Summer '18 Scotland

Summer 2018 ISSUE

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FIRST COMMENT IN THIS ISSUE: • MORE INFORMATION OR BETTER INFORMATION? • COMMON PITFALLS IN RESIDENTIAL CONVEYANCING • PRODUCT FOCUS - ACCESS

Leading Title Insurance

Welcome to the Summer edition of our newsletter for 2018.

In this issue we have a contribution from our regular writer. Professor Stewart Brymer gives his thoughts around the idea of property logbooks.

Our underwriter contribution for this quarter comes from Laura Lapsley. She offers an insight into how title insurance can be a cost-effective solution to the common pitfalls in residential conveyancing.

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FIRST COMMENT

More information or better information?

by Professor Stewart Brymer Brymer Legal Ltd

The idea of some form of property logbook being designed for use in the home moving process is not new.

A previous attempt to promote their use met only with limited success around the time of the aborted introduction of Home Information Packs (‘HIPs’) in England and Wales. The concept has been raised once again, however, as part of the UK Government’s Report following its ‘Call for Evidence on Improving the home buying and selling process’, which was published on 1 April

2018. See paragraphs 140-144 of the ‘Summary of Responses to the Call for Evidence and Government Responses’ thereto. This article looks at the potential benefits that a property logbook might bring, most importantly, the provision of better information for prospective purchasers.

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What are the benefits?

We are all accustomed to the concept of a logbook for any form of motor vehicle. Such logbooks are an essential element in the sale and purchase of a car containing, as they do, the service history and all relevant data which a prospective purchaser would wish to see prior to completing her / his purchase.

The benefits of having such a record, whether held in paper format or, indeed, digitally, are considerable. We are all used to being able to access our own personal data on the DVLA website when obtaining a code for use when hiring a vehicle abroad. Easy access to such information means that there is no searching around for random pieces of paper and we are all used to keeping a logbook in a safe place – usually in the glove compartment of the car (which might not actually be the safest place should the car be stolen of course). Logbooks are also increasingly being held digitally with sensors alerting you to key service data, tyre changes etc. already being common in vehicles.

In the case of residential property, however, we are still in the proverbial Stone Age. Too often, important guarantees, warranties and other material is not available at the point of sale. This can lead to delays and frustration and, on occasion, a reduction in the price which the purchaser is prepared to pay.

How much simpler would it be if all this data were held centrally by a trusted third party or perhaps embedded in the property itself? Some new build properties are already sold with a logbook. However, they are the responsibility of the home owner. See also https://etive.org/. It is suggested that few, if any, people would be against such a facility being introduced. The challenge is: how to do it?

Salient information As mentioned above, despite huge investment in time, money and training, HIPs were aborted in England and Wales. At the same time, the Scottish Government introduced the Home Report following on from the recommendations of the Housing Improvement Task Force in its Final Report, which was published on 13 March 2003 – see www.gov. scot/Publications/2003/03/16686/19494. Unlike HIPs, the Home Report focused on key information for prospective purchasers in the form of:

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FIRST COMMENT a) a Single Survey containing a valuation; b) an Energy Performance Certificate; and c) a Property Questionnaire signed by the seller.

The combined effect of the Home Report (which is, in the writer’s opinion, certainly not perfect) is a vastly improved supply of relevant information for prospective purchasers and an improvement in the quality of the housing stock in Scotland – which was one of the central drivers for the Government.

It is a pity that HIPs did not follow a similar strategy instead of attempting to provide too much information in the form of search reports etc. This well-intentioned aim led to the failure of HIPs and a considerable loss of investment in the various platforms which were established to deliver the reports. In Scotland, however, the focus was on supplying enough pertinent information in a form which could be easily understood by prospective purchasers. As yet, however, there have been no plans to extend the scope of the Home Report and, despite initial misgivings, in the legal profession, the Home Reports are now an integral part of the home moving process. So what next?

The next steps In its Manifesto, the Conservative Party committed itself to improving the Home Moving process in the event that it formed the Government. This led to the ‘Call for Evidence’ by the Ministry of Housing, Communities and Local Government following on from a White Paper produced by the Conveyancing Association - www.conveyancingassociation.org.uk/.

Following publication of the White Paper, various Working Groups have been established to look in more detail at specific proposals for reform. One such Group is looking at how best to provide more relevant and better information to prospective purchasers.

I think it is safe to say that most people understand and endorse the concept of a property logbook.

Where opinion is likely to differ, however, is as to its content and who should be responsible for holding same. As regards content, this should be a matter

for relevant personnel involved in the process, such as solicitors, surveyors, estate agents and title insurers to collaborate in identifying the relevant information, which they routinely seek during the due diligence or examination of title process. That should not be difficult – the only proviso being that they should perhaps plan to start with the core information and develop it from there. Remember the lesson of the HIP. The important thing is that integration issues across the industry are resolved so as to find a better way to share data across platforms. Thereafter, the issue of who should be responsible for holding the logbook should be addressed.

