Property questions: How to combat property fraud

Unsurprisingly, properties are also at risk when they are tenanted, and where there are no mortgages registered. Add to this the general rise in identity theft and owner occupiers should be extra vigilant and look for ways to protect themselves and their property.

There are several simple tools available to combat fraud:

  1. Address for Service

    Did you know you can add up to three addresses for service on the property register? 

    At least one of these must be a postal address, in the UK or Internationally. The other two addresses can be either a DX address, a UK or overseas postal address or an email address. By having more than one address for service, you limit the chances of any important correspondence from the Land Registry being intercepted.

    How to add additional addresses on to the property register?

    Click on this link to see more www.gov.uk/government/publications/updating-registered-owners-contact-address.  Form reference COG1.

  2. Property Alert Service

    A free service offered by Land Registry is the Property Alert Service. You can register up to ten properties. Email alerts will be sent to you when certain activity occurs on your monitored properties. Setting up an account takes as little as 5 minutes and requires a few simple steps:

    • Your name
    • Your contact details
    • Your contact address
    • Setting a password
    • Activating the account with the link sent to your provided email address

    It is very quick and easy to set up alerts and can take as little as five minutes!  All Land Registry requires to create an account is your name, contact address, email address and password.  An email is then sent to you containing a link to activate the account. 

    For further information see https://propertyalert.landregistry.gov.uk/.

  3. Restriction 

    You can add a restriction to the title of your property. There is no fee for this service if the restriction is placed at the time of the purchase, otherwise it is an additional £20.00. 

    By adding the restriction, additional responsibilities will be placed on the Solicitor acting on a sale as the title will contain the following clause – “No disposition of the registered estate by the proprietor of the registered estate is to be registered without a certificate signed by a Conveyancer that the Conveyancer is satisfied that the person who executed the document submitted for registration as disponor is the same person as the proprietor.” 

    For helpful information, follow: https://www.gov.uk/government/publications/restriction-by-owner-not-living-at-property-request-registration-rq

     

Property Questions: What are deeds?

Essentially, Deeds are the trail of legal documents that prove or record the ownership of a property.  Since 1990, on the sale of a property, it has been mandatory to register the ownership at Land Registry. When Land Registry complete the registration process, they provide an Official Copy of the Registry and an Official Copy of the Title Plan together known as the Official Copies of Title. These were historically on paper but are now mostly digital and these are what are considered to be the “Deeds”.  However, there are additional documents that make up the “Deeds Pack” or “Title Deeds” that will be required when you come to sell the property.  The Deeds Pack will vary depending on the type of property.

For Freehold properties, the Land Registry Official Copies of Title are usually the only relevant documents to retain and these are electronic so can be readily obtained from Land Registry.

Leasehold properties will require the addition of the original signed and dated Lease to be retained as Deeds, although an Official Copy of the Lease is also held digitally by Land Registry alongside the Register and Plan. There may also be further documents to add to the Deeds such as an original Share Certificate or an original Membership Certificate, if relevant.  For new build Leasehold Properties, you should also retain your 10-year NHBC Certificate (or equivalent such as LABC or Premier Guarantee) along with the Building Regulations Completion Certificate.

Other general documents to keep with the Deeds include any indemnity policy or Declaration of Trust. 

In preparing for the sale of a property, the Deeds Pack will be required alongside documents such as the Energy Performance Certificate, Electric and Gas Safety Certificates, FENSA certificates, building regulations and planning permissions for any alterations, party wall notices, listed building documents, guarantees/warranties for a new boiler/new roof/damp proofing, water bill, service charge and ground rent statements, mortgage details etc, so it may be advisable to retain these documents and keep them up to date as and when they expire.  Having these documents to hand will save delays when it comes to selling your property.

It is also worth noting that if you have a mortgage then your Title Deeds may be kept by the Lender, although this is increasingly rare for UK Banks, but not so for overseas Lenders.

Top tips when buying property

Here are our top five tips to help you:

1.Finance arrangements

Whether or not finance is needed, speak to a broker early on in a transaction and preferably before your agent agrees the main elements of the purchase.  Raising finance once exchange has taken place, makes for a fraught completion experience for both you and your lawyer.

2. Planning the completion date

If you are selling a property to raise money for your purchase, ensure that the completion date of the sale is on or before the completion of the purchase. This may sound obvious but it will avoid surcharged rates of SDLT being paid at 3% above the standard rates.  These rates are paid even where your main residence is being replaced with the Revenue requiring you to claim a rebate once the additional main residence is sold.

