Winter 2019 ISSUE
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FIRST COMMENT IN THIS ISSUE: • DOES IT HAVE TO BE LIKE THIS? THE SPEED OF CONVEYANCING - PART 1 • BEWARE: AN AUTO EMAIL SIGN-OFF CAN BE SUFFICIENT TO ‘SIGN’ AN AGREEMENT • BENEFITS AND CONTROLS: THE RISKS OF RESTRICTIVE COVENANTS • CLAIM CASE STUDY: ACCESS: RIGHT OF WAY
Leading Title Insurance
Welcome to the Winter edition of our newsletter for 2019. In this issue, John Outram, retired Partner at Taylor & Emmet LLP Solicitors, has given us the first part of his thoughts on what a customer wants in the conveyancing process. Helen Evans, of Hill Dickinson LLP looks at whether an auto email sign-off can be sufficient to ‘sign’ an agreement. Finally, we look at restrictive covenants and how First Title can help you control the risk.
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FIRST COMMENT
Does it have to be like this?
The speed of conveyancing - Part 1 by John Outram Solicitor
Embarking upon a discussion about the conveyancing process and, in particular, the speed of the process, is like opening the proverbial ‘can of worms’. It also has some similarities to BBC ‘Question Time’ where everybody speaks at once and no one actually answers the question.
of the larger corporate agents seek to do so with their tightly controlled panels), so there is a constant blame game being played between those who should use their time more effectively to cooperate more closely in enabling the process to work in a more efficient manner.
There are, of course, a number of key players within the whole process, conveyancers, estate agents, brokers, mortgage lenders, local authorities, search providers, indemnity insurers, HM Land Registry and HMRC to name but a few, with apologies to those whom I have omitted, all of whom have their own responsibilities and agendas.
In my time at the conveyancing coalface, the quickest residential property transaction took about five hours from start to finish, the longest was about three years. Both timescales were the choice of the parties involved, client driven rather than driven by other stakeholders.
However, a property transaction is not going to reach a conclusion without conveyancers. In theory, one could try the DIY approach but in practice that is not going to help with timescales nor process. As the buck stops with the conveyancer, it is unsurprising that as soon as timing is mentioned, most conveyancers will feel under threat because ultimately, the conveyancer has to pull all the strings to effect a transfer of title and completion. Estate agents, who historically have always been more concerned about ‘pipeline turn’ than solicitors and, more recently, Licensed conveyancers, cannot control the conveyancing process (although some
Returning to the political discussion, it is a worrying characteristic of all our politicians that the only ‘soundbite’ solution for improving the health service appears to be to throw more and more money at it, whereas they should perhaps understand that money alone is not the answer to the problems of demand, process and structure. Likewise, in the debate about the speed of conveyancing, it is easy to throw in the one-liner ‘soundbites’ about the lack of communication by conveyancers or the poor IT systems, just as it is easy to complain about a few estate agents who telephone five times a day for an update because they have not been trained by anybody to understand the process. The issues of demand, speed and process are complex and 3
interrelated and are not capable of being considered in any meaningful way by a few throwaway grumbles from conveyancers or estate agents. Having had the luxury of taking a step back from the coalface for the last six months there has been time to reflect on a conveyancer’s life over the last 39 years. It will be hard for some to believe, but in 1980 we had:
• No mobile phones, laptops, tablets or PCs. The support team would be lucky to have an electric typewriter or ‘tripe writer’ as one of my clients described it on one occasion, when describing his own letter. • No fax machine. • No email. • Photocopiers were beginning to make an appearance. • Ts and Cs did not exist. • Scale fees for conveyancing were fixed by the Law Society.
THE PROCESS IN
1980 SALE AGREED
CONTRACT
SURVEY / VALUATION
MORTGAGE OFFER
ENQUIRIES
• ID checks were not required. • No Money Laundering or Proof of Funds checks. • Everyone had their deeds or the HM Land Registry Land / Charge Certificate. • There was virtually no property fraud, perhaps because of the need to provide deeds or a Land Certificate? • HM Land Registry and Land Charges Searches (in Plymouth) could only be done by post with the permission of the Seller! • It was most unusual not to see a client to sign a contract. • Most completions were done personally, many using a client account cheque. • The only methods of communication were post (some DX), landlines and personal contact. • No personal search companies and, more often than not, only a local search carried out.
SEARCHES
• Very few complaints. • No SRA.
EXCHANGE
• A claim for negligence was almost unheard of. • Indemnity policies were rarely used.
