devices, which continue to operate according to the parameters set by their old owners.

Whether you are buying a conventional home with a smart heating system, or a fully automated architect-designed new build, clarifying the arrangements should ensure there are no nasty surprises when you move in.

How we can help

If you are buying a smart home, you need a solicitor who understands the issues involved and who will give your purchase their close individual attention.

For further information, please contact Neil Shearer in the residential property  team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

ID verification and financial checks when buying a home

When your offer on a new home is accepted, you will probably want to get things moving quickly. Before your solicitor can start work, there are some important checks that they must carry out to verify your identity and check your source of funds.

Sadly fraud has become an increasing problem in recent years, with professional criminals targeting conveyancers and home buyers in what are often very sophisticated scams. It can be easy to lower your guard in the excitement of buying your new home.

‘Your solicitor will need certain information from you,’ explains Neil Shearer, a conveyancer in the residential conveyancing team . ‘Providing this can sometimes feel like a bit of a chore. However, these checks are a legal requirement and, in most cases, they should be relatively straightforward.’

It is a good idea to ask your solicitor early on about their requirements. They may have a form which sets these out succinctly and clearly. Generally, you will need to provide two types of evidence: proof of identity and source of funds.

It can help to view verification as a two-way process, and you should never be afraid to question your solicitor if something seems unusual or suspicious. For example, a favourite tactic of scammers is to send buyers an email, supposedly from their solicitor, saying their bank account details have changed. If you receive an email like this, do not send any money. Instead, telephone your solicitor straight away.

Neil answers some common questions and explains what you can do to get your purchase off to a flying start.

I have already told my lender about my finances, why does my solicitor need this information as well?

During the home-buying process, you will have to provide financial information to several different people.

If you are taking out a mortgage, your lender will ask about your income, expenditure and investigate your credit history. This lets them check you can afford the mortgage repayments. The estate agent may also ask for information, for example, how you will fund your purchase. This is to check you can proceed with the purchase and it safeguards their client, the seller.

In addition, anti-money laundering legislation requires all the professionals involved in a transaction to be vigilant and to make certain checks. This includes your solicitor, who has a legal obligation to check your identity and that the money you are using to fund your purchase comes from a legitimate source. They will also need to satisfy the Land Registry’s requirements on identity checks when registering the transfer of ownership.

While it can be frustrating to have to provide the same information to different people, it is necessary. There is no need to worry about it, as your solicitor will guide you through the process.

What information will I have to provide to verify my identity?

Identity verification is generally the most straightforward. A current passport or photocard driving licence plus an additional document, such as a bank statement or utility bill, to prove your address will usually suffice. The latter will need to be up to date (usually no more than three months old). It should be original too, and a hard copy, not a print-off from an online account.

Your conveyancer may also ask you for your national insurance number.

If you are buying with a partner, then you will both need to provide this information individually.

If you are buying through a company, you will need to show its beneficial owners.

If buying via a trust you may need to show evidence of the identity of all the parties involved, including potential beneficiaries.

What evidence will my solicitor need to verify the source of funds?

Satisfying the source of funds can sometimes be a little more complicated. In essence, it means showing where your purchase funds are coming from, because your solicitor needs to check this is a legitimate source.

The information required will depend on your individual circumstances. For example:

  • If you are buying with the help of a mortgage, it could be your mortgage offer letter and bank statements showing your deposit. Those statements should also show how you have built your deposit up, for example, through savings from your salary, investments, or pension.
  • If your purchase is funded by an inheritance, then it could be evidence of the original bequest.
  • If you are using the proceeds of sale from another property, then it could be the completion statement and evidence of the completion monies being paid into your account.
  • If you are purchasing through a company, you may need to provide details of how the company is funding the purchase. This could, for example, be through providing its audited accounts or evidence of a buy-to-let mortgage.
  • Similarly, if buying through a trust, as well as showing the source of funds, for example via copies of trust accounts, you may need to provide proof of the identity of individual trustees and beneficiaries.

Cash is not king

Cash can give rise to several issues. Most solicitors will not accept cash payments, either towards the purchase price or expenses. Moreover, if your bank statement, which is evidence of the source of your funds, shows a large cash withdrawal or deposit, your solicitor may ask for more background information.

Funds coming from overseas, and gifts, may also require additional scrutiny.

Gifts and personal loans

If you are receiving a significant contribution to your deposit from a person who is not a party to the transaction, such as a relative, your solicitor may also need to consider their circumstances.

If it is a gift, the relative may be asked to complete a gifted deposit form. This gives more information about the origins of the funds and will usually also confirm the donor will have no claim on the property.

