Leaseholders' Right to Manage

Since 2003 qualifying leaseholders have had the right to take over the management of their block of flats from their landlord, under provisions made under the Commonhold and Leasehold Reform Act 2002. Leaseholders who take advantage of this right have more control over the level of service charges, can appoint their own choice of managing agent and choose their own insurers.

The legislation also gave leaseholders who do not exercise this right increased powers when dealing with their landlord over unreasonable charges and improvements were made to the way the Leasehold Valuation Tribunals work to resolve disputes. In addition, requirements for landlords to consult over service charges came into force on 31 October 2003.

The Act also introduced the new concept of Commonhold, a new way of owning property in common which is intended to be attractive to some flat owners who wish to take the ownership and management of the freehold of their block of flats out of a management company. They may also become increasingly common in new developments of community housing and blocks of flats.

To set up a commonhold, the leaseholders form a Commonhold Association (CA) to own and manage the land in question, which must be registered land. Once the commonhold is formed, the CA becomes responsible for its management. Although this is normally contracted to property management professionals, the ultimate responsibility lies with the directors of the CA.

Timeshares - Good or Bad?

Although there are millions of contented timeshare owners throughout the world, the timeshare industry has certainly had a chequered history. On the one hand there is the promise of golden weeks in the sun or on the slopes at a fraction of the cost of buying your own property. On the other hand we hear all too often about the activities of the unscrupulous.

If you are considering buying a timeshare property, our advice is:

• never buy a timeshare at the first viewing or on a whim;
• make sure you are dealing with a reputable vendor;
• make sure the development is a member of Resorts Condominiums International or Interval International – the two leading timeshare exchange groups. While this is no guarantee that you won't have problems, membership of one of these will at least give you the best possible 'right to swap';
• if you are interested in buying a timeshare in an area where there are a lot of other timeshare developments, investigate thoroughly to make sure you get the best deal;
• buying from an existing timeshare owner is normally the cheapest method: timeshares are typically sold 'second hand' for about half the price charged by the developer. They rarely increase in value;
• check the maintenance charge history on second-hand properties – on new ones check that there is an upper limit;
• check to see who will own the development when the timeshares have been sold – normally, it is preferable if ownership vests in the timeshare holders rather than the developer; and
• remember that there is a minimum 'cooling-off period' of 10 days in the European Economic Area (14 in the UK), during which any purchase contracted for can be cancelled.

Lastly, do not think that a timeshare bought is necessarily a 'forever' thing. Most are owned by the timeshare owners as a shareholders using a company vehicle. If the other shareholders get together and decide to sell the property (as happened to timeshare owners in Chamonix, France, in 2008), your  timeshare will be replaced by whatever you get out of the liquidation of the timeshare company. In the case of the Chamonix property, it was a failed sale to a developer, followed by redevelopment of the flats - after being empty for three years - which were sold as individual properties. The timeshare owners were left carrying the ongoing costs for a property they could no longer use until the winding-up of the timeshare company was completed in 2012.

How Do We Set Up a Commonhold?

Commonholds are a relatively new way of holding property and will be attractive to some flat owners who wish to take the ownership and management of the freehold of their block of flats out of a management company. They may also become increasingly common in new developments of community housing and blocks of flats.

To set up a commonhold, a Commonhold Association (CA) (which is a company limited by guarantee) must be set up with a ‘Community Commonhold Statement’ (CCS) which sets out the rights and responsibilities of members. The CA must be registered with the Registrar of Companies. Only leaseholders are allowed to be members of the CA once the development is occupied. The CCS cannot restrict the right of any member to sell or mortgage their property, although there may be restrictions on letting a residential commonhold. Normally the CCS will be created by the developer and can be altered until the first unit is sold. After the first unit is sold, the CCS cannot be altered, so developers will normally reserve their rights in an annexe to the CCS.

