Homeowner logbooks a step too far

As I explained previously in an article which appeared in the Journal in February 2002, on 12 December 2000 the Minister for Communities announced the establishment of the Task Force. To recap, it was set up to consider:

• the forms of financial assistance available for owner/occupiers;
• the powers available to local authorities to compel private owners to invest in the maintenance of their properties;
• the likely effect of providing better information as part of the house purchase process – taking account of proposals for sellers’ surveys and sellers’ packs;
• the arrangements in place for the management of flatted blocks in private ownership;
• the proposals for stronger regulation of the private rented sector, for example by extending the existing arrangements which have been introduced recently for houses in multiple occupation; and, lastly,
• the effect of tenancy legislation in the private rented sector.

I also explained how the Task Force was going to set about its work, how its membership was made up and that its Sub-Group B would be considering the house buying and selling process in Scotland.  It is the work of this Sub-Group in which the Society’s Conveyancing Committee is most interested  and I would now like to bring you up to date with some of the matters currently being discussed following the publication of the Task Force’s initial report in May this year.  

The report deals with all the issues being considered by the Task Force but I will restrict my comments to the section dealing with the house buying and selling process and in particular the main key conclusions that have been reached by Sub-Group B following Stage 1 of its deliberations.  I would like to make two points before considering these conclusions. Firstly, you may be interested to note that the work of Sub-Group B was informed by a report, which it commissioned from DTZ Pieda Consulting. That report examined how well the information needs of house buyers were served by the current system and the impact this has on investment and housing quality. It looked at these issues from the view point of first time buyers, purchasers who had previously bought a house, people exercising the Right to Buy and the professionals involved in house buying and selling. Secondly, Sub-Group B has commented that there are a number of strengths in the current system that need to be retained. They have made the point that it is reasonably quick, largely free from gazumping and provides outcomes that are generally predictable. They have also noted that most buyers and sellers are satisfied with the way the system works.  This notwithstanding, they are still proceeding to examine the system, and they appear, from the Conveyancing Committee’s interaction with them, intent on changing it in a number of important respects.

I should also point out that there has already been an opportunity for any interested party to comment on the key conclusions (although it seems that few solicitors have so far chosen to do so individually) and during Stage 2 of the Task Force’s proceedings, which will commence in September, I understand that the various Sub-Groups will start to formulate proposals for consideration by the Scottish Executive.

A SELECTION OF THE KEY CONCLUSIONS:

Those of most relevance to the profession are:

• There is an absence of any obligation to disclose defects and this may lead some sellers to attempt to conceal repair problems from potential buyers.

It is as a result of this key conclusion that one of the policy options now being looked at by the Task Force is whether to legislate to abolish or modify the principle of caveat emptor.

The Conveyancing Committee believes that the principle of caveat emptor should be retained.  Assuming that sellers’ surveys are not introduced, it is not thought sensible to change the policy whereby the purchaser has the property surveyed before lodging a formal and binding offer, rather than relying on implied warranties given by the seller.  The Committee does however consider that solicitors should, in all cases where the property is over 10 years old and therefore not covered by the NHBC ten year protection certificate, attempt to persuade their clients to meet the cost of a Scheme 2 condition report (as opposed to merely getting a valuation report).

• The majority of buyers opt for a mortgage valuation report from the surveyor even although this provides little information on the condition of the property.
• The practice of setting closing dates at short notice can sometimes lead prospective buyers to make decisions and offer before they have had an opportunity fully to consider the results of an inspection or survey report.
• A significant number of buyers face large unexpected repair or improvement bills after the first year of purchase.

As a result of these three conclusions, the Task Force is now actively considering a policy option that the contents of existing survey/valuation reports should be altered/expanded and that legislation be introduced to require sellers and/or sellers’ agents to give prospective buyers a minimum notice period before the setting of closing dates for offers. The Committee considers that there are adequate guidelines relating to the setting of closing dates.

• Homeowners should be required to keep logbooks of repair work and make these available to prospective purchasers.

This is another key conclusion that relates to running and maintenance costs. The Conveyancing Committee has serious reservations about whether or not these would actually work in practice without legislative guidance as to their content. The Committee also has concerns about whether the logbooks might actually lead to longer missives as solicitors negotiate about the evidential status any logbook should have and finally the concept cuts across the principle of caveat emptor which the Committee supports.

• Whilst providing a clear outcome for both buyers and sellers, blind bidding may have an impact on other aspects of the process including multiple surveys and house price inflation at a localised level. This is also a key conclusion, which has resulted in a policy option that alternatives to the system of blind bidding should be evaluated. It has also been concluded that low “upset” prices and high levels of competition are likely to be factors in stimulating multiple surveys.

The Committee agrees with these conclusions. It is, however, satisfied that despite some indications to the contrary the problem of multiple surveys is only significant in a small number of  “hot spots”, particularly central Edinburgh and the west end of Glasgow, and even in these areas the Committee considers it is not so much the system of blind bidding that results in multiple surveys for the same property but more the imbalance between supply and demand.  However, it is accepted that a contributing factor to the problem of multiple surveys is the practice, which the Committee deplores, of setting artificially low “upset” prices which can and does result in many prospective purchasers incurring considerable needless expense on surveyors’ fees in offering for houses in price ranges which they can afford but which the sellers have no intention of accepting.  Turning to the question of blind bidding itself, while the Committee does not feel that the system is totally satisfactory there are difficulties with other systems. A private auction system using the Internet may in the future have merit but technology is not in place for such a system to operate effectively at this stage.