If it is a personal loan, your conveyancer may ask for evidence of the loan agreement and your lender’s source of funds. For example, if a relative is lending you the money, they may need to see evidence of their savings, just as they would if they were buying the property themselves.

Certain categories of people may also require additional checks as guidance identifies them as being potentially vulnerable. They include senior politicians, directors of state or international companies, senior military figures and judges.

What can I do to ensure my purchase proceeds quickly?

In most cases, these checks should not delay your purchase unduly. However, this depends on you being able to supply the requested information promptly. So, it is a good idea to collate this before making an offer.

You should also keep it regularly updated. Doing this should reveal any potential issues. For example, if you have recently married or changed your name, you may also need to include a copy of your marriage certificate or deed poll. If you are using the sale proceeds of a property held in your former name, you may need this to show the link between that and the funds in your current account.

If you are unsure of the requirements, or if your funding arrangements or personal circumstances are unusual, speak to your solicitor early on. As soon as your offer has been accepted, they can then get to work on your purchase.

Choosing a solicitor who is proactive, well-organised, and who makes the best use of modern technology will also speed up the process. They will still need information from you. However, they can carry out a lot of verification online, thus reducing the impact on your transaction.

Will these checks protect me against property fraud?

These checks are primarily about ensuring the legitimacy of your funds. However, the overall aim is to reduce the risk of criminality, creating a more secure property market and ultimately benefiting everybody. So, you could view them as part of an overall strategy to keep you safe.

But it is important to stay vigilant and to pay attention to your solicitor’s guidance, particularly when transferring funds. Your safety is their priority, and they should be able to reassure you or tell you what to do next to protect yourself.

How we can help

For further information, or if you are looking to move home, please contact Neil Shearer in the  conveyancing team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Climate change, what to consider when selling a property

Climate change is likely to affect most if not all our homes, and homebuyers are much more conscious of environmental issues nowadays, which is something to be aware of if you are selling.

‘If your home is already affected, other properties in your neighbourhood probably will be too. Often, you can improve your chances of a successful sale by showing you have considered any issues and taken steps to address them,’ says Neil Shearer, a Conveyancer in the residential property  team with.

Adverse incidents, like flooding, often seem like a twofold blow; once when you experience the stressful event itself, and again when you must disclose it on sale. That is why it is so important to discuss any concerns with a solicitor you trust, someone who can advise you of the legal implications and help you move forward.

Neil explains, ‘You may not be able to change factors such as your property’s underlying flood risk. However, you can still do a lot to improve your chances of a successful sale.’

Increased flood risk

Flooding is one of the biggest climate related challenges now facing homeowners. Research suggests that even a ‘modest’ increase in average temperatures of two per cent over the next twenty-five years could result in a 61 per cent increase in the number of properties flooded. That figure is worrying, even more so if your home has already been flooded.

Unfortunately, flooding can seriously affect future saleability. This can be so even if your home has not suffered directly. For example, if floods have affected a nearby property or if your neighbourhood is identified as being at ‘higher risk’. However, every situation is unique and if your home is otherwise attractive to prospective buyers, there are things you can do to offset the negative impact of flood risk.

As part of the conveyancing process, your solicitor will give you a form, TA6, to fill in. Completed, this form will give the buyer detailed information about your property, and one of the questions is about flooding. It can be tempting not to reveal a previous episode of flooding, but it is important to tell the truth. If you conceal something significant from your buyer, this could backfire, leaving you open to a claim for misrepresentation. In a worst-case scenario, your buyer could reject the sale contract and seek compensation from you. So, it is important to discuss any concerns with your solicitor before completing the form.

You may be able to mitigate the disclosure of prior flooding by putting it into context. For example, it may have happened many years ago with no reoccurrences, or you may have carried out work to your property to reduce the risk in the future. Providing a flood risk report may also alleviate your buyer’s concerns. This is a formal surveyor’s report summarising the flood risk and explaining how preventive measures have affected that risk. Similarly, showing you have been able to continue to insure your home against flood risk can help reassure buyers.

Deteriorating ground conditions

Higher temperatures and more extreme weather conditions are also affecting ground conditions. As a result, incidents of subsidence (where the ground under your property sinks) and heave (an upward movement of the ground, which can also cause property damage) have been increasing.

If your home is showing signs of either, it is a good idea to consider the potential impact before putting your home on the market. If your property has suffered from subsidence in the past, you will have to disclose this when you sell. However, as with flooding, you can mitigate the impact by showing how you have addressed the issue. Conversely, your property may show signs of subsidence, or you may suspect a potential issue (perhaps because a neighbouring property is affected), which you have not addressed. In this case, you should seek expert advice. A structural engineer can tell you how serious the issue is and advise you of your options.