A commonhold may only be set up if the land in question is registered land. Once the commonhold is formed, the CA becomes responsible for its management. Although this is normally contracted to property management professionals, the ultimate responsibility lies with the directors of the CA.

Link to Land Registry Guidance on Commonholds

Link to Commonhold and Leasehold Reform Act 2002

Fact Sheet - Disclosure to Mortgage Lenders of Incentives for Buyers

This fact sheet provides guidance for those involved in the development of residential properties whether new builds or conversions of existing properties.

On 1 September 2008, the Council of Mortgage Lenders (CML)  introduced new procedures in relation to newly built or converted properties. The buyer’s solicitors now need to ensure that the procedures are complied with before the lender will release mortgage funds for completion.

The procedures are designed to tackle mortgage fraud and require the disclosure of information concerning incentives and discounts offered to buyers by the developer/builder. The CML have issued a pro-forma for completion by developers in this respect, called the Disclosure Incentives Form (DIF).

The buyer’s solicitors must receive the DIF from the developer/builder of any new build, converted or renovated property before requesting the release of the mortgage funds for completion of the purchase by their client.

The Royal Institution of Chartered Surveyors requires valuers to advise lenders if they have not received a copy of the DIF. The problem that this could create for buyers and sellers is that failure to provide the DIF as early as possible in the course of a transaction could impact on the mortgage valuation or the issue of the mortgage offer, and ultimately could cause a delay in exchange of contracts.

To avoid these difficulties and delays (particularly where a sale has been agreed on the basis that the exchange of contracts takes place within a set time frame) we would strongly recommend that clients complete the DIF at the same time as the reservation form is completed and then provide a copy of the form to us so we are able to send it to the buyer’s solicitors at an early stage in the transaction. The agent should also be requested to pass a copy of the DIF to the lender’s valuer when the valuation inspection is booked in.

To summarise, the DIF must be completed by the seller of any property that is yet to be occupied for the first time, or for the first time in its current form as a result of renovation or conversion (i.e. this would apply on the purchase of a barn conversion). The completed DIF must be supplied to the solicitor or conveyancer acting on behalf of the lender providing the mortgage finance for the property and to the valuer acting on behalf of the lender upon request.

Selling Your Property at Auction

In recent years, increased mobility and growing rates of home ownership have meant that ever-larger numbers of people nowadays inherit properties from relatives who lived many miles away. Similarly, many buy-to-let properties have been purchased in areas with a large student population, miles away from where their owners live. In such cases, when the time comes to sell the property, it is often difficult for the usual process of showing it to prospective purchasers to be carried out by the owner.

In such circumstances, it is quite common for a property to be sold at auction. If you are considering selling a property by this method, here are some steps you can take to help make sure your sale goes as smoothly as possible.

Well before the auction is planned, make sure you put together the necessary documentation.

Make a list of the information a prospective buyer will find useful, such as the age of the central heating system, wiring etc., and include any guarantees.

Set your reserve price, which is the lowest price you will accept for the property. If the reserve is not met at auction, the property will not be sold. The reserve price should therefore be reasonable as if the property does not sell, there will still be costs to meet for the marketing of the property and the related legal work.

You should also decide when you want the completion date to be. The contract to buy and sell is created when the auctioneer's hammer falls and the deposit is payable immediately, with the completion normally a few weeks later.

Work out your plan B. In the present market, property is becoming more difficult to sell, so do not assume that the property will inevitably sell at auction. It may not. Make sure, therefore, that you are prepared for the possibility that after the auction, the property will still be yours. Vacant properties do qualify for rate relief, but other costs (such as insurance) may rise.

We can assist you with all legal matters relating to buying and selling property.

Guide to Law on Squatting in Residential Premises

After carrying out an extensive consultation exercise, which closed in October 2011, squatting in residential properties has now become a criminal offence.

Criminal squatting occurs when:

• a person knowingly enters a residential building as a trespasser (or should have known they were trespassing); and
• lives in it or intends to live in it for any period.