COMPLETION
• Risk was not a word in daily use. • No Lenders’ Handbook. • Automatic PII renewal. • There was a four page form of standard enquiries before contract, most requiring simple replies.
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It is easy to look at the past with rose-tinted spectacles and impossible, without sound statistics, to be factually correct about the length of time that a normal transaction would take. My recollection, however, is that standard conveyancing transactions with no chain would normally have exchanged in about six weeks and, as a general rule, completion would follow two to four weeks later and very rarely within seven days of exchange. In 2019, we have:
• Limitless number of mobile phones, laptops, tablets, PCs, apps, scanners, paperless offices. • Fax machines. • Endless amounts of email. • Photocopiers which do everything apart from make the tea. • Ts and Cs, which in many firms now run to a dozen pages or more. • ID checks to be done by every stakeholder in the process. • No deeds.
THE PROCESS IN
2019 SALE AGREED
• Fraud. • Many clients at distance • Never-ending communication through endless channels. • An abundance of search providers. • Broadband available to (nearly) all.
CONTRACT
• Infinite amounts of information available to all in the process. • SRA.
SURVEY / VALUATION
• A complaining culture. • A much more litigious culture.
MORTGAGE OFFER
ENQUIRIES
• Regular use of indemnity policies. • Risk or risk avoidance embedded into the conveyancer’s mind and processes. • UK Finance Mortgage Lenders’ Handbook (formerly CML).
SEARCHES
• A cautious PII market.
EXCHANGE
• F and F lists, SPIF, leasehold SPIF and scores of questions about everything under the sun or roof as the case may be. • An explosion in the number of leasehold flats.
COMPLETION
• Unlimited competition and apparent transparency of fees. I say ‘apparent’ as it is no easier now than it was 10 years ago to compare ‘apples with apples’.
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FIRST COMMENT Average transaction times are now running at 12-14 weeks, some would say 16-18 weeks So what have the last 39 years taught us about transaction speeds? 1.
The process has not changed for 39 years, and as far as I know, for 39 years before that.
2.
Methods of communication have increased dramatically.
3.
Controls on conveyancers have snowballed from: •
Government and EU.
• SRA. • LeO. •
Mortgage Lenders.
•
The Law Society.
•
PI Insurers.
•
HM Land Registry.
• HMRC. •
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And for those dealing with referred work, from some Panel Managers.
4.
The amount of information to be obtained, sifted and advised on has grown out of all proportion, against a backdrop of a complaining and litigious society. Conveyancing is a seriously risky business.
The missing element from the lists above is the most important – the needs of the clients (or customers as they seem to be described in this brave new world). I have lost count of the number of times that a sales negotiator would advise me that the job must be completed by the end of the month only to ascertain that my client was not ready to move due to school holidays, half term, illness, lack of help for the physical move, getting the cash in the right place etc. etc. In my experience, the speed of the transaction from sale agreed to completion is not the biggest issue for the buying and selling parties, given the huge number of practical changes that a move brings. The key issue is sale agreed to exchange, which seems to be taking longer and longer. If the process has not changed, and communication channels have increased so rapidly - see 1 and 2 above - then the answer to the question of speed lies somewhere in 3 and 4 above, a subject which I will consider next time...
Beware: an auto email sign-off can be sufficient to ‘sign’ an agreement by Helen Evans Hill Dickinson LLP
In the recent case of Neocleous v Rees [2019] EWHC 2462 (Ch) an email with an automatically generated signature was considered sufficient for the purposes of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”) to bind the parties to an agreement for the transfer of land in settlement of a right of way dispute. 8
The case concerned a right of way dispute between the Claimant and the Defendant where part of the Defendant’s land was only accessible via the Claimant’s land. Whilst the right of way appeared on the Defendant’s title, it was not registered against the Claimant’s title and so the Defendant applied to the HM Land Registry to register the right of way 7
against the Claimant’s title. The Claimant sought to challenge that application on the basis the Defendant did not have sufficient evidence to prove such a right existed and to deny that their land was bound by any right of way. In February 2017, the matter was referred to the First Tier Tribunal and directions were listed for disclosure and the exchange of witness statements. The application was listed for a final hearing due to take place on 27-29 March 2018. However, shortly before the final hearing, settlement discussions took place between the Claimant’s and Defendant’s respective solicitors and it was in respect of those settlement discussions that the issue before the court arose. Various emails exchanged by the parties’ respective solicitors set out the terms of a settlement agreement reached by the parties in advance of the final hearing. Effectively, the Claimant had agreed to purchase the land concerned in exchange for the sum of £175,000 in full and final settlement of the application to the First Tier Tribunal and other claims. Following an exchange of emails on 9 and 12 March where the terms of the settlement were set out and confirmed, the hearing was vacated. However, in May 2018, the Defendant’s solicitor wrote to the Tribunal to request that the matter be relisted on the basis that the terms of the settlement had not been finalised and the Defendant wished for the hearing to go ahead. The Claimant contended that the emails of 9 and 12 March referred to above amounted to a binding contract of compromise and consequently issued an application to the County Court for specific performance of the settlement agreement. The parties agreed that since the matter concerned the transfer of land, the formalities as set out in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 must be satisfied to form a binding contract. The Claimant contended that the email exchanges amounted to a single document signed by or on behalf of each party and that therefore the formalities had been met.