Many cracks are caused by settlement rather than subsidence, which is usually not a major issue. In this case, the structural engineer’s report should reassure potential buyers. Moreover, even if the report reveals subsidence, you will be better able to respond to any concerns raised. This could be through carrying out remediation works or a realistic renegotiation of price. While not ideal, these types of issue need not derail your sale.

Coastal erosion

For many of us, a home overlooking the ocean is the stuff of dreams. Sadly, rising sea levels are another effect of global warming and the increased risk of flooding and coastal erosion, amplified by the media, has made some more wary of buying a coastal property.

However, only a relatively small number of homes are directly affected by coastal erosion. So, if you own a coastal property, check to see if it is in a high-risk area. You can do this by looking at the coastal erosion management plans held by the Environment Agency and your local authority’s shoreline management plan if they have one. Putting together the relevant information in advance can help. This way you can address any concerns potential buyers may have. For additional peace of mind, you could obtain an environmental search report that shows the latest national coastal erosion risk mapping. A low or medium future risk is something most potential buyers would accept as the price of a beachside retreat.

Searches, enquiries, detailed reports, surveyor’s advice. 

As part of the conveyancing process, your buyer’s solicitor will collect a lot of detailed information about your property. This will include asking questions about flooding and other environmental matters. So, it is a good idea to consider your answers and discuss any potential issues with your solicitor early on. If you have a particular concern, try to do this before putting your home on the market.

Buyers will also often arrange for an environmental report. There are various types available, which can target specific issues and give different levels of detail. Although it is ultimately down to your buyers to investigate the risks, sometimes it can be a good idea for you as seller to commission an environmental report. The reasons are twofold. Firstly, if the report is generally positive, you could provide a copy to your buyers to reassure them, reducing the risk of issues being raised later. Secondly, if the report does reveal areas of concern, you can start actively addressing them. For example, through remedial works or a specialist surveyor’s report, which gives a more detailed assessment of any residual risks.

Turning environmental concerns into a positive

When you are selling a property, climate change related challenges may just seem like another obstacle to overcome. Alternatively, you could look upon them as an opportunity to show your home in a more positive light. With rising energy costs and greater emphasis on sustainability, buyers are increasingly concerned about energy efficiency. Ensuring your Energy Performance Certificate rating is high can showcase your green credentials, making your home stand out against other comparable properties. So, if your boiler is due for replacement, make sure your new one is energy efficient. You could even consider renewable heating alternatives, such as a heat pump.

Transparency, good communication, and careful management of the parties’ expectations can usually offset the negative impact of any environmental concerns.

For further information, please contact Neil Shearer in the residential property  team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Gazundering and gazumping, avoiding the perils

Research suggests that nearly a third of recent sellers have suffered gazundering, which property pundits attribute to a downturn in the market. But, in some areas, the lack of suitable properties means there is still fierce competition for homes, with buyers trying to outbid each other via gazumping.

‘It is certainly a challenging time to be moving home,’ agrees Neil Shearer, a Conveyancer in the residential property team with. ‘Unfortunately, some buyers and sellers are taking advantage of the current market to renegotiate the agreed price, threatening to pull out if their demands are not met. The good news is there are things you and your solicitor can do to reduce the risks.’

Gazundering, and why it is a problem

With gazundering, the parties agree on a price, and the sale is proceeding, but the buyer then lowers their offer, threatening to pull out if the seller refuses to accept their reduced offer. Gazundering tends to be more common in a falling market, where the gazundering buyer exploits the seller’s fear that they may struggle to achieve the same price again.

Gazundering can happen at any time between accepting an offer and exchanging contracts. However, it is most common just before exchange. This is the moment both parties commit legally. As a seller, you will already have made a significant emotional and financial investment in your move, and the buyer knows this; it is the point at which their ultimatum is likely to have the most impact. The stakes are high, particularly if you are buying another property with your sale proceeds. If you call your buyer’s bluff and they walk away, you risk losing your new home too, particularly if your seller is in a chain of linked transactions. However, giving in to their demands could cost you dearly too. It can feel like a lose-lose situation.

Gazumping, and why it is a problem

Gazumping is the flip side of gazundering. It is generally more common in a rising market, but can happen whenever there is strong competition over a property. A seller accepts an offer from a buyer, and it seems like the purchase is progressing normally. However, the seller then accepts a higher offer from another buyer.

If this happens to you, your seller may invite you to increase your offer. This may secure your purchase, but it could escalate into a bidding war or a contract race. Even if the seller accepts your increased offer, you may find it hard to trust them, fearing they may try the same thing again.

Just like gazundering, gazumping can be costly emotionally and financially. If you decide to pull out, you will lose the benefit of the money you have already spent, for example, on a survey or conveyancing searches. If you are selling your own home, and are in a chain, it could also endanger that transaction unless you find a replacement purchase quickly or decide to move out anyway.