If a property you own is occupied by squatters, persuading the police to take action can be a difficult job and it is crucially important to be able to demonstrate conclusively your right to take action to recover your property. Do not be surprised if the squatters claim that you have entered into a lease with them, and be prepared to refute such claims and have the necessary proof available at the beginning.

If your property is occupied by squatters, we can assist you in obtaining possession.

A 2014 court decision confirmed that even though squatting is a criminal offence, a squatter who occupies a property for 10 years (registered land) or 12 years (unregistered land), can nonetheless apply for the legal title to be transferred to them. Under the current law relating to adverse possession, notices must be given to the current title holder.

If you receive such a notice or have land which you allow anyone else to use and treat as their own without appropriate legal arrangements being in place, contact us for advice.

For more information, see the UK Government guide to squatting on options for dealing with squatters.

Planning Law Basics

Whether you are planning to refurbish and sell a house or to construct a whole new apartment block, almost all your plans will be governed by planning laws and any local restrictions. Planning restrictions are more stringent in conservation areas, for instance, and for listed buildings.

Before committing to any significant level of investment, it is important, therefore, to take professional advice on how planning laws and other restrictions operate in the area you have in mind. Penalties for not complying with planning rules can be severe, and can include an order to demolish the work or restore the building or land to its pre-development state. The main responsibility for planning is vested in the local planning authority – normally the local council planning department. It is always best to discuss your plans with them before submitting them for approval.

Restrictions on building and construction work are far more comprehensive and detailed than planning laws, however. Building Regulations, for instance, must also be taken into account. These are the rules governing the standard for design and construction of buildings. Other permissions and restrictions that may apply relate to the following:

• Covenants and ‘private’ rights;
• Listed buildings;
• Conservation areas;
• Rights of way;
• Ancient monuments;
• Licensed sites;
• Protected species;
• Trees and hedgerows; and
• Party wall restrictions.

Planning permission does not include, for instance, any private permissions that may be required or other permissions under an existing covenant. Your local planning authority would not be involved in private rights, such as the right to light, and so any such rights would need to be checked separately. Neither would the authority be involved, for instance, in any issue relating to a covenant or easement over your property.

If you are planning a development that might interfere with a protected species, such as bats, or if you are contemplating the removal of any trees or hedgerows, restrictions need to be thoroughly considered prior to any investment being made. Again, the best approach is to seek qualified professional advice.

Restrictions are far more onerous in conservation areas. There are currently over 9,000 conservation areas in England and new conservation areas may be designated by any local authority or, in London, by English Heritage in consultation with London boroughs.

Changes contained in the Growth and Infrastructure Act, which became law in 2013, are designed to make obtaining planning permission easier and remove the need for planning consent for some minor developments. The Act also places some restrictions on the ability of local residents to apply for land to be designated a ‘village green’ (which has the effect of preventing it from being developed).

Government Planning Portal

What is a Tenant's Improvement?

The law allows any tenant (with some exceptions) who has lived in a property for more than three years under a lease of more than 20 years to apply to the Landlord to purchase the freehold. The purchase price is based on the open market value of the property.

The provisions of the Leasehold Reform Act 1967 (the relevant law) stipulate that the price paid by the tenant to purchase the freehold may be reduced if the tenant has carried out improvements to the property which have increased its value. The Act has been updated several times since its introduction.

In a recent case brought before the House of Lords, tenants sought to purchase the freehold of a property they occupied as a family house. The property had been let for many years during which time it had undergone considerable change, including the addition of an extra storey. It had been converted from a family house into flats. The tenants had converted the property back in stages so that it had once again become suitable for single occupancy. The tenants claimed that the reconversion works were improvements to the property that had increased its value and which, therefore, should be taken into account in calculating the reduction in price of the freehold. There was no dispute regarding the works done to add the extra storey.

