By Paul Sandford and Russ Shackleton of ASM Plus
It is well known that moving home can be one of the most emotionally challenging and stressful times in anyone’s life, and it may be just getting even more challenging.
If you are in the process of purchasing a property, this blog could be very helpful.
The legal bit
I should start by making it clear that in drafting this blog I am writing from the point of view of mediation. Other than perhaps “beware and take legal advice at the first available opportunity” I am most certainly not purporting to provide legal advice and this blog should not be interpreted as such. And the very least, or the relevant legal issues are complex and cannot be satisfactorily addressed in three or so pages of A4.
What is happening?
As most UK readers will be aware, as part of measures to stimulate the economy, the UK government has imposed a stamp duty holiday which extends until 31st March next year. This effectively means that whilst this concession is in force people purchasing a freehold property or a long leasehold will not be expected to pay the quite considerable amounts of ‘stamp duty’ that one would ordinarily be required to do. On the face of it, quite simple. However, a number of lawyers, estate agents and academic commentators have identified some very real practical difficulties.
In theory, domestic conveyancing in the UK is quite a straightforward process. Much of the documentation and indeed the procedures are quite standardised. In many instances, the relevant processes and procedures are set out in plain ordinary English and the absence of the arcane, legalese that I often had to contend with in the eighties when I was a young lawyer means that conveyancers do not necessarily have to spend hours and hours explaining things to their clients.
What has all this got to do with stamp duty relief?
Even with simplified processes and procedures:
- There is still a lot of paperwork,
- Mortgages have to be arranged,
- Banks and building societies have individual requirements (many have introduced enhanced fraud prevention processes) which can cause delays,
- Monies have to be put in the relevant bank accounts at the correct time,
- Insurance indemnity policies may be required for example covering changes to historic building regulations,
- Chains of sales and purchases have to be coordinated, and,
- Satisfactory searches have to be obtained from local authorities.
Accordingly, the simple straightforward process that a conveyancer outlines to a client when receiving initial instructions can often turn out to be rather more difficult than may have been anticipated.
Local authority searches are particularly important and there are attendant problematic issues. District and Borough Councils in England and Wales maintain detailed records of important matters including a myriad of planning issues all of which have to be updated and checked by cash strapped and often inefficient local authorities.
The results of searches which are by no means always set out in good, plain English have to be carefully interpreted and explained and quite often they can be negative, planning related information, or increased flood risks as the climate changes or building taking place on traditional flood plains that would prompt a conveyancer to advise a client not to proceed.
Equally, building societies and other lenders who must be kept fully informed of matters and who perhaps quite understandably take a conservative view of such matters may decide to withdraw an offer of financial assistance. In some areas, the combination of inefficiency, years of under resourcing and the impact of Covid 19 means that the process of submitting a request for a search and the process then being undertaken can take weeks or in some instances, months. Local Authority teams may have been redeployed to other COVID-19 related ‘front line’ tasks or have been furloughed.
In many cases, with the possible exception of local authority search related issues significant problems do not materialise and in the present climate, those who embarked on the processes of selling and buying residential properties in the early part of 2020 should be able to complete their transactions.
How could things go wrong?
As one approaches the March 2021 cut-off point a lot of uncertainty creeps into the process. In practice, the imposition of this cut-off point puts even more pressure on the already beleaguered local authorities and increases the likelihood of a delay past the cut-off point.
Accordingly, although the prospective purchaser who started early may be identified as one satisfied customer, those who embarked on the house purchase process quite recently and who may be only able to afford to proceed with the benefit of the stamp duty holiday may find themselves out of pocket and at the very least, extremely disappointed.
Even the most organised purchaser who embarked on selling their property at an earlier stage in 2020 may find there is the possibility of losing out on the stamp duty saving because one of the vendors in their chain had to drop out or find another purchaser.
How might parties try to get out of this situation?
One option is for those involved and the conveyancing process who are faced with the possibility of being unable to complete their transactions before the cut-off point is for them to enter into a “conditional contract”.
In England and Wales, provided a contract for sale is set out in writing, a conditionality clause is permissible. However, consistent with many other jurisdictions a fundamental principle of English and Welsh law is that the contract must not be void for uncertainty. One particular way of getting round the local authority search problem may be to insert a contractual clause that reads “subject to receipt of a satisfactory local authority search”.
However, what does “satisfactory” mean? In practice it would be very difficult for a conveyancer or lawyer to anticipate precisely what might be revealed in one particular set of search results or another. What is “satisfactory” to one person might not be another. A particular local authority may be in no position to give an indication as to when a completed search will be provided and even then, further enquiries will have to be made.
Lessons from the 1980’s
Similar difficulties arose in 1987 at time when the government removed some pre-existing very generous income tax related concessions for mortgage holders. I recall that in my solicitor’s office, and the two or three weeks prior to the relevant cut-off date were absolutely frantic. Even in an era when the local authority system was much better organised, many solicitors and building society officials worked round the clock. In some instances, conditional contracts were entered into and as I recall, in many of those, disputes and disagreements ensued about whether conditional clauses had been fulfilled or not.
One particular effect then was that the civil courts were inundated with additional work as aggrieved parties to prospective conveyancing transactions transform themselves into litigants, sometimes suing the solicitors who may be perceived of as having negligently failed. The courts which were then by no means as clogged up with cases and as inaccessible as they are now, invariably wielded the “void for uncertainty” red pen and those who had already been forced to incur solicitors’ charges and other fees for abortive conveyancing work now find themselves having to pay for unsatisfactory litigation outcomes.
Mediation may be the only option for a timely resolution
In practice, dire warnings and past experiences are likely to deter some parties to conveyancing transactions from endeavouring to complete before the March cut-off and instructing their lawyers and their answers to draft conditional clauses. One trusts that they will be appropriately advised before committing to such a course of action but some disputes will necessarily arise.
Some parties faced with the cost of stamp duty could see this cost as significant enough to give them no choice than to either withdraw completely from the sale or to accept any contractual clauses required to enable the contract to complete within the stamp duty holiday window. Some of these parties may even be inclined to make agreements outside of the course of usual property sales contracts with sellers further down the chain so as to avoid a party withdrawing from the chain or being unable to complete within the required date.
The potential for disputes between parties, or conveyancers and advisors is real, and embarking on the lengthy process to seek redress through the court system is likely to be unattractive, particularly to parties that could find themselves either without a home, incurring unplanned debt or other additional costs such as storage.
The advantage of mediation in these circumstances is that disputes can be resolved quickly and promptly. Although mediators have to work within the parameters of the law and it would be essential for any potential parties to a mediation to take appropriate legal advice, they can offer their clients a level of flexibility, particularly at the time when the courts are so clogged up, creative solutions to ostensibly intractable problems can be identified.
Depending on the facts of an individual case it is entirely conceivable that it would be possible for a written agreement to reflect the level of certainty that the law requires, even in circumstances where an initial conditionality clause had been poorly or inappropriately drafted.
The charge for a day’s two-party mediation undertaken by ASM Plus would be in the region of £650.00 per party i.e. a total charge of £1250.00 plus VAT.
When one considers what is at stake in terms of the losses that would ensue as a result of failing to complete a conveyancing transaction and any attendant litigation costs, this not only represents excellent value for money but also the possibility of the meaningful and genuine and resolution of some extremely complex cases.
Principal Director of ASM PLUS, civil/commercial, workplace, employment, family and educational mediator and trainer with a judicial/legal background. He has knowledge and expertise in dispute resolution in a wide range of areas and disciplines and mediates online.