Is gazundering or gazumping legal?

Most people consider both practices to be unethical, but neither is unlawful. Either party may change their mind right up until exchange of contracts. It is only then that the transaction becomes legally binding.

The Government considered changing the law to prevent gazumping when it reviewed the house-buying process in 2018. However, it found this would be hard to do without creating other problems. It also took the view that a greater commitment from buyers and sellers earlier in the process could reduce the risks.

How you can reduce the risk of gazundering or gazumping

Until there is a binding contract in place, both buyers and sellers are at risk of the other one changing their mind. So, minimising the time gap between offer and exchange will help reduce this risk. Specific action you can take will depend on whether you are buying or selling.

Sellers

If you are a seller, you should address any issue that could delay your sale in advance. For example, your home may have an extension that does not have the requisite planning permission, or that needs consent under a title restriction. Applying for retrospective consent or taking out a suitable insurance policy could prevent this from becoming an issue later. Discuss your plans with your solicitor at an early stage; they can carry out a title audit of your property and pre-empt any issues.

It is also a good idea to consider your buyer’s position before accepting their offer. Ask yourself how proceedable they are. Generally, the more complex a chain the more scope there is for problems to arise. However, there is no hard and fast rule; sometimes a first-time buyer who has a mortgage offer in place may be less inclined to risk their purchase than a cash-buyer looking for an easy bargain.

Buyers

If you are a buyer, make your offer conditional on the seller removing their property from the market. Their estate agent has to tell them about any offer they receive. However, if they are no longer actively marketing a property, the chances of receiving a better offer will be a lot lower.

Ensure you can proceed quickly and efficiently. Arrange your finances well in advance, and have your solicitor and surveyor lined up. Monitor the progress of your sale. Return any papers your solicitor sends you for completion and respond to their questions promptly. If you show you are a serious proceedable buyer, any seller should think twice about risking their sale. Where possible, develop a rapport with them; they will be less likely to renege on a promise if they like and trust you.

Some other things to consider

If you are a buyer, you may also want to consider a lockout agreement. This is a separate agreement that prevents a seller from selling to anybody else for a fixed period. In return, you undertake to progress your purchase diligently.

Lockout agreements do not suit everyone; they involve additional expense and negotiating one could prolong your purchase and unsettle your seller. However, they can be useful in some circumstances. If you are concerned about gazumping, discuss this possibility with your solicitor.

It is now also possible to take out a home protection insurance policy. This will not stop you from being gazumped, but it can help with the additional expense you may suffer as a result.

How can I keep my transaction on track?

It may not always be possible to eliminate the risk of gazundering or gazumping, but there is a lot you can do to protect yourself. Either can be down to one party’s greed, but frustration and poor communication can also encourage these practices.

Due diligence at the outset, and understanding your buyer or seller and their motivation, will help. So too will having the right professionals on board. Our solicitors are proactive and communicate well, giving both parties confidence the transaction will progress as it should. That, and the swift resolution of any legal issues, is often the best safeguard against the perils of gazumping and gazundering.

For further information, please contact Neil in the residential property  team on 0191 297 0011 or email wb@kiddspoorlaw.co.uk.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

What is the registered charge on a property?

If you take out a mortgage to buy your home, your lender will almost certainly register a charge against it at the Land Registry. The charge does not transfer ownership. However, it will give the lender important rights, including the ability to sell your home if you default on your loan.

‘When borrowing to buy a property, most of us give little thought to how the lender protects their interest,’ explains Neil Shearer, a Conveyancer in the residential property team with Kidd & Spoor. ‘However, the creation of a legal charge will affect how you, as an owner, can deal with your property. Conversely, if you decide to lend money to someone, for example to get on the housing ladder, it can be a useful tool to protect your loan.’

In this article, Neil answers some of your frequently asked questions about registered charges on property.

What is a registered charge?

Although there are technical differences between a charge and a mortgage, people often use the words interchangeably. A charge is a legal interest in property, which the owner (called the chargor or mortgagor) creates in favour of a third party (the chargee or mortgagee). This is usually to secure debt, typically a mortgage used to buy a house. A charge gives the lender certain rights over the property. For example, they can sell the property and use the proceeds to pay off the outstanding debt if the borrower is unable to.

Most land is now registered at the Land Registry. If this is the case, to be legally effective, the charge must also be registered. It is then known as a registered charge.

If the land is not yet registered, then the creation of a legal charge will usually mean the owner must apply for registration of both the land and the charge.

Registration of a legal charge also provides a state-backed guarantee of its validity, so it is the preferred type of security for many lenders.

How does a registered charge affect me as a property owner?