The Lords accepted the tenants' view that 'improvements' within the meaning of the Act meant physical improvements rather than merely economic ones. Had the tenants not undertaken the conversion works, the property would have remained in the same state it had been in under multiple occupancy and would therefore not have been worth as much.

A 2017 case in the Court of Appeal confirmed that where a landlord undertakes improvement expenditure as wella s repairs, the improvement element of the expenditure cannot be unilaterally charged to tenants.

Buying Abroad - Considerations

After another cold, wet summer and with dull economic prospects at home, you might be thinking of buying a property abroad or even making a permanent move to foreign climes.

If so, as well as it being essential to take independent and high quality legal advice, there are several other considerations you should be taking into account.

Finances
It may be cheaper to get a mortgage in the local currency than in Sterling. Interest rates in the UK are traditionally higher than in most other countries. However, a foreign-currency mortgage carries an exchange rate risk which may be considerable. In August 2007, the Euro was worth 68p. In August 2008 it was worth about 79p and in August 2009, 86p. A €150,000 mortgage financed in August 2007 at 5 per cent would cost over £800 more annually at the exchange rate applying one year later and a further £500 a year later. The good news for purchasers is that the increase in the value of the asset offsets the increased cost of servicing local debt.

If the pound falls, the Sterling value of the foreign asset rises. Conversely, if the pound strengthens, the Sterling value of your foreign property falls.

Income Tax
You will need to consider the income tax implications carefully. If you remain UK resident, you will pay UK tax on your world income – no matter where you earn it. If you are not UK resident, you will normally pay tax only on income arising in the UK and will be able to claim double taxation relief. If you have rental or other income abroad, you may well have to prepare and submit a local tax return. The rules for deduction of expenses also differ widely from one country to another, so local professional assistance may be needed to deal with tax compliance.

Inheritance Tax (IHT)
In the UK, liability to IHT is based on your domicile. If you are domiciled in the UK, your world assets are included in your estate for IHT purposes. However, you may well also have an IHT liability in the country in which you have your second home. This is an area which requires very careful planning.

Capital Gains Tax
A UK resident who makes a chargeable gain in a tax year is liable for UK Capital Gains Tax on the gain. Second homes abroad do not qualify for the principal private residence exemption. Furthermore, in most countries such a gain will also be subject to local tax. Taking a foreign tax residence may also produce CGT consequences relating to any property you own in the UK.

VAT
In many countries, VAT must be charged on rental income. The VAT registration threshold in most EU countries is much lower than in the UK and penalties for non-compliance tend to be high.

Wealth Taxes
Wealth taxes (specifically, taxes on the value of property) are common. In the USA, for example, the equivalent of local rates is generally charged based on the current market value of properties in the area – so, if a neighbour sells at a good price, your property taxes may well go up.

Transaction Costs
The main additional costs abroad are agent’s and notary’s fees, which are typically much higher than in the UK, and stamp duty, which can also be much higher. In some countries, these can add up to 15 per cent to the cost of a property.

Other Considerations
There are many stories about disasters resulting from problems with the legal title to a property, from the failure by builders or contractors to complete property bought ‘off plan’ or where planning laws mean the loss of the property or its amenity value. However, more prosaic problems, such as intermittent electricity or water supplies, can also be an issue. Having high-quality, independent, local professional advice is essential if one is to avoid such catastrophes.

Taxes - check that there are not tax penalties attaching to non-resident or 'holiday' ownership. In 2012, France introduced a tax on homes of non-residents.

Also, if you are retiring, note that residence in many countries will disqualify you from increases in the state pension.

Lastly, one important aspect which is often overlooked is the local inheritance law. Although the Uk has opted out of  the  EU proposals to decide which country's inheritance law will apply when a citizen of one country dies when resident in another, it is almost always worthwhile having a local will if you live or hold substantial assets abroad, but in some countries the laws governing who may inherit are far less flexible than here. One way of circumventing the difficulties this may cause might be to own a property through a company, but in some countries this will produce a tax penalty.