Option 1: The first option would be for this to be the responsibility of the homeowner in the same way as happens with a car. While this could work in principle, I think this would have mixed success and would not minimise the delays during the due diligence phase of a transaction.

Option 2: EPCs are already uploaded and held centrally in England and Wales in an EPC Register – https:// www.epcregister.com/ and in Scotland on a register run by the Energy Savings Trust - https:// www.scottishepcregister.org.uk/. It is suggested that these facilities could be extended to include property logbooks subject to it being a legislative requirement to do so.

Option 3: Much of the information which will be held in a logbook will relate to planning consents, building warrants and the like. This information is now widely available for public access via a local authority’s planning portal. It is perhaps possible that this could be extended so as to create bespoke property records held and able to be searched digitally in order to provide a detailed record including salient photographs and plans in respect of all alterations to a property. It would certainly be beneficial to be able to identify the year when an alteration was made so that the expiry date in respect of local 5

authority enforcement can be fixed. A potential problem with this option, however, is the lack of a uniform approach by local authorities across the UK. Some local authorities are yet to embrace the benefits of such records being recorded digitally.

Option 4: The regional land registries in the UK are all moving towards completion of the various registers and at various stages of digital transformation of their processes. HMLR has its much-heralded Digital Street project (https://hmlandregistry. blog.gov.uk/tag/digital-street/) which is at a very early conceptual stage and Registers of Scotland launched ScotLIS (www.scotlis.ros.gov.uk) in October 2017. Both Digital Street and ScotLIS have the potential to be a ‘one stop shop’ for all information on land and property – both legal and non-legal. At present, such information is held in multiple silos, all of which require to be interrogated in order to access relevant information on land and property being sold. How much better it will be

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when all such information is able to be accessed in one authoritative place and be capable of being stored and accessed digitally. What if these information portals could be extended to include the retention of relevant data contained within the property logbook? This could then be accessed by prospective purchasers and by their professional advisers as a trusted source of property information.

The content of the logbook might also benefit from having an insurance ‘wrapper’ which ought to be available at a modest cost in the average transaction. On balance, of the options referred to above, it is suggested that the repository for logbooks needs to be in the public sector in order to make it authoritative and secure.

Vendor Disclosure Such a change may require a legislative structure to be put in place so as to oblige sellers to make the information available and to keep their logbook upto-date. It is suggested that that would not be a bad thing. We have all grown accustomed to operating

FIRST COMMENT in the world of caveat emptor. It is fairly obvious that the balance of power in contracts involving the sale and purchase of land and property has swung far too far in favour of the seller with prospective purchasers being obliged to satisfy themselves fully before a contract can be concluded. Sellers often give little or no warranties and all the onus is placed on the purchaser at an early stage in the process.

This can lead to unfairness and almost always leads to delay in agreeing a final contract of sale.

It may have been good enough for the Romans and it has served us well for many years but has its time not come and gone? In the litigious society in which we live, (evidenced, sadly, by a growing lack of trust between professional advisers) I suggest that the time has come for us to move towards seller disclosure and there might be considerable benefits of legislation being enacted dealing with the specifics, and some would say peculiarities, of the average conveyancing transaction. While some may argue that legislative intervention in a free market process, which we are all used to, should be avoided; the benefits of so doing must surely

outweigh the potential downside. Only by having a form of mandation will a level playing field be created. Now is the time to do this. We should learn from the failed attempts to improve the process in the past and seek to introduce improvements to the system which will benefit us all – as we are all buyers and sellers ourselves at some point in time.

It is suggested that this is best done as a gradual process starting first with new build properties and local authority properties before progressing to second hand homes as digital data becomes cheaper and more accessible.

Conclusion The discussion has started. Now is the time to participate in the debate. Government will be looking for solutions from the industry and we should endeavour to assist in this regard. There are cost savings to be made in the home moving process and these savings need not necessarily be solely in relation to the fees which solicitors and licensed conveyancers charge.

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Common pitfalls in Residential Conveyancing

by Laura Lapsley Assistant Commercial Underwriter

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FIRST COMMENT

When buying or selling a residential property, there are a variety of risks which can come to light throughout the conveyancing process. Sometimes these issues only arise at the last minute, with completion drawing near, and the purchaser or lender may be unwilling to proceed unless these issues are addressed. Given the tight timescales involved, obtaining title insurance can be a quick and

cost-effective solution to protect the purchaser, their lender and future successors in title. There are numerous risks which might affect the purchase of a residential property, however, some of the most common issues which arise relate to gratuitous alienations (or transfers at undervalue) or missing documentation, which should be included with the title deeds.

Transfers at Undervalue

When considering this type of cover, we would have to be satisfied on the solvency of the transferor. Therefore, cover would be provided on the assumption that the transferor has signed an Affidavit of Solvency and that there is a clear and up to date bankruptcy search against the transferor.

It is not unusual for a property to be transferred for less than what it is worth or for no consideration at all, perhaps as part of a separation or as a gift from parents to children.