The existence of a registered charge is unlikely to affect you on a day-to-day basis provided you comply with your mortgage terms; it is important to know what these are. For example, many standard mortgages will prevent you letting your property without your lender’s consent. There are certain statutory safeguards, but failing to comply with your mortgage terms could put your home at risk.

However, when selling your property or remortgaging, you or your solicitor will need to deal with any registered charge. First, you must check carefully the amount needed to pay off your outstanding debt. You will need to repay this to ensure the lender releases their charge on completion. Remember to factor this into your budget. The mechanics are usually quite straightforward, although this will depend on your lender. Having a solicitor who understands your lender’s detailed requirements can help ensure the process runs smoothly.

There is a restriction against my title at the Land Registry. Is this normal?

It is quite common for a lender to restrict a borrower’s ability to transfer or grant another charge over the property. Your property is their security for your debt; they may not want the hassle of having to deal with a third party or to risk their security becoming diluted. The restriction typically prevents the registration of a disposal or another charge without their consent.

During a sale, this is usually not a problem if you are using an experienced conveyancer. Provided the restriction clearly refers to the charge you are paying off, the Land Registry will cancel it automatically. However, your solicitor should check the wording of the restriction carefully. If it does not refer specifically to that charge, they may need to apply for its removal so your transaction can proceed.

Can you have more than one registered charge over a property?

In theory, there is no limit to the number of charges you can register against a property. However, many lenders restrict their borrower’s ability to take out a second mortgage, and you will need to check your mortgage terms and any restriction carefully. If you want to borrow more money, secured by a second charge, you may need your existing lender’s consent. They will want to make sure you can afford both loan repayments. They may also require your new lender to enter a deed of priority. This sets out how the lenders will deal with the property, and apportion the sale proceeds, should one of them realise their security. In practice, some borrowers prefer to remortgage for a larger amount than to negotiate a second charge.

I have finally paid off my mortgage, what happens next?

This depends upon your mortgage lender. Some charge an administration fee for releasing their security, particularly if you are paying your loan off early. Many lenders release their charge automatically once you have paid your debt in full. They should send you details of this with your final redemption statement. If in any doubt, speak to your lender.

Your solicitor can check Land Registry records no longer show the charge registered against your property. You should ask them to do this before putting your property on the market. Having to chase an old lender to formally release their charge could unnecessarily delay your transaction.

If I lend money, can I secure it with a registered charge?

Yes, but speak to your solicitor first. If you are acting commercially, for example, through peer-to-peer lending, you may require authorisation from the Financial Conduct Authority. If your main purpose is to help a family member, and you do not charge interest, it is unlikely you will require authorisation. However, the rules are complex, and the potential penalties for non-compliance significant. So, it is important to take professional advice. Our solicitors have experience in this area and can help guide you through the detailed requirements. If you are lending money to a company, the charge must also be registered at Companies House within the statutory time limit to be valid.

I am lending money to a family member; do I need to register a charge?

Perhaps you are considering lending money to help your child buy their first home. In this case, taking a legal charge over their property may seem a little formal. However, being clear about expectations at the outset, for example, when and how they should repay the loan can prevent ill feeling or disputes arising later. It can also help if you are concerned about treating all your children equally. Putting the arrangement on a formal footing can head off any suggestion of favouritism. There may even be issues which are not immediately apparent, which discussion with a trusted advisor may bring to light. For example, what do you want to happen if your child runs into difficulties repaying? Setting this out in a separate loan agreement, but referred to in the registered charge, would also help to keep those details off the register and private.

Having a registered legal charge means you should be able to recoup your advance even if your child’s circumstances change. For example, if they lose their home because of marriage break-up or insolvency. The loan will also form part of your estate should you die – unless, of course, you agree to write it off in that event.

How we can help

If you have plans that involve a registered charge, then discussing your intentions with your solicitor in advance will mean they can tailor arrangements to suit your individual circumstances.

For further information, please contact Neil Shearer in the residential property team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Selling a property through the modern method of auction

Online auctions, especially the ‘modern method’ of auction, continue to grow in popularity. Last year saw a 40 per cent rise in the value of property sold at auction, much of this online. But what exactly is the modern method of auction, and is it something you should consider?

‘For a seller there are certainly some advantages to the modern method of auction, such as speed and a defined timetable,’ admits Neil Shearer, a Conveyancer in the conveyancing team with Kidd & Spoor Solicitors Ltd. ‘However, there are also pitfalls for the unwary and so it is important to consider how it would work for you.’

Neil Shearer answers some common questions about the modern method of auction.

What is the modern method of auction?

Typically, the modern method of auction takes place online over a fixed period. As a seller, you enter into an agreement with the auctioneer who invites bids for your property. This usually takes place on a special online platform where the mechanics are similar to an eBay auction, but for property.

