The government is keen to reduce the wasted costs and disappointment that results from withdrawn offers, gazumping (where the seller accepts an alternative higher offer) and gazundering (where the buyer reduces the offer at the last minute).

A three-month trial of reservation agreements will soon begin with two estate agents in yet to be announced areas of the country. The reservation agreement will include provisions that if either side pulls out without good reason they will lose their reservation deposit. The size of this deposit is yet to be established but something in the order of £500-£1000 has been suggested. This deposit will then compensate the party for their wasted costs in the event that the other party withdraws. The agreement will also need to incorporate the grounds on which either party can withdraw without penalty and these will probably include: changes in circumstances, unacceptable lease terms, adverse survey and title defects.

Andrew Flint

Partner

Commonhold is an alternative to leasehold ownership and the idea behind it is that it allows a person to own a freehold flat, and be a member of the company which owns and manages the common parts and structure of the building. It was first introduced in 2002 but has never really taken off.

The Law Commission has recently looked at making commonhold a more attractive form of property ownership, but its proposals may not be enough to make it more appealing to the market, and in particular to developers who have no real incentive to structure developments as commonhold.

The Law Society has said that ‘it may be that a reduction in stamp duty land tax and the support of schemes such as Help to Buy may be needed to encourage the use of commonhold if widespread adoption is to be achieved’. The Law Commission also said that mortgage lenders are reluctant to lend to commonhold buyers because they are worried about the management association potentially becoming insolvent.

Therefore, it remains to be seen if commonhold ever becomes a viable alternative to leasehold. It may be the case that reforms to the current leasehold system may be prioritised first over a form of ownership that has never really gained traction since it was first introduced seventeen years ago.     

Andrew Flint

Partner

When selling a leasehold property, particularly in a professionally managed block of flats, the managing agent needs to supply information that is required by the buyer’s solicitor and will charge a fee for doing so. This fee varies but it usually amounts to a few hundred pounds. However, once the managing agent has received payment, there is no guarantee as to when the information will arrive and sometimes this can slow down the progress of a leasehold sale.

The Government has recently published its consultation for tackling the leasehold system and, amongst other proposals, it intends to impose a new regime that will impose a turnaround time of no more than 15 days on the managing agent to provide the necessary information and will also set a maximum fee of £200 plus VAT for providing it.

Once introduced, the measure should go some way to help speed up sales of leasehold flats.

Andrew Flint

Partner

The Government has stated that it wishes to trial reservation agreements this year and it is developing a standard reservation agreement to reduce the number of failed property transactions.

The Government is commissioning ‘behavioural insight’ research to help establish the parameters of the agreement.  Matt Prior, a civil servant at the Ministry of Housing, Communities and Local Government has said that ‘Buyers and sellers should have financial skin in the game to reinforce the agreement . But how much will that be? How much should they pay to get out of the agreement? We want to work closely with conveyancers to iron out some of the practical issues to encourage people to adopt this’.

Clearly such an agreement will need to be both fair to buyer and seller and there will have to be clear guidelines on the definition of what would constitute ‘reasonable cause’ that would allow the buyer to withdraw without penalty and what would be considered to be a trivial reason that would incur a withdrawal fee.

Andrew Flint

Partner

Matt Prior of the Ministry of Housing Communities and Local Government confirmed on 6th November that the Government is likely to introduce measures requiring sellers to provide more information up front about their property before it goes on the market.

This is designed to make the conveyancing process quicker, cheaper and less stressful. He also supported the idea of having a property logbook which would contain relevant information that could be updated by each property owner.

Providing detailed information up front could avoid failed transactions as the information that might deter a buyer from proceeding would be available before it reaches the conveyancing process and saving on the estimated £270m it costs in failed transactions a year.

However, with Brexit dominating Parliament’s time at the moment, it seems unlikely that legislation will be enacted anytime soon.

Andrew Flint

Partner

The Ministry of Housing, Communities and Local Government has now published a summary of responses to the call for evidence and set out measures to be taken by the Government to make improvements to the selling and buying process in England. These include:

• Creating a mandatory professional qualification for estate agents
• Encouraging the use of a voluntary reservation agreement for estate agents to help prevent sales falling through and to limit gazumping
• Requiring local searches to be returned within ten working days
• Requiring managing agents and freeholders to provide management information within a set time frame and for a set fee
• Guides to be developed and published so consumers have a better understanding of the conveyancing process

The report acknowledges that there is no ‘silver bullet’ that can fix the process in a single change but ‘there are a number of practical changes, some big and some small, which taken together will make the experience so much better’.

Andrew Flint

Partner