However, when such a transfer has occurred, the purchasers and their lender need to be wary of Section 34 of the Bankruptcy (Scotland) Act 1985 (as subsequently amended by Section 98 of the Bankruptcy (Scotland) Act 2016). This section provides a statutory basis for the challenge of a gratuitous alienation by a debtor and there is a risk that the transaction may be set aside.

Therefore, the lender will usually require additional comfort that the transfer was not done with the intention of avoiding creditors in anticipation of impending bankruptcy, and indeed, in these circumstances the CML Handbook recommends obtaining a clear bankruptcy search against the seller and also obtaining title indemnity insurance.

Our policy protects the insured in the event that the transfer is set aside by the Trustee in Bankruptcy because the person who transferred at undervalue has become insolvent.

Missing Documentation A solicitor acting in the sale or purchase of a property is required to check that all of the relevant title documentation is available and included with the title deeds. This paperwork might include building consents (or Listed Buildings Consents) and completion certificates or perhaps a Matrimonial Homes / Civil Partnership Affidavit. If certain documents are missing, title indemnity insurance can help to plug the gap in the title and avoid further delays to the transaction.

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Building Regulations

Matrimonial Homes

When a house is being sold, it is common for the solicitors involved to note that works or alterations have been carried out to the property and are therefore required to check that all of the relevant local authority consents have been obtained and are with the title deeds. It might be the case that these building consents are missing, or perhaps were not obtained at all.

If a property is sold in the name of one party, but that person is married or has a civil partner, this partner may have occupancy rights in the property in terms of the Matrimonial Homes (Family Protection) (Scotland) Act 1981 (as amended) and the Civil Partnership Act 2004 (as amended).

Therefore, the spouse or partner must consent to the sale and there should be an affidavit or declaration to this effect.

The solicitor could remedy this by contacting the local authority for a letter of comfort or retrospective consent, however, this could cause serious delays to a sale or purchase. There is also the concern that if the local authority is alerted to the existence of unauthorised works, they might require further remedial works or even removal of the new structure, which could be costly and reduce the value of the property.

An alternative to contacting the local authority would be to obtain title indemnity insurance. First Title can provide a policy, which would protect the purchaser in the event that the local authority takes enforcement action due to the absence of the relevant paperwork.

When underwriting this type of risk, we would check when the works were carried out and that there had been no contact with the local authority which may have alerted them to the risk. It is also helpful for us to consider the nature of the works and whether the building is listed.

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We are able to provide a policy to protect the purchaser and lender if a Matrimonial Homes or Civil Partnership Affidavit for a prior sale is missing, faulty or insufficient. Our policy would cover a claim by a non-entitled spouse or civil partner based on occupancy rights in terms of the Matrimonial Homes (Family Protection) (Scotland) Act 1981 (as amended) or Civil Partnership Act 2004 resulting in the dispossession of the insured from the property.

Policy Coverage First Title’s residential policies cover the full purchase price of the property (or the loan amount if lender only cover is being obtained) to ensure that the insured party is fully covered for their loss in the event of a claim. More than one risk can be covered on the same policy if a number of issues come to light in the course of the transaction. It is also worth noting that most of our policies last in perpetuity and therefore are designed to cover the incoming purchaser, the lender and successors in title.

FIRST COMMENT

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Making assumptions when it comes to title insurance?

Unlike some other providers, we: • can help with over 35 known

risks as well as providing bespoke cover • have one of the largest single underwriting capacities in the market • are directly responsible for handling and paying claims

• are regulated by both the Prudential Regulation Authority and the Financial Conduct Authority • have a strong solvency profile as set out in our published Solvency and Financial Condition Report

Call: +44(0)141 413 8800 Email: scotinfo@firsttitle.eu Visit: www.firsttitle.eu First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.

Registered office: ECA Court, 24-26 South Park, Sevenoaks, Kent, TN13 1DU.

Leading Title Insurance

FIRST COMMENT

Product Focus:

Access

Background

Solution

Our insured was purchasing a residential property in a rural location, which was accessed via a private road.

Cover provided on the condition that:

• The access had been used by the same family who had owned the property for many years.

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Investigations had not disclosed a legal title owner to the access in question and the access was unregistered.

• The solicitors were unable to seek a guarantee from the Keeper that an application to register servitude rights in the Registers of Scotland would be successful.

Challenge The legal title owner of the access in question could prevent use of the access to and from the property by the insured.

• No contact had been made with a third party in relation to the access risk.

• An Affidavit was provided confirming the period of use of the access and that use has been open, continuous and without judicial interruption or challenge.

• No registered legal title owners of the access route could be found.

• There was no intention to register an application for registration of the servitude interest in the Registers of Scotland.

• No other party required to use the access route and the property is in a rural location.

For further information on how First Title can assist you with its range of specialist cover and policies, please contact directly using the details below.

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To find out more about our products and services email scotinfo@firsttitle.eu or call +44 (0)141 413 8800

www.firsttitle.eu

First Title Insurance plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. First Title Insurance plc is registered in England under company number 01112603.

Registered office: First Title Insurance plc, ECA Court, 24-26 South Park, Sevenoaks, Kent TN13 1DU.