At the end of the agreed period, the winning bidder must pay a reservation fee. This varies, but is typically five per cent of the purchase price. The successful bidder then has a fixed period, usually 28 days, to exchange contracts, and a further 28 days to complete their purchase.

How is the modern method of auction different?

Commentators sometimes call the modern method of auction a hybrid model as it combines elements of a conventional sale and auction.

  • Agents – an agent promoting a property via the modern method of auction may lack the professional qualifications of a traditional auctioneer, although some work in partnership with a local estate agent who will advertise your property, conduct viewings, and deal with enquiries. In this respect, it can be more like a conventional sale than an auction. However, the agent may use the auction to drum up interest.
  • Timeline – unlike a conventional sale, there is a strictly defined timeline.
  • No binding agreement – unlike a traditional auction, there is no binding agreement when the auction ends. The winning bidder must pay a reservation fee, but there is no obligation to proceed until exchange of contracts. Either of you may change your mind before then, but the buyer will lose their reservation fee unless it is your decision.
  • Reservation fee – because the reservation fee is a substantial sum, there is a strong incentive for them to proceed.
  • Legal pack – as with a traditional auction, the buyer needs to check your title to the property before bidding. They will do this by examining the pack of legal information which needs to be prepared in advance for all bidders.

 

Who prepares the legal pack?

Your solicitor should prepare this. It can take some time to collect all the relevant details, particularly if your property is leasehold, and it is necessary to factor in enough time to obtain all the searches.

Some online auctioneers offer to prepare the legal pack inhouse, or through an associated conveyancer. While this may seem appealing, it may not be your best option.

The pack must be accurate and comprehensive, not only to give bidders the information they need, but to safeguard you. A misrepresentation could make you liable to pay compensation in the future, while an undisclosed title issue could derail your sale even after the auction has ended.

It is important the pack is prepared by somebody who fully understands both the legal issues and your individual needs, and who will always put these first.

If you are considering selling in this way, talk to us as soon as possible. Having a comprehensive legal pack is essential if you want to appeal to as many serious bidders as possible.

Who bears the costs in a modern method auction?

With a conventional sale, both parties bear their own legal costs. The seller pays the agent’s fees, usually from the sale proceeds, and so there is little or no expenditure upfront for either party.

An auction, traditional or modern, generates more upfront costs, for example, in preparing the legal pack. Administration and sales fees can vary between online providers, and not all costs may be immediately apparent. It is important to read the terms of any agreement carefully. If in doubt, your solicitor can help clarify things.

With the modern method of auction, the costs of selling are often passed on to the buyer. As a seller, you may find this attractive. On the other hand, it could deter some potential buyers from bidding.

What are the advantages of the modern method of auction?

The greatest benefit for many is the shorter timescale. A conventional sale on average takes 12 weeks from accepting the buyer’s offer. With the modern method of auction, this drops to 8 weeks.

When estimating timescales, you should also factor in the time it will take to prepare the legal pack. However, the time taken to secure an offer using the modern method of auction is typically less than half that of a conventional sale, which means the modern method of auction may be quicker overall.

Although there is less certainty than with a traditional auction, the reservation fee should reduce the risk of the transaction not proceeding. An estimated 30 per cent of conventional sales fall through. In contrast, according to one online agent, only five per cent of modern method auction sales fail to complete.

You will also have a fixed timetable to work to, which suits some sellers.

What are the disadvantages of the modern method of auction?

The modern method of auction may appeal to a wider range of buyers than a traditional auction.

However, the price you achieve may be less than with a conventional sale which will benefit from a longer marketing period and appeal to more buyers.

The reservation period gives buyers more funding options than a traditional auction, but the modern method of auction is not generally suitable for those needing to sell their own property to proceed. In addition, some buyers may find the risk associated with the reservation fee and associated costs off-putting.

Should I sell my property using the modern method of auction?

This is very much a personal decision and will depend upon your circumstances, your property, and market conditions.

With a desirable well-presented property in an area with high demand, you may get a better price using a conventional agent.

Conversely, if your property has particular problems, for example, a short residential lease, then a traditional auction can provide greater certainty; the successful bidder is committed to the purchase as soon as the auctioneer’s gavel falls. Under the modern method of auction they may change their mind, although the payment of a substantial reservation fee makes this less likely.

Before committing yourself, always read the documentation thoroughly. This applies to your agreement with the online auctioneer and the agreement you will enter into with your buyer. As with a traditional auction, the sale terms will be set well in advance with little scope for negotiation or changing circumstances once the auction has ended. It is important to understand the terms fully and to have confidence they meet your requirements.