You can also avoid the need to use your cash reserves for a deposit, as a deposit held on your sale can be used for your purchase where the property is in England and Wales.

3. Surveyor’s appointment

Appoint a surveyor. He or she will flag items that you may not necessarily have spotted on your brief viewing and may even give some bargaining power and leverage on the price.

4. Your lawyer

Make and keep a relationship with a lawyer and update them on your transaction. This is particularly important where you are marketing a property for sale, to ensure that deadlines, that you or your agent impose, can be met by buyers.  A full sales pack with all title deeds, up-to-date searches, planning and building information can be pulled together in advance.

Plan for exchange well in advance. Weeks of delay can be avoided if all the fact finding has been completed in advance.  Attended exchanges do still occur so be prepared.If there are any title difficulties, these can be addressed in advance.

5. Your accountant

Take tax advice. You may not be resident in the UK, you may own other properties worldwide or hold a portfolio of investment property.  Early tax advice will be required to work out your CGT (Capital Gains Tax) liability on sale and IHT (Inheritance Tax) liability on death.

SDLT matters will be more complicated, where other property is held and often a detailed assessment is required to determine the SDLT rates payable by you.  Where your company owns the title to the property, ATED (Annual Tax on Enveloped Dwellings) charges will be made annually and your accountant will need to claim any exemptions in your annual tax return.

Final thoughts

You may have very specific requirements which must be conveyed to all parties. You may want to access the property you are buying between exchange and completion with architects and builders to obtain quotes or for interior designers to start planning works.  The seller may even agree to you commencing limited works to help you move forward quickly with your plans.

Where you are buying a bolt hole which is a leasehold property, a landed estate owner may own the freehold, for example the Grosvenor or Portman Estate. Do not be surprised when you are asked for onerous references to obtain the landlord’s consent, in lieu of a rent or service charge deposit.

If you are buying a turn key, consider if there are any service charges for the shared estate roads and whether building warranties for any building works are available.

Where you are buying expensive items of furniture, artwork, electrical items, to be left at the property, a full inventory of those items with costings will need to be included.  Such items do not attract SDLT but they must be justifiable in their costings.

Sherrards Residential Real Estate team complete £5.4m London purchase

The team advised on a statutory lease extension request, with retrospective licence for alterations as well as other leasehold complexities. They also dealt with a third-party lender’s solicitors which was all dealt with and exchanged in a narrow timeframe for our client.

Mr and Mrs K said “A Great Move. Caroline and her team worked very effectively to unwind a difficult set of circumstances to complete a tricky house purchase”.

Letting agents fees banned by Government

The long awaited restriction on letting agents fees is one step closer with the recent introduction of draft legislation to ban the requirement for tenants to pay fees or other charges on top of rent and payments for services from third parties. The proposals could also limit the amount of tenancy deposits held by a landlord in a relevant scheme.

The level of fees that tenants pay to letting agents has long been an area of concern, due to the lack of regulation in the market. Following a consultation process, the Government has sought to address the concerns with the introduction of the draft Tenant Fees Bill 2017 (TFB 2017).  In addition, the Government is now in consultation about making it mandatory for letting and managing agents who handle client money to be members of financial protection schemes for clients.

The TFB 2017 seeks to prevent landlords and their agents (on the grant, extension and termination of tenancies) from charging fees or other payments on top of the rent, with the exception of a capped refundable security deposit (at no more than six weeks’ rent). It also requires that refundable holdings deposits are capped at no more than one week’s rent. The restrictions will only apply to those tenancies that are completed after the legislation has come into force and it do not seek to control those fees in long leases, social housing tenancies or holiday lets. In addition, the Government proposes to extend the legislation so that there are restrictions on the fees charged by landlords and any payments to third parties.

The legislation will be enforced by already stretched local authorities (Trading Standards). A rogue landlord or letting agent risks a penalty of £5,000, with further penalties of up to £30,000 or criminal liability where there are subsequent breaches within 5 years. Any prohibited payment, plus interest, will be required to be repaid to the tenant where there are deemed breaches.

The TFB 2017 also seeks to amend the Consumer Rights Act 2015 (CRA 2015) so that letting agents must clearly display on property portals any letting fees to the consumer and identify which redress scheme they are a member of, and whether they have client money protection.  This is a welcome move to legislate the online space, to match the requirements of agents’ websites and offices.