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To recap, section 2 of the 1989 Act provides as follows: •
(1) a contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all of the terms which the parties have expressly agreed in one document, or where contracts are exchanged, in each.
•
(3) the documents incorporating the terms, or where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.
The Defendant did not agree that there was an enforceable contract under the 1989 Act for the following reasons: 1)
there was no contractual intention at the time of the email exchange;
2) the email exchange did not comply with section 2(1) of the 1989 Act in that it failed to incorporate all of the terms; and 3)
in any event, the agreement did not comply with section 2(3) of the 1989 Act in that it was not signed by both parties.
At trial, the Defendant conceded points 1) and 2), leaving the only issue to be decided by the Judge being whether the signature requirements of section 2(3) of the 1989 Act had been met. The Defendant’s solicitor’s email of 9 March, in which the terms of the settlement were set out, was not marked ‘subject to contract’ and ended with ‘many thanks’ followed by the Defendant’s solicitor’s name, job title and company address in the form of an automatically generated email signature. In evidence, the Defendant’s solicitor admitted that the inclusion of ‘many thanks’ above the automatically generated email signature was giving his authority to the email and that he had his client’s authority to settle the dispute on those terms. Whilst the Defendant sought to rely on the approach taken in Firstpost Homes Limited v Johnson [1995] 1 WLR 157, which provided that a signature should
FIRST COMMENT be handwritten, the Judge noted that this must be considered in the context of what an ordinary person believed the word ‘signed’ to mean and that the interpretation of section 2 of the 1989 Act should not be encumbered by ‘ancient baggage’. The Defendant contended that a document may be treated as ‘signed’ where a person’s handwritten signature is incorporated into a document (whether written in wet ink by hand, or an electronic copy of that handwritten signature) rather than an automatically generated feature of an email. However, the Judge preferred the Claimant’s reliance on HHJ Pelling QC’s decision in the case of Pereira Fernandes SA v Mehta [2016] 1 WLR 1543 in which HHJ Pelling QC stated follows: “it seems to me that a party can sign a document for the purpose of section 4 (of Statute of Frauds) by using his full name or his last name prefixed by some or all of his initials or using his initials and possibly by using a pseudonym or a combination of letters and numbers…providing always that whatever was used was inserted into the document in order to give and with the intention of giving, authenticity to it. Its inclusion must have been intended as a signature for these purposes….I have no doubt that if a party creates and sends an electronically created document that he will be treated as having signed it….the fact that a document is created electronically as opposed to hard copy makes no difference…if a party’s agent sending an email types his or her or his or her principal’s name to the extent permitted by existing case law in the body of an email, then in my view that would be sufficient…”. In the case of Re Stealth Construction Limited [2012] 1 BCLC 297, the insertion of a signature at the end of an email was sufficient to render the document ‘signed’ for the purpose section 2 of the 1989 Act. In addition to the cases referred to above, the Claimant pointed to the academic criticism of Firstpost, which was also acknowledged in the Law Commission’s Consultation Paper no.237 titled ‘Electronic Execution of Documents’. The Consultation Paper also considered various other case law authorities as well as the E-Signatures Directive 1999 / 93 / EC, domestic legislation in the
form of the Electronic Communications Act 2000 giving effect to the E-Signatures Directive and the Electronic Identification, Authentication and Trust Services Regulation 910 / 2014. All of these seek to give electronic signatures similar effect to a handwritten signature, whilst the Consultation Paper concludes: “the review of case law above demonstrates that electronic signatures have been found to satisfy a statutory requirement for a signature where there has been evidence of an intention to authenticate the document”.