How we can help

With the modern method of auction, things can move very quickly; when the auction ends, you will only have a short time to complete.

Having your own solicitor on board from the outset, to prepare your legal pack, means they can check your title and pre-empt any issues which could otherwise derail your sale.

We will be best placed to manage the entire conveyancing process, so you can complete on time, confident that your interests are being put first.

For further information, please contact Neil Shearer in the conveyancing team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

 

Home improvements, plan for your next move

The pandemic has seen record numbers of us undertaking DIY projects or getting tradesmen in to improve our homes. Our enthusiasm shows no sign of abating either, with the waiting list for builders stretching into next year.

Neil Shearer, a Conveyancing Executive, in the conveyancing team with Kidd and Spoor agrees this trend is likely to continue and adds some words of caution, ‘Always make sure you get any necessary approvals, or you could run into problems when you come to sell your property.’

Here he looks at some of the issues, and how to ensure your home improvements do not cause problems when you later put your home on the market.

 

Planning permission, do you need it? 

Not all alterations require planning permission. Generally, you will only need it if your proposed works constitute development. This has a special meaning under planning rules. It includes structural alterations and the sort of work a builder would ordinarily do. Non-structural work to the interior, like repainting the walls or replacing window frames, does not normally need permission, although special rules apply for listed buildings and conservation areas.

If your proposed works fall within the scope of permitted development rights, you will not require permission either. This exception covers some of the most common types of home improvement, such as small extensions and loft conversions. However, permitted rights are subject to conditions and limitations and may not apply in all locations.

Working out whether you need planning permission can sometimes be complicated. However, your solicitor, architect or local authority can help. If there is still doubt, we may suggest applying for a certificate of lawful development. This would give you peace of mind that your improvements are lawful from a planning perspective.

Not obtaining the appropriate planning permission can have serious consequences. The local planning authority could require you to restore your home to its original condition. Buyers will also want to see evidence of compliance as the planning authority could proceed against them, as owner, in the future.

 

Building regulations

Alterations may need building regulations approval, even if they do not need planning permission. Building regulations cover a wide range of work, for example, the structural integrity of foundations, adequate ventilation, and the safety of any electrical installations. They ensure minimum standards for the design and construction of buildings. Failure to comply could result in the local authority taking enforcement action, including requiring you to remedy any defects.

There are two ways to apply for building regulations approval: a full plans submission and a building notice submission. The former has the advantage of certainty: you know at the outset that, if you follow the approved plans and correct procedure, you will get a certificate of compliance on completion of the works. The building notice route is more ad hoc and involves staged inspections.

In either case, it is important to ensure the building inspector signs the work off when finished and you get a certificate of completion. Keep this safe, as your buyer is likely to want to see it.

 

Restrictions in your title deeds or lease

Your title deeds or lease may contain restrictions, which limit what you can do. For example, they may stop you building on your land without first getting consent from a third party.

Complying with these types of restriction can be problematical. For example, you may not know who to approach for consent in the case of a title restriction, particularly where the restriction was created a long time ago. Applying for your landlord’s consent is usually more straightforward, but you will need to factor in the time it will take and the additional cost.

Failure to comply with a restriction risks legal action. For example, if you fail to obtain the required consent from a neighbouring landowner for an extension, the neighbour could seek compensation or its removal. If you breach the terms of your lease, your landlord could seek to end your lease early.

When you come to sell, your buyers will want to be sure there have been no breaches of title restrictions which could affect them when they become owners of the property. So, it is important to obtain any necessary consents and keep them safe.

 

What to do when it comes to selling your home

Give copies of any documents relating to the alterations to your solicitor. This includes any consents, guarantees, or warranties. This will help answer the buyer’s pre-contact enquiries promptly and get your sale off to a good start. If necessary, we can usually obtain copies of planning permissions or building regulations notices from the local authority. However, this may slow things down a little, especially if they reveal issues which need further investigation.

Sometimes if you have not obtained consent when you should have, you can apply for planning permission or building regulations approval retrospectively. In any case, if the works are more than four years old, the council cannot usually take enforcement action over a planning breach. For building regulations, the period is one year. So, your buyer may agree to overlook a technical breach.

Unfortunately, there remains a small residual risk of enforcement action, for example if the council believes there is a serious safety risk. If necessary, a specialist report or suitable insurance cover may provide additional reassurance for the buyer and allow your sale to proceed.

You can also apply retrospectively for consent required under title and lease restrictions, or title insurance could provide a quicker, pragmatic solution. Approaching someone for retrospective consent could make the risk uninsurable, so it is important to discuss your situation with us early on. We can then help you make informed decisions and avoid any unintentional consequences.