BREXIT. At the time of writing, the results of the Government's 'Brexit' negotiations are not known. It is possible that the result of the UK's departure from the EU may have a significnat impact on British owners of properties within the EU.

Selling Your House and Land: Tax Tips

Most people buy and sell the property they live in without any thoughts about tax (other than, perhaps, Stamp Duty Land Tax). However, there are some circumstances in which selling the property you live in can cause tax problems. Some of the main ones are:

• Where you own more than .5 of a hectare of land. If you have a large amount of land, Capital Gains Tax (CGT) may apply to land in excess of .5 of a hectare (about one acre). Large areas of land will be exempt if they are 'necessary to the enjoyment' of the property as a whole;
• Where the property has been let for a long period. The current law exempts private residences from CGT on a 'time' basis, so if the property has been let for ten years and lived in for ten years, the gain is apportioned. However, the last three years (18 months for sales after April 2015) are treated as exempt, so in the above example, only 7/20 of the gain would be subject to CGT. There are other circumstances in which periods of non-occupation can be exempt (for example, when working abroad);
• Where the property is used wholly or in part for business purposes. In this case, the chargeable gain is normally calculated by reference to the proportion of the property used for business and the period of time over which it is used. Where the business use is furnished holiday lettings, CGT rollover relief may be available. In some circumstances taper relief on the business proportion of the gain may also be available;
• Where there are two or more disposals. If the house and land are being sold separately, CGT may bite (hard!) on the land sale; and
• Where the house has been used for ‘hobby farming’, the gain which is exempted by the application of Agricultural Property Relief may be restricted.
• Where more than one property is owned.  A couple can have only one CGT-exempt 'Principal Private Residence' (PPR), so if you own two houses you should generally elect for the one with the higher potential gain to be chosen as the PPR. The election must be lodged within a strict time limit, so it makes sense to consider this when buying a second house. Recently HMRC have been attacking the validity of such elections where they believe that a second home sold at a substantial gain after a short period of ownership (typically after being inherited) has not been used as a residence by the owner as a matter of fact.

In most cases where a house and land attached are to be sold separately, it is normally advisable to sell any land before selling the house, but take advice in every case in order to avoid tax pitfalls.

Buying a House and Consumer Protection

With the appointment of a Property Ombudsman, the laying down in statute of the duties of estate agents and the passing of the Consumers, Estate Agents and Redress Act 2007 (CEARA), a property purchaser might reasonably conclude that their interests are strongly protected under the law. This view is likely to be bolstered by an awareness of the existence of the National Association of Estate Agents’ (NAEA) own disciplinary and redress scheme. However, the assumption that a buyer’s interests are well protected is not as well founded as you might think.

The estate agent’s main duty is to the vendor of the property, so the regulations under which they operate relate mainly to their relationship with the vendor. They are bound not to discriminate against purchasers who do not wish to buy other services they offer and to declare a personal interest to any buyer. It is important to note that even when the sales particulars of a property are inaccurate, the right of redress may be limited. Recently, the court ruled that an agent was not liable for providing false information to the effect that a property included a substantial area of land which was not in fact registered in the vendor’s name. The estate agent had simply accepted without enquiry that the area of land was part of the property and included it in the sale particulars. The court considered that any purchaser would have made sure that a proper search of the title was done and in any event the offer for sale was ‘subject to contract’ – placing the onus on the purchaser to make sure their enquiries were carried out carefully!

The Ombudsman service deals with claims against estate agents, but its powers are limited and the maximum award that can be made is £25,000. In practice, most awards are a small fraction of that amount.

In 2010, protection was given to buyers who buy 'off plan', with the launch of the Consumer Code for Home Builders.

In 2013, the Government has repealed the Property Misdescription Act 1991, which made it a criminal offence to make a misleading or false statement regarding properties offered for sale. However, consumers continue to benefit form general consumer protection legislation in the Consumer Protection from Unfair Trading Regulations 2008.

