Applebys Solicitors Head of Litigation and property specialist, Graham Balmforth, outlines the pitfalls of buy to let conveyancing
The Pitfalls of Buy to Let Conveyancing
Introduction
Whilst conveyancing is riddled with pitfalls that few outside of the legal industry know of or care of, the popularity and consequential growth of buy to let purchases has brought into the light some issues that have lurked in the shadows for some time. In this article I propose to mostly focus on properties that are un-tenanted and have no discernible history of recent rental occupation, rather than those properties that come with the “blessing” of existing tenants. Things do go wrong with conveyancing and knowing the difference between bad service and out and out negligence is not as easy as many might imagine.
Safety of Occupation / Suitability of Property
What should be of primary concern to you when purchasing a property for re-letting, is that it is in a condition which is safe for potential tenants. This, of course, means that amongst other things it should be free of mould and damp, it should have functioning electrical systems that have been inspected by a certified professional and that any gas appliances have been inspected and appropriately serviced. In this regard a buy to let property is of no further concern than any other property on the market. However, while you may consider bringing these things up to speed yourself in your own property, a tenant is protected against such failures, you simply cannot let a property and then attend to its safety.
Therefore, the purpose of the property purchase has to be made clear to the inspecting Surveyor and the conveyancing Solicitor at the outset. If there has been no clear indication that the property is to be tenanted in the near future then a Surveyor (you will have paid for a proper survey won’t you?) is likely to pay little attention to issues such as the fitting of fire retardant doors and suitable fire escape style window exits. If the safety of the property is compromised then this will have a number of significant issues for a purchaser. Firstly, the property will not be lettable until the property is brought up to scratch. This means a loss of income on the property and consequentially lost profits in rents (the lender is unlikely to be sympathetic and will still want their payments on schedule). Secondly of course, you will have missed the opportunity to be proactive in negotiating a discount on the sale price (well worth the extra money for a full survey) meaning that the costs of any rectification will fall on you.
If the Solicitor is oblivious to the intended use of the property, then similarly then there is no realistic obligation for them to enter into dialogue with the vendor about specific tenancy related issues. Of course your communications over the prospective buy to let property may be circumvented by the lender if the property is subject to a buy to let specific mortgage. After all the mortgage company can rightly look to your Solicitor to protect its interests and consequently your Solicitor will no doubt have regard to the interests of such finance company that has used a specific mortgage product. Again, however, there is little excuse for the purchaser themselves not being engaged in terms of pre contractual investigations.
It is worth stating that it is a very distressing for a finance company to find a prospective purchaser who has not used a “Buy to Let” specific mortgage to fund a purchase. They will regard such deception with disdain and the litigation surrounding forfeiture in such cases when the tenancy becomes unsustainable or the property proves unsuitable is without quarter, don’t be the person who is left fighting possession proceedings.
Consumer Protection
What few purchasers realise is that the last 500 years’ worth of consumer legislation and protective regulation surrounding the public is largely cast aside when the transaction involves a commercial entity. Indeed the sympathy of the Courts cannot be relied upon where profit is the ultimate motive in the purchase. The rule of buyer beware is the founding principle in business affairs and unless there has been deliberate dishonesty in dealings then it is very hard to establish post contract that things are simply unfair and should be reset to favour you.
For this reason the proper use of a Solicitor is paramount. If you have little experience of this market then say so. Pretending you are a billionaire property tycoon and the mechanism of purchase is of little or no concern to you is no sane strategy. The way to ensure that your Solicitor safeguards your interests is not to harass them with constant abuse focusing on why things are taking so long but instead to fully explain why it is you need them to protect your rather innocent forays into the kingdom of the wolves.
Afterwards if things have gone wrong at least you can refer back to your communications regarding protection and security as evidence of the need for them to tailor their service rather than provide a “one size fits all” type transaction.
Restrictions on Use
While it is tempting to state that restrictions on purchaser use are applicable to leasehold properties, this is not entirely the case and such generalisations are invariably the starting point for error. It is true that leasehold type properties are ones where typically restrictions can apply to prevent future use for rental income. However, increasingly in the property marketplace, developers are targeting specific socio – economic groups and / or specialist interest buyers. A rise in “over 50 accommodation” and “executive developments” often means that the freehold is subject to significant restrictions on further development and sublets. In part this is to protect the character of the development and in part it is to establish the control of a management company. Many of these restrictions are simple prohibitions and many simply forbid lets of longer than a specific duration, expert interpretation may be required. Without proper instructions to your conveyancing Solicitor then shouting foul on Solicitor negligence post completion is likely to get you nowhere.
Misrepresentation, Negligent Misstatement and Fraud
Nowhere (with the possible exception of used cars) is there more fruitful ground for accusations of dishonesty or reckless miss-selling than in property. The existence of tenants is no guarantee of future income and it is amazing just how many tenanted properties with seemingly unblemished rental income figures prior to sale, suddenly turn out to be problematic post completion. Again, for a conveyancing Solicitor the issue is one of pre contractual investigation. Reasonable investigations via questions to the vendor should protect a purchaser and a skilled Solicitor will know how to wheedle out the information that the vendor would rather not discuss.
Rental properties can be the least well maintained and most abused properties on the marketplace. They are the property equivalent of a high mileage car. No one wants to spend money on servicing or repairs and ultimately to do so would seem a waste. This frequently means that ex rental properties are subject to a high degree of bodged repairs. Additionally the presence of tenants means that they are typically unconcerned with the plans and intentions of other landowners. So the development of a wind farm 700 meters into that lovely view is of no concern to the tenants and therefore, may not flag in standard enquiries to the vendor.
The ultimate question would seem to be – if the property is an appreciating asset in good condition and is tenanted with stable occupants at a good profit, then why the sale? If the local factory is about to close, the construction of the planned nuclear refinery is about to begin or the latent defect in planning about to be discovered or perhaps even a tenant’s conviction for a substantial crime about to be made public then perhaps the vendors motivations are understandable.
Lastly, and of high concern, is the rise in the number of fraudulent sales over the last 3 years. Tenants of ill repute, have been marketing properties that they occupy for sale and frequently this has been overlooked by a negligent Solicitor who has perhaps given too great a weight to the Land Register entries. Typically a lazy landlord will have entered the property itself under the entry for proprietorship rather than a secondary address. Don’t make such a mistake yourself, ensure that your permanent address is entered as the appropriate one for purposes of the Land Register and therefore any attempt to sell will be circumvented by the initial searches.
The best defence against error is always of course to expect the worse rather than hope for the best however, at Applebys Property Negligence Unit we are aware that mistakes do simply happen and that the issue is one of dealing with the losses. We have extensive experience of conveyancing purchases gone wrong, not just for buy to let Solicitor and Surveyor negligence but also the associated complexities that follow a wrongful purchase. We know how the law has developed and is developing in this area and we maintain strong relationships with other property experts who can also assist and advise you. We can usually act on a No win No fee basis and our agreements are entirely transparent. Contact us for a totally free no obligation chat over your circumstances.
Call free on 0800 169 1325 or e-mail claims@applebys-law.co.uk.