 

We can help

For further information, please contact Neil Shearer in the conveyancing team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com

How going digital can help with your next home move

Covid-19 has encouraged us to do more online, and this is especially true of the property sector. From estate agents offering virtual viewings to solicitors working remotely, the accelerated use of technology has helped us move home safely despite the pandemic.

‘This trend is unlikely to end with the pandemic,’ says Neil Shearer a Conveyancer in the conveyancing team with Kidd and Spoor who provides a round-up of recent digital developments in residential property sector and how they could help your next home move.

Choice of communications

Once you have chosen your next home, you will want to get things moving quickly. So, it is important your solicitor can discuss your needs and send out the initial documents promptly.

The best form of communication will depend upon the individual circumstances, and we will always consider your personal preferences, but there are clear benefits in going digital where appropriate. For example, email is generally quicker than post, and SMS or text messaging can give you instant updates.

Online ID checks

Before your solicitor can start work, we must verify your identity and carry out regulatory checks to comply with money laundering laws. Fortunately, there are online identity checking systems which can speed this process up, often removing the need for a physical meeting. As these systems follow best practice and the recommendations set by HM Land Registry, they also ensure consistency and reduce the need to supply additional identity information later.

Integrated case management

The right software lets your conveyancer manage your move effectively and efficiently, as updating and sharing information becomes much easier. There is no need to search for information in a paper file, or to speak to colleagues; it can be accessed with a single click. Your solicitor can access your transaction details, even if working from home, and provide you with the latest information.

 

Better partnerships

Often there is no substitute for picking up the phone and talking to someone directly.

However, conveyancing involves a lot of written information which is important, and sometimes it is better to share this digitally. This way your solicitor can resolve issues and agree any changes to documents without having to pass paper copies around. It can also result in a more collaborative way of working and better communication, helping to keep your transaction on track.

Conveyancing also relies upon many different stakeholders, including mortgage lenders and government departments. Many of these are adopting new ways of working digitally. Our conveyancing team understand these systems and are experienced in working with them effectively. For example, at the end of your purchase, stamp duty land tax will be accounted to HMRC online.

Digital mortgages

Banks and building societies have also moved many of their services online, including mortgages. It is now possible to create a digital mortgage, without physically signing a deed, and the use of these looks set to increase.

One of the big advantages of a digital mortgage is speed. In the case of a straightforward remortgage, the process takes on average 18 days less than for a similar paper-based transaction.

Electronic sale contracts

The need to work innovatively and remotely during the pandemic has encouraged the wider use of other electronic documents, for example, sale contracts. Instead of signing the contract physically, each party enters their electronic signature (a type of code) when they have agreed all the terms and are ready to become bound legally. This can save time because it is no longer necessary to send the contract out and wait for its return by post.

Transfer of title

As well as the sale contract, the seller will need to sign a deed to transfer their title to the buyer. There are complex legal rules surrounding transfers of land, which unfortunately have not kept pace with modern developments. However, it is still important to get these right to avoid problems proving ownership later.

For example, the transfer must be executed as a deed; the buyer must sign it in front of a witness, who must also add their signature. There has been a lot of debate over whether this can happen electronically, mainly because the witness must physically watch the person signing the deed.

HM Land Registry, the government department responsible for maintaining the register of title ownership, now accepts you can execute a deed electronically. However, it has set out strict requirements which all the parties to an electronic transfer must follow. Electronic deeds can save time and overcome some logistical problems, but they can also bring their own set of issues. So, it is essential to choose a solicitor who has expertise in this area.

Online searches

The use of online platforms to carry out conveyancing searches is more established. Your solicitor needs these to check a seller’s ownership of a property and whether other matters, like planning restrictions, could affect its use. Historically, searches have been one of the main reasons for delay in conveyancing transactions. Carrying them out electronically can significantly reduce turnaround times. Just as importantly, using an online platform means we can quickly check progress, and anticipate any bottlenecks.

Security

Sadly, fraudulent activity has increased during the pandemic with conveyancing transactions targeted because of the sums of money involved. Hackers may attack emails and insecure wi-fi systems. So, it is more important than ever to ensure your transaction is secure.

The good news is digital services can often be safer than traditional channels, provided the necessary steps are followed. For example, an online portal can provide 24/7 access and high levels of security by using a similar authentication procedure to banks.

How we can help

Moving home is a very personal matter, and while we invest in state-of-the-art technology to support you when you move home, nothing can replace the close personal attention of your own solicitor.

The smart use of technology can complement this, letting us keep you updated in the way which works best for you. It can also give you more control over your transaction, allowing you to access information when you need it.

For further information about how we can help with selling or buying a property, please contact Neil Shearer in the conveyancing team on 0191 297 0011 or email whitley.bay@kiddspoorlaw.com