A better and fairer market place will exist once all lettings agents are regulated, aligning their practices with the same quality standards as those of other professions, such as solicitors.  This is a long overdue piece of legislation and will not come too soon for those who wish to see a more regulated lettings market.

Airbnb creates legal hazards

If you let property through Airbnb, you could be facing a legal minefield. Its rapid growth which provides an online platform for individuals to rent their homes or spare rooms short-term, has caused a stir across the world. But the law has not kept up with the technology, leading to a range of hazards for those who let through the platform.

It has become such an issue that frequent use of Airbnb can effect private property, according to new-build developers. Their reaction has been to try to restrict such short-term letting when leasing new apartment blocks.

Leasehold risks

Some cities have tried to regulate the Airbnb model. Authorities in New York, Berlin, Barcelona and San Francisco, to name a few, have started requiring permits for such business.

In London, landlords need permission to use a property as temporary sleeping accommodation for fewer than 90 days a year, under the Deregulation Act 2015. Local authorises can fine landlords for breaches, under the Town and Country Planning Act 1990.

In the UK, the risks increase for leasehold property, although there are also local considerations for freehold property. Most leases restrict sub-letting part or all of the property.

They will also usually restrict the property to be used only as a private residence occupied by a single family, and prohibit using the property as a business. It is rare to see a flat lease without these restrictions.

Furthermore, leases will contain covenants regarding any use of the property that causes a nuisance and annoyance, and a covenant to comply with all building insurance policies.

The case of Nemocova v Fairfield Rents Limited 2016 ruled that in granting a series of short-term Airbnb lettings, the leaseholder breached the covenant to use the property as a private residence.

A tenant who breaches the lease terms risks a claim for damages and or forfeiture proceedings, which require them to remedy the breach and pay monetary compensation.

They may also be breaching the insurance policy and their mortgage terms.

Assured tenancy danger zone

Where a tenant has an assured tenancy or an assured shorthold tenancy and seeks to sub-let on Airbnb, they face several legal dangers. They may be breaching the letting terms, and if the property is social housing, they could be criminally liable.

The legal occupation of such short-term rentals are on a licence basis and not as a tenancy agreement so security of tenure is less of an issue. This therefore has the beneficial effect that a licence to rent out the property as a house in multiple occupation is not required under the Housing Act 2004 and the sub-tenants’ right to rent does not need to be considered under the Immigration Act 2014 and due to the licence nature of the tenancy, the deposit protection requirements will not apply under the Housing Act 2004.

However, regulations require that gas safety certificates, smoke and carbon monoxide alarm, and energy performance certificates will need to be obtained.

This area has become a particular minefield and until the law catches up with technology, it will continue to present a range of legal hazards for those involved.

SDLT update

Stamp Duty Land Tax (SDLT) has now become a highly complex area and requires careful consideration to ensure the rates and exclusions applied are correct. At first glance, it may appear that relief is available but on closer inspection of the scenario this may not be the case.  For example, where a property is over £500,000 and the property is not a first purchase for the buyers collectively,  they will not be eligible for first time buyer relief.

There have been some highly colourful interpretations of ‘the mixed-use’ category where rates are significantly reduced. For example, an artist’s studio in a garden, an office in a mews house and selling apples for pressing commercially have all been suggested as being commercial use under the SDLT legislation.  The revenue is investigating such designation more frequently to claw back SDLT.

It is also important to consider the floor plan, where more than one property is contained within the demise, in case ‘averaging relief’ can be claimed. However, the revenue does have a clawback provision where the number of dwellings is reduced within 3 years.

An area causing much debate is the additional 3% charge for companies (charged on every purchase where an exemption to 15% rate is applied) and individuals who own residential property worldwide. In this case, the exemption applies where a main residence is being replaced. However, the guidance requires that it is the intention of the buyer at the time of purchase to live primarily in that residence and the replacement of such and not a matter of allowing the purchaser to choose which property is to be the main residence. Married couples are treated as a single person when applying the test so where a property is owned by one spouse this will be relevant for both when replacing the main residence and calculating whether the higher rates are available. The ownership of inherited property is ignored where an interest does not exceed 50%. However, if one spouse who does not own any property purchases in their individual name they are affected where the other spouse owns a property portfolio or even one other property and the purchasing spouse will pay the higher surcharged rate.

The higher rate of 15% is charged when non-natural persons purchase the property i.e. a company or a partnership. However, the rate can be reduced to the surcharged additional 3% where the company is a property developer or rents properties as a business (with no connected person in occupation). In any event this rate only kicks in over £500,000 so although the 15% rate may not be charged, the additional property 3% rate will be.  The revenue’s calculator does not make provision for an SDLT calculation for non-natural persons, so on initial calculation, this can be misleading.