‘Emails are the most common means of correspondence’ The Judge in this case held that including ‘many thanks’ whilst knowing that a computer programme (in this case Microsoft Outlook) would automatically generate the sender’s name after those words is a clear indication of an intention to authenticate. He therefore held that the automatic email sign-off was sufficient for the purpose of section 2(3) of the 1989 Act and that the Claimant was entitled to specific performance of the settlement agreement as set out in the emails. The case follows the recent Law Commission Report No.386 on the Electronic Execution of Documents published on 4 September 2019. The report sets out some high level conclusions as to the law regarding the validity of electronic signatures. Amongst others, the Law Commission Report states that an electronic signature is capable in law of being used to execute a document (including a deed) if the person signing it intends to authenticate the document and any formalities relating to the execution of that document are satisfied. The Law Commission Report acknowledged that such requirements are yet to be considered by the courts and so the case of
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FIRST COMMENT
Neocleous v Rees provides some useful guidance in the context of property transactions. Some practical considerations: This case is of particular relevance in a progressively digital age where emails are the most common means of correspondence and where there is a focus on the use of electronic documentation. Whilst Neocleous v Rees concerns specific facts, it encourages practitioners to consider carefully whether emails should be marked ‘subject to contract’ if they are not intending to be binding, or whether disclaimers should be used to advise recipients that
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automatically generated email sign-offs should not be interpreted as an intention to authenticate the contents of the emails. However, this is not always appropriate, especially in professional services. Consideration must also be given to security issues such as email hacking which must alert practitioners to the fact that not all emails are authentic. Whilst the law in this area continues to develop, practitioners must be aware of the issues and have a good understanding of their IT policies and when to mark email correspondence as being ‘subject to contract’.
Benefits and controls: The risks of restrictive covenants
A matter of control
Restrictive covenants can be very useful or a huge nuisance to developers and other landowners and ooccupiers, depending on which side of the fence you are on. If a piece of land is subject to a restrictive covenant, the owner risks ignoring it at their peril. If an issue relating to a restriction arises and the parties cannot reach an agreement to release a land owner from the restrictive covenant (or at least modify it), legal actionmay be the way forward. Two recent rulings illustrate the court’s approach when such disputes arise.
Restrictive covenants in the context of commercial real estate serve an important purpose. They are a vital tool regulating activity that would directly affect the land and adjacent property or land. Restrictive covenants are easily understood - they are controls which are imposed to restrict activity by someone (typically the owner or occupier) in relation to the property. They also ensure the continued enjoyment of neighbouring land by restricting what cannot be done on the land or to the property. A blanket restriction on a specified commercial activity (for example, types of commercial use, opening hours or parking) or imposing a temporary restriction on a tenant while it owes a landlord outstanding money, for instance, can have tangible commercial benefits to the beneficiary of the restrictive covenant. Any developer or other construction-related business will know that restrictive covenants in 12 11
the title deeds are crucial: they can facilitate the smooth and efficient construction of commercial developments - or they can severely restrict a developer’s most thought out plans and put a serious spanner in the works. This means restrictive covenants in commercial property deeds call for strategic navigation; and the party adversely affected should invest in the best legal advice available to allow it to proceed with the proposed development work or other activity. Crucially, the party needs reassurance that it will not risk an expensive breach of any restrictive covenants affecting the land. Why? Because in the case of a breach, the party in breach could face a substantial damages claim, an injunction preventing it from carrying out (or proceeding with) building work – and even an order to demolish a development.
Is the restrictive covenant effective? This is the catch: a restrictive covenant in the deeds might be in black and white but it may be ineffective by reason of age, because it is redundant, there is no longer anyone to enforce it, it is contrary to public policy, or it is otherwise of no effect. A restrictive covenant, for example, that dates back a hundred years might be completely ineffective as a control on the land (though in modern day commercial real estate it would be uncommon to come across such relic-like restrictive covenants). Any party wanting to avoid a restrictive covenant should communicate with the party who has the benefit of the restriction. If necessary, the parties should try to negotiate a mutually agreeable variation of the covenant or even a release from it if possible. If the parties can agree a formal release from the restriction or a suitable modification to enable a proposed work or activity to proceed, this is always the preferable, most cost-effective option. If this can be done, the parties should ensure the correct documentation is drawn up and executed, then registered with HM Land Registry.
