Common Conveyancing Complications (and how to solve them)
As most people who have sold or bought property will agree, conveyancing is a complex process, and there are a number of issues which could arise throughout the course of a transaction.
With buyers becoming increasingly cautious and mortgage lenders imposing stricter requirements all the time, it is crucial for sellers to ensure that potential hurdles are identified as early as possible, in order to minimise delays and ensure that solutions are found in the most timely and cost-effective manner.
Luckily, various solutions are available to the problems which most commonly arise – and there’s often more than one possible solution to each problem. The most appropriate solution will depend on the nature of the issue, and what is agreed between the seller and the buyer in terms of costs and timescales. In order to be best prepared, it is important to have knowledge of the types of issues that could arise, whilst also arming yourself with a variety of solutions in order to defeat the problem effectively and efficiently once it rears its head.
The defective Lease
Where a property being sold is leasehold (such as a flat), the lease itself will form the fundamental basis of the relationship between the Landlord and the Tenant, as it sets out the rules and regulations which must be observed by the Tenant, as well as the rights granted to them for their use and enjoyment of the property, and the obligations with which the Landlord must comply. As a result, arguably the most common source of issue in a conveyancing transaction is a defective lease, which doesn’t, for example, contain adequate rights and covenants. Whilst each lease will be specific to the property it relates to, the UK Finance Mortgage Lenders’ Handbook sets out some general provisions that we would expect to be included in all leases regardless of where the property is located, namely rights for access, services, support, shelter and protection, along with obligations on the Landlord to be responsible for the repair and insurance of the building, and to allow the Tenant peaceful enjoyment of the property. If any of these provisions are not included in the lease when it is granted, the lease will be considered defective, and may need to be rectified.
Aside from the rights and covenants included in the lease, other common considerations for leasehold property include the remaining term and the annual ground rent. A lease is often referred to as a ‘deteriorating asset’, because with each year that passes, the remaining number of years left to run on the lease term will decrease, until (eventually) the lease ‘runs out’. Usually, anything lower than a 90 year remaining term should cause concern, because, once the term falls below 80 years, the premium payable in return for a lease extension could significantly increase (that’s when ‘marriage value’ – and additional price – becomes payable to the Landlord). Annual Ground Rents are also a common problem (and have deservedly attracted much attention in the media for this reason), as some leases provide for annual ground rent amounts to periodically ‘double’. Whilst this does not initially sound unreasonable, the calculations must be carefully performed for long leases – an initial annual ground rent of £200 doubling every 10 years will require an annual payment of £1,638,400 after 130 years!
The Register of Title
Whilst leases regularly contribute towards conveyancing issues, there are equally problems that can arise in relation to sales of freehold properties, largely related to the Register of Title. Since the Land Registry was formed in 1862 and the Land Transfer Act first imposed compulsory registration for London in 1897, the title to property has been centrally registered. Today, all registered land in England and Wales has its own Register of Title, which provides all essential information relating to the land, such as the address of the property, whether it is freehold or leasehold, the owner(s) name and details, and any rights or covenants granted either for the benefit or burden of the property. As with leases, it is important to ensure that the property benefits from any rights which are required to use and enjoy the property (such as rights of way over private pathways), and to ensure that no unreasonable covenants have been historically imposed which would render the property unfit for the buyer’s intended use.
Third party interests
Aside from rights and covenants, the Register will also include details of any third-party restrictions (for example, a restriction that the property cannot be sold without the permission of a wider estate owner), and charges (such as mortgages and freezing orders). Restrictions on dealing will often require the consent of a third-party beneficiary in the form of a Certificate of Compliance, which can be provided to the Land Registry after completion as evidence that the restriction has been sufficiently complied with. In relation to Charges, consent will similarly be required from the beneficiary in order to satisfy the Land Registry that the same no longer applies – for Mortgages, this will mean confirmation from the lender that the outstanding sums have been redeemed. Both restrictions and charges should be identified as early as possible, at the beginning of a transaction, in order to ensure that third-parties can be approached for consent and indicative redemption statements can be obtained.
Once a particular issue has been identified, the next step should always be to consider what the most appropriate solution might be, with a view to ensuring that the sale can proceed. A long-standing principle derived from common law provides that any changes to a deed (such as a lease or an historic conveyance) must also be made by deed. As a result, in practice, a number of types of deed have been established, which can be used to rectify defective or contentious historic documents (provided that the consent and participation of all required parties is obtained).
A helpful deed
A Deed of Variation can be used effectively in order to amend the terms of an existing deed, such as an historic conveyance, where new or alternative provisions have been agreed (for example, if additional rights need to be included which were previously omitted). In contrast, a Deed of Rectification can be useful in rectifying mistakes in the original deed, such as drafting errors. If the property is leasehold, some changes will require the original lease to be surrendered to the Landlord and entirely re-granted in order to take effect, in which case a Deed of Surrender and Re-Grant will be used instead – such a deed will be necessary where the parties intend to alter the extent of the demise (i.e. increasing or decreasing the size or external layout of the flat), or where the lease term is being extended (i.e. for the purposes of a lease extension, where the remaining term is insufficient).
In an attempt to alleviate the possible delays and additional costs involved with formally correcting defective documents, the option of indemnity insurance is also now widely available. Such insurance is commonly used as a solution to issues, and it provides financial cover in the event of a loss in value of the property, or enforcement action being taken by third-parties. The insurance premium can vary depending on the level of risk involved, and the property value, but those premiums are usually minimal compared to the sale price, and cover can be placed on risk almost immediately in most instances. However, it is important to approach indemnity insurance with caution. As with any type of insurance, the existence of cover doesn’t make the risk ‘go away’, it simply puts a plaster over the problem – so there is still a risk that the value of a property will be adversely affected by the issue at hand. Some insurers include standard assumptions and exclusions which make it difficult to make a successful claim, so these should be checked carefully too.
In summary, whilst there are a number of potential complications which could arise throughout the conveyancing process, more often than not the parties will be able to successfully resolve the problem in order to ensure that the transaction can successfully proceed to completion. Time should be taken to identify issues as early as possible, so that both the buyer and seller can make informed decisions and seek an appropriate solution. Indemnity insurance is a useful tool, but should only be obtained in certain situations – sometimes it is better to tackle issues head-on and ensure that they are solved once and for all.