Worryingly for home buyers, a 2014 decision of the court found a surveyor who had carried out a survey for the purposes of valuing the property for a mortgage, and who noticed cracks in a wall, was not negligent in failing to advise the buyer to have a full structural survey. The house was affected by subsidence, leading to expensive repairs being necessary.

Bank of Mum and Dad Lending Issues

A recent report that the 'bank of Mum and Dad' is one of the leading sources of finance for house purchase will come as no surprise to many – it is expected that 300,000 mortgage deposits will be provided by parents of property purchasers in 2016. The survey, sponsored by the Centre for Economics and Business Research and Legal & General, revealed that parents now provide finance for a quarter of UK property purchases.

Assisting children to get a foot on the property ladder can have a number of consequences, both in legal and tax terms, depending on how the finance is provided. Here are just a few of the potential issues.

Tax Issues

If finance is provided by way of a loan and interest is charged, that is potentially taxable to Income Tax. If the loan is made on the basis of 'taking a share' in the property and it is then sold at a profit, Capital Gains Tax may be payable. Where a loan is made and not repaid, it will remain in the lender's estate for Inheritance Tax purposes.

Other Issues

If the property is being bought with the aid of mortgage finance, it is normal for any private loan to rank behind the commercial lender in terms of repayment, so if the property were sold for less than the outstanding mortgage, the parental loan would not be able to be repaid from the sale proceeds.

Where the loan is made to a couple, there is the chance that, if the relationship breaks up, repayment may be in jeopardy.

Where there is no formal documentation (or inadequate documentation) of the nature and terms of the advance, there are also risks that a dispute may arise over the precise details of the agreement.

Who Can Go Where?

In England and Wales, the law relating to access to land position is governed by the Countryside and Rights of Way Act 2000.

In England and Wales, the public have the right to access what is called 'access land' – which is mainly registered common land, mountains, downland, heathland and moorland and other specifically shown (on the relevant maps) 'open country'. In theory, therefore, the land which is legally usable by the public in England and Wales is a rather small area of the total. Certain types of land (such as quarries) within the areas over which there is a general right are also excluded, for obvious reasons.

A landowner in England or Wales has the right to close his access land for up to 28 days per year, or for other suitable periods (including permanently) of safety, land management, to protect nature or ancient monuments, on grounds of national security or for up to three months in an emergency.

One aspect of the law which provides relief for landowners is s. 67 of the Act, which denies the right of access to mechanically propelled vehicles beyond 15 yards of a road and allows access only for parking – a piece of legislation decried by 'off-roaders', scramblers and quad bikers, but by few others.

More recent legislation provides for the establishment of ‘restricted byways’, which consist of every road shown on the definitive map as a road used as a public path. It will be an offence to drive a mechanically-propelled vehicle (other then an electrically-assisted pedal cycle) on such roads. This change prohibits driving over approximately 5,000 miles of roadway. The exception to this rule (in England) is that vehicular access is allowed for a person with an interest in the land or who is a visitor to it if the road was formerly used by them to obtain access to the land. In addition, public rights of way for motor vehicles are no longer able to be created unless expressly provided for in legislation or by use of statutory powers.

When Can I Access My Neighbour's Land?

Disputes between neighbours can cause a lot of unpleasantness. If you need to deal with your neighbours over matters related to land or property it is always advisable to try to get things done in a friendly way, whilst at the same time making sure you know your legal rights and responsibilities..

However, if your neighbours flatly refuse to grant you permission to gain access to their land in order to carry out vital maintenance work to your own property, there are steps you can take to enforce your right of access.