Higher rates of SDLT may be also payable where there is a linked transaction, for example, where either two properties are being purchased or a building contract for works has been entered into separately.

A further area requiring consideration is where clients are divorcing and the couple transfers the property to one of the co-owners. SDLT is usually payable on the equity or mortgage being taken by the purchasing party. However, an exemption applies where there is a court order or deed of separation in place or where the separation is likely to be permanent.

A number of tenancy agreements in central London will exceed the £125,000 threshold meaning that SDLT is due on the signing of a tenancy agreement by the buyer. The amount is cumulative and therefore any renewals will also be caught.

The revenue also plan to reduce the filing period from 30 days to 14 days, although this is still to be confirmed. It is imperative that specialist advice is obtained on the SDLT liability levels, as it has become a complex area.

Post Grenfell – Lawyers must help identify cladding dangers

The catastrophic fire that led to the loss of many lives at Grenfell Tower has raised awareness of the dangers of building cladding. Buyers and tenants should, with the help of their lawyers, understand these dangers and know what to do if any cladding exists in the building they want to live in.

According to estimates, around 600 private buildings still have the covering used on the Grenfell Tower, known as aluminium composite material (ACM) cladding.

Before the tragedy, most people were unaware of the hazards lying in this aesthetic aspect of many UK tower blocks. But the subsequent inquest has exposed the fire safety dangers associated with these materials and raised questions about the regulations around the use of cladding.

Some flats in Greenwich saw their values decrease after such cladding was found to exist in the building.

There is also concern that landlords of private tower blocks are trying to hide the presence of such cladding because it might cost them a lot to replace it. For example, the original developer of a Croydon high-rise building paid £2 million to replace cladding after failing to reach an agreement with the property manager, residents and the government.

Important questions

In this context, it is important for property lawyers to make enquiries about cladding on behalf of flat buyers and tenants. During a purchasing process, we should be asking the management company or freeholder to confirm what type of cladding exists in the building as part of our standard enquiries.

If cladding work is undertaken, we should also check with the local authority that such works comply with building regulations and building controls. A survey will determine if there is cladding, so we should also ask the surveyor about this before committing to a purchase.

The management company or freeholder will also reply to leaseholder enquiries and provide information on fire risk assessments that have taken place. So we should also ask about these assessments and the recommendations made. These reports will also have details of any works undertaken in the last three years and details of any proposed future works.

The terrible events of Grenfell have made sure that building fire safety regulations are now firmly under review and on the government’s agenda. The clear message to buyers and tenants is to make sure they are aware and informed about the structure and safety regulations of the property before committing themselves.

Testing times: Practical tips commercial landlords should consider when granting a lease

Sterling is weak and Brexit is lingering. Business uncertainty, particularly the risk of tenant insolvency, is undoubtedly one of the biggest concerns for UK commercial landlords in the current climate. 2018 has seen increasing indicators of stress and change in the retail and restaurant sectors in particular, with tenants entering into CVA’s (company voluntary arrangements), administration & negotiating store closures.

All is not doom and gloom – indeed some report that we are seeing an evolution of the “store” and the high street which may present its own opportunities. Whatever the weather, projecting ahead to what are likely to be testing times, commercial landlords might want to consider how better to safeguard their position on grant of leases, going forward.

Here are our top tips:

1. Heads of Terms

Negotiating and agreeing heads of terms is a critical time in any transaction. Getting lawyers involved at this stage can put the landlord in good stead for covering key matters relating to the specific circumstances of the parties, the property and the transaction. Getting it right at this stage often avoids the need for renegotiation later down the line which can carry the risk of a ‘no deal’ and wasted costs.

  1. Rent Deposit

Quite routinely, a landlord will collect a lump sum as security from the tenant on the grant of a lease which is held for the duration of the term. It can be used by the landlord to cover any unpaid rent or damage to the property caused by the tenant. There are various ways to hold a rent deposit but a landlord faced with the increased risk of tenant insolvency will want to consider a requirement for the rent deposit to be held using a charge structure. Using a charge structure means the landlord will be a secured creditor (of the rent deposit sum) in the event the tenant becomes insolvent (such as falling into administration, liquidation, or entering into a CVA).

If a charge structure is not used, there can be greater restrictions on whether and how commercial landlords can draw down and use the rent deposit sum, where valid, if the tenant becomes insolvent.

