DAVITT JONES BOULD _____________________________________

PROPERTY LAW UPDATE MARCH 2018

Property Update

Speaker: Richard Snape

23rd March 2018 3 CPD Points

12-14 The Crescent Taunton TA1 4EB

general@djblaw.co.uk www.djblaw.co.uk

Tel: 01823 279279

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Contents

THE DIGITAL ECONOMY ACT 2017 .........................................................................................................1

GROUND RENT ISSUES ...........................................................................................................................3

ESTATES RENT CHARGES ..................................................................................................................... 10

STAMP DUTY LAND TAX AND ADDITIONAL DWELLINGS .................................................................... 14

LAND TRANSACTION TAX & ANTI-AVOIDANCE OF DEVOLVED TAXES (WALES) ACT 2017 ................. 22

FIRST TIME BUYER RELIEF ................................................................................................................... 26

FRAUD THREATS FOR PROPERTY TRANSACTIONS .............................................................................. 27

SEPTIC TANKS ...................................................................................................................................... 38

S1 LANDLORD AND TENANT ACT 1988 ............................................................................................... 40

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THE DIGITAL ECONOMY ACT 2017

The Government explanatory notes states that this intends to achieve the following:

reform the Electronic Communications Code, to deliver better coverage in rural areas through

greater investment and faster rollout of mobile and broadband infrastructure

make it easier for communications providers to have access to land - moving to a “no scheme”

valuation system more akin the regime enjoyed by utility providers

protect landowners by strengthening the “access principle” and requiring communication

providers to pass a public interest test

clarify roles and responsibilities for all parties that use the Code, helping commercial agreements

to be reached more easily and disputes to be resolved more quickly

make it easier for digital communications companies to upgrade and share their equipment and

get faster access to maintain sites

work with industry and Ofcom to develop a Code of Practice to ensure effective implementation

of new rights.

powers for Ofcom to use new technologies to better manage spectrum and make it easier for

different users to share spectrum

make it easier to install broadband cabinets, overhead lines and poles in all areas except Sites of

Special Scientific Interest (SSSIs) by making regulations introduced in 2013 for a period of five

years to be made permanent.

The provisions will not be retrospective. The new code states that the Landlord & Tenant Act 1954 will not apply and that there can be no contracting out. A land owner may be able to obtain possession on persistent rent arrears or other significant breaches by the operator. They may also serve at least 18 months notice, terminating no earlier than the end of the fixed term, that they intend to develop the site and that they cannot do so without possession.

Any equipment which comes within the code will give rise to an overriding interest which will bind purchasers of the land. This will include under ground equipment.

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It is not retrospective. The code makes clear that the Landlord and Tenant Act 1954 will not apply to the relevant equipment. Terminating no earlier than the end of the agreement, the land owner may serve at least 18 months notice to leave. If this is counter noticed then the land owner must apply to courts and show that there has either been persistent rent arrears, breach of other terms of the agreements, or that they have no intention to demolish and reconstruct the site.

Any equipment within the code will give rise to an overriding interest which will bind purchasers, regardless of registration at HMLR. This will include underground equipment.

The provisions came into force on 28th December 2017.

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GROUND RENT ISSUES

Arnold v Britton [2015] UKSC 36 here 99 year leases of holiday chalets required a service charge to be paid based on the work which was done on the premises plus a yearly sum of £90 which rose by 10% compound interest each year. The consequence of this was that by 2072 the liability would be £554,000 per annum. The Supreme Court confirmed that as this was the clear meaning of the provision they would not be prepared to re-write it.

The topic of escalating ground rents, in particular in relation to the leasehold houses, has been in the media of late and some mortgage companies are beginning to refuse mortgage offers in certain circumstances.

There is also a debate as to whether, if the ground rent exceeds £250 per annum or £1,000 per annum in Greater London, it will create a possible assured tenancy . If this was the case then forefeiture provisions would be inapplicable and if the rent was to fall 2 months in arrears there would be a mandatory ground 8 for possession.