The Access to Neighbouring Land Act 1992 enables access to adjoining or adjacent land for the purpose of carrying out 'basic preservation works' to one's own property. Basic preservation works includes:

• maintenance, repair or renewal of a building;
• clearance, repair or renewal of a drain, sewer, pipe or cable;
• filling in or clearing a ditch;
• felling, removal or replacement of a tree, hedge or other plant that is dead, diseased, insecurely rooted or which is likely to be dangerous.
• If you need to be granted right of access, proceedings must be commenced in the County Court. The court will grant an access order if it is satisfied that the preservation works are:
• reasonably necessary for the preservation of the relevant land; and
• that they cannot be carried out, or would be very difficult to carry out, without entry onto the adjoining land.

The court may still refuse access if it considers this would cause hardship to the occupier or significantly interfere with their enjoyment of the land in question.

The access order will specify what work is to be carried out, when and where and may also provide for any loss or damage to the owner or occupier of the land.

Tenants' Right to Buy

The right of secure tenants to buy their homes was established under the Housing Act 1980. The original rules have subsequently been amended, however, mainly owing to a growing number of abuses of the system. These mainly involved property speculators who made agreements with secure tenants to the effect that they would acquire their properties under the right to buy provisions, using finance provided by the property speculator who would then purchase the property and rebate to the tenant some of the discount they had received.

The discounts applicable when a tenant exercises the right to buy range from 35 per cent to 60 per cent in the case of flats and from 50 per cent to 70 per cent in the case of houses, although there is sometimes a cap on the maximum discount that can be given.

More recently, the right to buy of tenants subject to an anti-social behaviour order has been limited through the establishment of a ‘demoted tenancy’.

Secure tenants will acquire the right to buy their property after five years but the right to buy with a discount is not without limitations. Firstly, the tenant must covenant not to sell the property within five years, subject to loss of the discount. The amount of discount to be repaid is calculated with reference to the value of the property at the date of resale, so that rising property prices will not produce a windfall profit for the purchasing tenant if they sell in the first five years.

Also, in a bid to prevent property speculators from cashing in on the discounts, a deferred agreement to resell the property to someone else, entered into before the right to buy is exercised or during the five-year period after purchase, will trigger a repayment of the discount.

Furthermore, the right of first refusal to purchase the property remains with a social landlord for ten years after the purchase.

There are a variety of other measures which aim to prevent other abuses of the right to buy legislation.
The recent decision which had established that the right to buy can extend to any property designed to be or converted to be occupied as a residence has now been overturned.

If a building is not in use as a residence (which, according to recent case law excludes a building used as a temporary residence) when the application is made the application will not be accepted.

Furthermore, an application will not succeed when the use as a residence is in breach of the lease.

Mortgage Exit Administration Charges - Consumer Redress

When you ask for a redemption statement from your mortgage lender, it can come as an unpleasant surprise to see an additional charge termed ‘mortgage exit administration fee’ (MEAF), which, while it will be shown in the mortgage offer letter, is something most borrowers will have forgotten about. These can add significantly to the cost of switching mortgages.

It is estimated that the average mortgage redemption involves the lender in a paperwork exercise that costs somewhere in the region of £50, although redemption fees of over £200 are common.

Some time ago, the Financial Services Authority (FSA)  (now the Financial Conduct Authority) reviewed these charges and concluded that some of these charges are a breach of the Unfair Terms in Consumer Contracts Regulations 1999.

The FSA's advice to borrowers was as follows:

• If you think you have been charged a higher exit fee than the fee stated in your mortgage contract, contact the lender to find out if you are eligible for a refund of the difference. You may not need the original mortgage documentation to claim. If you give your name and the address of the property, the lender should be able to find your details;
• If you are a new borrower, you should know from the outset what exit fee you will pay, or should be given a clear idea of how the fee might be increased fairly. This transparency and fairness will allow you to make an informed decision about which mortgage product is best for you;
• Check all the mortgage fees as well as the interest rate when comparing mortgages. Consider what impact the fees will have on the overall cost of what you will borrow.