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When can a restrictive covenant be challenged? Where agreement cannot be reached, legal action may be necessary. Under section 84 of the Law of Property Act 1925, the Upper Tribunal (Lands Chamber) (UT) has power to release or vary a restrictive covenant that no longer serves a useful purpose. The procedure is usually used in relation to covenants that restrict the use of freehold land – but commercial landlords should be under no illusion that this does not extend to leasehold land too. Tenants may also apply under section 84 for a release or variation, though the lease must have originally been granted for a term exceeding 40 years; and more than 25 years of the term must have expired. The UT recently allowed1 a lease variation allowing the residential use of premises alongside the office use originally permitted. The local council was the freeholder of the office building. It was entitled to some of the rental income from underlettings of the building which was, in fact, vacant and in disrepair. The tenant wanted to turn it into a residential apartment block, but although this was allowed under planning laws it would breach restrictions on use in the lease itself, and the council refused to give consent to the change of use. The tenant successfully applied for a variation on the lease restriction. The UT decided on the evidence that the restriction to office use did not secure the council a practical benefit of substantial value. It is worth noting, however, that the tenant’s application to vary a different restriction in the lease (requiring the council to consent to underlettings) was rejected because it was found that the restriction still conferred a practical benefit on the council.
Insuring the risk The problem for many businesses, however, is that attempting a release or modification of a restrictive covenant can be expensive. Bringing a
FIRST COMMENT legal challenge can be cost-prohibitive. The smaller developers and construction companies lack the resources of the big companies to take on such a challenge, and this is where effective title indemnity insurance steps up to the plate. Consider insuring the potential risks of a breach through adequate title indemnity insurance as early as possible - and crucially before the planning application stage if you want to minimise the risks. Remember, an effective policy can provide sufficient cover for the landowner as well as the tenants and any lenders. For instance, First Title paid a claim under the terms of an indemnity policy taken out by the insured for the very reason it knew its intended development would breach a restrictive covenant. It was only once the building was almost complete that the insured received a letter on behalf of the beneficiary of the covenant; and legal proceedings were soon threatened. Eventually, the parties settled the dispute and the insurance policy paid out a £200,000 settlement to release the insured from the restrictive covenant. A separate case2 serves as a salutary reminder why businesses should consider suitable insurance cover early on, instead of ignoring the issue and pressing ahead. A developer was prohibited from using its land for building or anything else apart from parking vehicles. Ignoring the restrictions, it built nine houses and four bungalows as ‘affordable housing’. A beneficiary of the restrictive covenant was a children’s cancer trust which owned neighbouring land and used it for a children’s hospice. It objected to the works but the developer continued regardless, knowing that its construction work breached the restrictive covenant.
The appeal judges considered that the developer had “deliberately circumvented the proper procedures for testing and respecting the Trust’s rights under the restrictive covenants” and acted unlawfully “with its eyes open and completely at its own risk”. It was therefore in the public interest that the developer should bear the risk of wasting its own resources in building the houses.
“The parties should try to negotiate a release ...if possible.’’ The message is clear: you’re unlikely to get a restrictive covenant removed retrospectively. Instead, insure the risk or try to have the restrictive covenant modified or discharged if possible. And get robust legal advice from a specialist lawyer.
Shaviram Normandy Limited v Basingstoke and Deane Borough Council [2019] UKUT 256
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The developer applied to have the restrictive covenants modified under section 84, arguing that the restriction impeded reasonable use of the land as it had secured planning permission. The case went to the Court of Appeal where the judges ruled against the developer and were not prepared to reward parties “who deliberately flout their legal obligations in this way”.
The Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd and others [2018] EWCA Civ 2679
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Taking the headache out of property transactions for 35 years
Call: +44(0)207 160 8218 Email: online@firsttitle.co.uk Visit: www.firsttitleresidential.co.uk 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
Claim Case Study: Access: Right of way
FIRST COMMENT
Background A First Title client was building a development of affordable housing and commercial units with a GDV of £24m.
disused right of way
They obtained an indemnity policy on a pre-planning basis to cover various risks including third parties enforcing a disused right of way.
Challenge Following construction, the insured received a letter from a neighbouring landowner’s solicitor alleging that the landscaping of the development had blocked their right of way. First Title’s investigations revealed the right of way had been blocked for some time. We attempted to find a resolution for the insured by way of payment to the neighbour in compensation of losing the right of way or finding an alternative route for them. The neighbour refused both of these options as they wanted to preserve the development potential of their own land.
proposed new development
neighbour’s land
Solution Despite it not being used for some time, there was a recorded right of way on the title of the insured land. As the neighbour would not agree to any other resolution, the only solution available to the insured was to reinstate the right of way. This also eliminated any risk of litigation from the neighbour. The substantial costs of the works plus the legal costs of both the insured and the neighbour to bring this dispute to an end were covered by the policy.
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www.firsttitle.co.uk
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.
