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Conveyancing

Japanese knotweed – pre-contract enquiries

Japanese knotweed can lie dormant for up to 20 years, especially after poor herbicide treatment. It has been estimated that over 1% of domestic properties are, or have been, infested, all of whom could have several neighbouring properties that are unknowingly infested as well.

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Buyer – early occupation

   If a buyer is to be allowed into occupation before completion then condition 5.2 of the 5th edition of the standard conditions of sale has comprehensive safeguards.

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CLM Handbook – insurance

From 30 November 2015, individual lenders are no longer able to impose specific insurance requirements in Part 2 of the CML Handbook.

This applies to certificates of title lodged from 30 November. Clause 6.14 in Part 1 will continue to require conveyancers to make reasonable enquiries that buildings insurance has been arranged, and to remind the borrower that there must be buildings insurance as per the mortgage conditions. However, 6.14 does not specify the type of buildings insurance, nor the type of risk, nor is there any reference to making sure the value insured is adequate. In essence, it seems that it will now be sufficient for the conveyancer to simply get confirmation from the borrower that insurance is in place, and that it accords with the mortgage conditions.

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Architect’s certificate – disadvantages

As an alternative to an NHBC ten-year warranty, a developer may offer instead an architect’s certificate (based on an architect’s inspection). But, a buyer – and especially a subsequent buyer – may be disadvantaged by this.

This is well illustrated by a case in which an architect’s certificate had been supplied in respect of a block of flats. Serious structural defects emerged and it was clear the architect had done a bad job. Accordingly, the various flat owners (some of whom were original buyers, and others were subsequent buyers) sued the architect. But, no one had a contract with the architect and thus the claim had to be based on either (i) negligent misrepresentation, or (ii) a special relationship arising out of the assumption of responsibility by the architect (under Hedley Byrne [1964]). 

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Enquiries – misrepresentation?

   A seller who provides inaccurate replies to pre-contract enquiries may be liable for misrepresentation. A recent case gives guidance on that potential liability.

The sellers had received leaflets from residents’ groups and the LA about the potential redevelopment of three local sites for major housing projects. They had gone to a meeting about the plans and talked to a leader of the residents’ group. A year later, they completed the Seller’s Property Information Form by saying ‘no’ in reply to the question: ‘has the seller either sent or received any communication or notices which in any way affect the property (for example, from or to neighbours, the council or government department)?… Has the seller had any negotiations or discussions with any neighbour or any local or other authority affecting the property in any way?’.

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Mortgage fraud – imposter client

What is the liability of a conveyancing solicitor if they are duped by an imposter client? If there is a mortgage fraud, can the lender recover the losses from the solicitor?

The leading authority is Penn [1997] in which a solicitor thought he was acting for H and W, but H had forged W’s signature. The lender successfully sued the solicitor for breach of warranty of authority. But, in subsequent cases the courts were reluctant to hold solicitors strictly accountable. For instance, in Midland Bank [1999] the court said the duty to obtain W’s signature is not absolute – it is merely a duty to exercise reasonable skill and care. However, a recent case may represent a return to the stricter approach.

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Land – corporate wrapper

   A ‘corporate wrapper’ is the term used when property is bought through a corporate entity (rather than directly owned by the individual).

One immediate attraction of using a corporate vehicle is the potential to bypass SDLT. So, if a buyer acquires the company that holds the interest in the property there will be no SDLT, but merely stamp duty at 0.5% (unless the entity is based offshore, such as a unit trust in Jersey, in which case there may be no tax). The other potential tax advantage is for investors from outside the UK who are not tax-resident, since they are only required to pay the basic rate of income tax (20%) on rent profits. UK tax residents will obviously have to pay the full rate of income tax and also be subject to CGT.

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Residential leasehold – LPE1, LPE2

LPE1 is the Law Society’s standard residential leasehold property enquiry questionnaire, originally launched in 2013. It does not replace leasehold information form TA7 (part of the TransAction series of forms).

A revised version of LPE1 has now been issued. The changes are not major (eg common parts are now called managed areas; the form now asks if any s20 LTA 1987 (service charge) works are proposed, rather than just those of over £250; information must be provided about transfer fees, deferred service charges or similar fees expressed as a percentage of the property’s value that have to be paid on sale or sub-letting; have any claims been made in the past three years (or are any anticipated); service charge estimates for the previous year must be provided if accounts have not been prepared; copies of any permissions to alter the property must also be provided).

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Off plan – completion date?

Anyone buying a property in a new development off plan should be warned of the potential problems of delayed completion. If it is a one-off development for a specific client there might well be a contractual completion date, but for a multi-unit development that will almost certainly not be the case. In practice, there may be an obligation for the developer to complete the building, and that might then trigger a notice requiring completion of the sale to take place, and there may also be an obligation on the developer to ensure that the builder complies with the building contract (but even that may be limited to a ‘best endeavours’ obligation).
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Fraud – cyber crime

All conveyancing firms need to be alert to the risks of cyber crime, in particular, the risks of fraudsters hacking into law firm e-mail accounts and intercepting e-mails between solicitors and clients, or between solicitors and their counter-parts in conveyancing transactions.

Even if solicitors meet their client face-to-face initially, the reality is that most conveyancing transactions revolve around e-mail. So, if a hacker can intercept the e-mail account there is enormous potential for fraud. Thus, in one recent case the hacker sent an e-mail to the client (posing as the solicitor) saying that the usual client account was being audited and so completion moneys should be sent to an alternative account. The astute client checked this with the solicitor (by e-mail), requesting confirmation of the client’s unique reference number to ensure that the e-mail was genuine; but, because the hackers had access to the whole e-mail account they could supply that reference, and so reassure the client.

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