Accessing Your Own Land

Prior to the introduction of revised procedures (set out in regulations under Section 68 of the Countryside and Rights of Way Act 2000, which came into effect in July 2002), people who had to cross common land in order to reach their homes were sometimes denied the right of access to their own property, due to an anomaly in the law. In order to gain access, it was necessary for them to obtain an 'easement' from the owner of the common land. This could be very expensive for the person needing the right of access.

Under the revised rules, the right of easement is now statutory and, provided the relevant conditions are met and procedures complied with, the owners of the common land cannot object. In return they will be paid as follows:

• 0.25% of the value of the premises if these came into being before 1 January 1906;
• 0.5% of the value of the premises, if they came into being between 1 January 1906 and 1 December 1930; and
• 2% of the value of the premises if they came into being on or after 1 December 1930.

Once payment has been made, the right of access will continue in perpetuity.

Stamp Duty Land Tax and Second Properties - The Basics

Stamp Duty Land Tax (SDLT) was brought in to replace the old 'stamp duty' and has been complex since its inception.

Among the transactions subject to SDLT are residential property sales. Levied at a rate of 2 per cent on purchases of £125,001 to £250,000 (higher rates apply above that), it adds significantly to the acquisition cost of many properties.

The UK currently has a buoyant residential property market and the values of residential properties are such that it is becoming extremely difficult indeed for first-time buyers to get on the housing ladder, as the deposits required are often substantial and saving towards them is made more difficult as rents follow property prices upwards.

In addition, housing starts have been at a level below that which is needed to cater for the rise in demand for many years.

The situation has been exacerbated by the strength of the 'buy to let' market, as the combination of decent income yields and rising capital values has led to a great deal of the available housing stock being used as rental property. Also, in some rural areas, the prevalence of second homes which are unoccupied for much of the time has eroded the local economies and put property well out of the reach of local people.

One of the ways in which the Government has decided to try to ameliorate this situation is to put in place measures that make second home ownership and owning 'buy to let' property less attractive. The hope is that this will cause some of these properties to be released back to home ownership or at least act as a curb on demand.

Accordingly, a higher rate of SDLT has applied for such properties since 1 April 2016. The additional SDLT levied is 3 per cent on top of the existing rate and applies to the whole of the purchase price. In the exceptional case in which contracts were exchanged on or before 25 November 2015, the date on which these measures were announced, but completion is on or after 1 April 2016, the charge will not apply.

The higher rate of SDLT applies where the consideration paid for a second property or buy-to-let property is £40,000 or more, but does not apply if the property is a 'mixed-use' property, such as a shop with a flat above it.

In essence, the higher rate of SDLT will apply where, at the end of the day of a purchase, you own more than one property, provided that the property being purchased is not replacing your current main residence. Where the existing main residence has not been sold, the higher rate of SDLT is payable, but the additional charge is then refundable if that property is sold within three years of the completion on the second property. There is a transitional provision so as not to disadvantage those who disposed of their main residence before 25 November 2015. Under that provision, where a property used as a main residence has been sold within the three years prior to the purchase of a new main residence, the new purchase will not be subject to the higher rate as long as the new property is bought before or on 25 November 2018.

There are a number of complexities not dealt with above. A calculator can be found on the Tax Service website.

The Duties of Mortgage Lenders

When mortgage arrears are serious and/or there is a breach of the mortgage covenants, the lender will usually seek an order for repossession of the property. Once it has possession, it will normally sell it with vacant possession. If this course is taken, it becomes responsible for the maintenance of the property from the date on which repossession is granted. The lender owes the borrower a duty of care and is accountable to the borrower for its conduct in dealing with the sale, but that duty does not extend to obtaining the best possible price on sale – it must obtain the ‘true market value’ or ‘proper price’. In general, as long as the lender obtains a valuation of the property and exercises reasonable judgment, and does a reasonable job in marketing the property, it will have done its duty.

The Council of Mortgage Lenders has recently agreed a revised protocol to adopt prior to seeking repossession of properties in cases of mortgage arrears.

There is also good general advice for borrowers with financial problems  on the CML website.