• The Task Force is also considering introducing some form of sellers’ pack so that the sellers or their agents will provide standard information to prospective purchasers.

The Conveyancing Committee has no difficulty with the concept that sellers’ packs should be prepared prior to a sale of property both domestic and commercial. They  consider that these might shorten the period before missives are concluded because all the usual pre-contract enquiries and requisitions will be answered at the outset. They   also hope that clients may instruct solicitors at an earlier stage to engather all the documentation if sellers’ packs are made compulsory. That would be positive. What the pack is to comprise may be more problematic. The Committee has however concluded that included in the pack should be the title deeds, a Coal Authority report (if appropriate), any planning permissions, building warrants, completion certificates, guarantees etc and an independent condition survey report.  The Committee also considers that it would be of great benefit if property enquiry certificates were included in every case.  However, they appreciate that in many areas of Scotland properties are not being sold in “hot spots” and may be on the market for some time with the ensuing difficulty that property enquiry certificates will expire and need to be re-ordered at an additional cost to the client.  The Committee is of the view that the Executive could be asked to look at the proposition that in depressed/deprived areas, property enquiry certificates should be provided free of charge by the Councils, thus alleviating this difficulty to some extent.  The Committee however accepts that a negative feature of such surveys will be that in certain areas, particularly during periods when the market is generally depressed, situations will undoubtedly arise of sellers put to abortive expense where the property fails to attract an acceptable offer within the “currency” of the survey report.

FURTHER OPTIONS
Other policy options under active consideration relate to the amount of information buyers and sellers are given about the repair and maintenance obligations contained in title deeds. Information the Task Force has received via the DTZ Pieda Consulting research* has resulted in it concluding that the average house buyer and seller does not understand such obligations and goes into the process with insufficient clear information available to them.  This has led the Task Force to consider whether or not there should be additional best practice guidelines produced for solicitors and other professionals to ensure that prospective house buyers and sellers are given adequate good quality information on house buying and selling procedures and about the costs of repair and maintenance obligations arising from title deeds.

The Conveyancing Committee would argue that there are already sufficient Society guidelines to cover these matters but it may be that solicitors need to consider how they present information to their clients. There is a need to ensure that people get the information in a form they can digest and understand. The Committee accepts that this may not always be happening and that there may be scope here for an education process amongst the profession.

In addition we are advised that the Task Force are considering the scope for introducing standard missives. This is something in which the Committee is interested. We have not forgotten that we looked at standard missives before but we think there may be scope for revisiting this with a better draft and we are also actively trying to improve Builders’ Missives by liaising with Homes for Scotland.  

Finally, we are advised that with a view to encouraging the uptake of independent sellers’ surveys, the Task Force is looking at the form such encouragement might take and the scope for legislation to require sellers’ surveys with or without energy efficiency and disability audits and valuations. On balance, the Conveyancing Committee favours some form of independent condition survey report without a valuation being included.  

It is clear that scrutiny of the buying and selling process, which is only one aspect of the Task Force’s remit, is broad-ranging and hard-hitting and covers a number of long- established procedures of Scottish conveyancing practice. There is huge pressure on us as a profession to move swiftly to provide views in relation to such issues, especially since the Task Force is apparently to wind up and give its conclusions to Ministers by the end of this year.

The Conveyancing Committee’s position is that while the policy initiative behind the Task Force, namely to improve Scotland’s housing stock, is laudable, matters are moving forward too swiftly and without the consultation we regard as necessary. We consider that because the whole of the house buying and selling process is under scrutiny under this wide remit, the profession should have more input into the decisions to be taken by the Executive.  The Conveyancing Committee wishes to play its part in influencing the Executive’s decisions if possible and is keen to ensure that the interests of solicitors are highlighted and understood.  For this reason we want you to be fully aware of the Task Force and we would like you to make your views known to us about changes to the house buying system and especially whether or not you favour the options being evaluated by the Task Force.  I would urge you to look at the Task Force web-site which can be found at www.scotland.gov.uk/hitf and review the key conclusions in more details.

We have come to some preliminary conclusions about these issues being discussed and would also very much welcome your comments on these.  A number of these have provoked considerable debate among the members of the Committee and not all have secured unanimous approbation.  They have however been agreed against the background that the Task Force is most unlikely to accept the current status quo, given the political impetus to change some key aspect of the current Scottish house-buying process and the developments about this in England and Wales. We therefore need to move with the reform process and seek to amend any proposal that, in our opinion, would not work in practice.

CONCLUSION
We have views on all the issues being looked at by the Task Force.  There is not time to rehearse all of these in this article but if you are interested and want any further details please do not hesitate to contact me and I will be more than happy to provide you with these.  I will in due course write about Stage 2 of the Housing Task Force but would emphasise how essential it is for solicitors to be aware of this process and engage in it. It does concern you if you are a conveyancer and now is the time to have your say if you wish to have any effect on the future process of buying and selling houses in Scotland.

* One of the main findings of the DTZ Pieda Consulting Report is that 46% of non RTB purchasers did not get any advice on the house buying process.

Linsey J Lewin is Secretary to the Society’s Conveyancing Committee