Of course, the other consideration to factor in is the amount of deposit that will be taken. Depending on the financial strength of the tenant and the term of the lease, a landlord will want to negotiate an amount which is an adequate security buffer – and preferably hold that under a charge structure.

  1. Guarantors

Landlords will often, as additional security, require a guarantee from (1) a personal guarantor or (2) a parent company so that there is a further party to pursue if the tenant breaches the lease. A tenant who is in financial difficulty might fail to pay rent or fail to comply with its repair obligations, leaving a dilapidations liability. In this situation a landlord can often be left with an immediate cashflow problem. Furthermore, long term, if the property is significantly damaged or dilapidated, the landlord could be left out of pocket. Having other parties of financial worth to pursue is essential.

To a commercial landlords dismay, some insolvency procedures can affect enforceability against a guarantor. CVA’s have been criticised for “guarantee stripping” as case law has left some uncertainty as to whether these can operate to release guarantors of their liability owed to landlords (based on terms agreed in a CVA between an insolvent tenant and its creditors which can bind the landlord).

For the avoidance of doubt, landlords should be mindful to ensure that any guarantees taken are on the basis that they will expressly apply in the event that a CVA or any other voluntary arrangement is agreed by the tenant with its creditors.

Whilst there is no guarantee that this will be airtight – as the point in case law remains somewhat uncertain – having clarity of what the parties intend in an agreement is essential and is more likely to help protect the landlord. Generally speaking, it is important that the guarantees the commercial landlord takes are drafted to maximise strength.

  1. Contracting-Out of Renewal Rights

A tenant who has a lease for a term of at least 6 months (or a tenancy without any fixed term) in occupation and operating its business at the property has a statutory right to apply for a renewal of its lease on similar terms. A landlord can only refuse to grant a lease renewal on certain statutory grounds.

If a tenant is financially strapped when it comes to the end of the fixed term, rather than allow a renewal of the lease and have problems trying to evict the tenant, a landlord will understandably want a clear right to regain possession of the property so that it can be re-let on the open market again.

This can be achieved by the tenant agreeing to contract-out of its statutory right of renewal. The procedure for contracting-out is specific and must be followed properly before the grant of a lease to be effective. The reward of getting this right can often avoid unnecessary hassle and costs at the end of the term.

5.Existing Leases & Throughout the Term

There might be some tell-tale signs to look out for during the course of a landlord-tenant relationship which can indicate the tenant is in difficulty. A landlord who sees these signs may well need to start proactively thinking of alternative plans.

The obvious one – late payment of rents – is not the only one to look out for. A tenant might make applications for consent to assign, sub-let or change permitted use. A landlord might simply agree to an assignment or subletting if this means rent is coming in from a more financially reliable tenant or undertenant. Alternatively, a landlord might want to consider agreeing a surrender of the lease with the tenant, at a premium. This can allow both parties to cleanly move on.

The key is to achieve a solution before the tenant falls into an insolvency situation as otherwise the landlord can be at risk of little or no return of monies owed, once insolvency rules kick in. Contact Caroline for more information.

Landlords Versus Tenants!

The government is on a mission to ban private landlords from evicting tenants at short notice without good reason.  Section 21 notices in their current form allow landlords to evict tenants without reason after their fixed-term period ends but according to the Housing Secretary such evictions are one of the biggest causes of homelessness.  Under the government’s new mission, landlords will have to provide concrete and evidenced reasons already specified in law in order to bring tenancies to an end with the aim of preventing unfair evictions. (Click here for Zoopla’s top tips for landlords.)

Without stating the obvious, this new proposed change will not go down well with current landlords and may well put off potential would be landlords too.  It is of course important to explore both sides of the coin.

A survey by Citizens Advice suggests that tenants who made a formal complaint had a 46% chance of being evicted within the next 6 months. The resulting fear of eviction discourages raising complaints relating to disrepair or poor living conditions .

Landlords will argue that they are forced to take the Section 21 route because they have no confidence in the courts to settle possession claims (for example in the case of non-payment of rent) and feel that the system is loaded towards tenants.  As it stands, tenants can be given as little as 8 weeks’ notice after a fixed-term contract comes to an end.  Landlords will no doubt feel that the proposed changes would create a new system of indefinite tenancies and the government should focus on improving the court process instead.

Time will tell whether this proposed change will affect the buy to let market but at a time when the market is somewhat nervous with the “B” word still floating around, it is certainly not helping confidence levels.