In late June 2017 the CML produced guidance on Newbuild Leasehold Properties. It states that it may also apply to existing leaseholds dependent on the term. Although merely guidance, and the mortgage companies do not need to change their individual instructions, they are advised to take this into account. The overriding principle is that the borrower should be able to afford the loan. This is also a FCA requirement. If need be, professional advice should be sought from a valuer. A major factor may include the lease term.

General Points

The CML guidance states the following:

“Given that lenders must consider both affordability of the borrower, and the sustainability of the value of the property, lease terms which involve obligations for future payment, such as ground rents, are more likely to be considered acceptable for lending purposes if they are set at levels that will not materially change mortgage affordability in the future, or impact on the value of the property; and that the lease length is suitably long (i.e. is granted for hundreds, rather than tens of years). ·

Lenders may query why a property is offered as leasehold. This is particularly so for leasehold houses.

It is important that lease information for new homes is made available as early in the home buying process as possible, so that conveyancers and valuers can provide advice and lenders can make appropriate lending decisions. New build leasehold properties ·

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In relation to ground rents, lenders would expect to see nominal ground rents, reflecting the origins of the ground rent being ‘peppercorn’ in nature. ·

Under current leasehold legislation, there are certain provisions which present a risk that the lease may be terminated or forfeited by the landlord (freeholder), leaving the property owner without a leasehold interest, and the lender mortgagee without a security. Therefore, lenders will expect that a conveyancer acting on their behalf advises on such risks and how they might be mitigated. An example is the relevant provisions of the Housing Act 1988 in relation to the creation of an Assured Tenancy where the ground rent exceeds £250 per annum or £1000 in Greater London.

Lenders will expect professional advisers such as conveyancers and valuers to consider: ·

The length of the initial lease term granted. As a general principle, longer lease terms will help sustain the property’s value for longer, as there should not be a need to seek an extension of the lease in the medium term (i.e. over the term of the mortgage). Lenders using the CML Lenders’ Handbook already stipulate a minimum lease residue requirement (see s 5.14.1 of the CML Lenders’ Handbook). o Lenders recognise that there may be different lease lengths for houses and flats. ·

The mortgage term in relation to the lease term, with particular regard to a likely review of the lease once 80 years or less are remaining. ·

The initial annual ground rent figure. Professional advisers should take into consideration: o the level of the ground rent in relation to the property’s market value, o the type of property (e.g. a flat or a house) o whether the ground rent is fixed or rises periodically, o If the ground rent does rise periodically, the formula by which it rises. o Where the property value is below £100,000, some lenders may wish to see a de minimis maximum initial ground rent figure (e.g. £100) is applied.

Whether the ground rent figure is at a level which triggers legislative provisions (such as under Part 1 of the Housing Act 1988), potentially creating a risk for the lender’s security. ·

The ground rent review formula (if not a fixed figure). Professional advisers should take into consideration: o The CML Lenders’ Handbook at s 5.14.9, which provides that lenders will accept a periodic increase in ground rent, provided that the amount of the increased ground rent is fixed or can be readily established and is reasonable. o Where the formula is one which uses increases in line with an index, whether the index is a recognised UK index and is appropriate and/or acceptable to them. Some lenders may also expect a cap on the maximum ground rent amount, to guard against the ground rent reaching an unreasonably high sum, which could impact on the property’s value, the continued affordability of the mortgage and the future saleability of the property. o Some lenders may be concerned to see the use of compounding formulas, or the use of minimum increases, in conjunction with an index-linked formula. o Where the formula does not link with a recognised index, and instead uses a

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multiplier (e.g. doubles) at set intervals, the frequency of the rent review intervals. There is no single industry view on a minimum acceptable frequency, as it may depend on other factors such as the initial amount of the ground rent, and whether there is a cap on the number of times the rent is reviewed. ·

Other fees charged under the lease o Where other fees are charged under the lease (for example, on a transfer of equity) lenders will expect that these are set at reasonable levels. Where the fees follow the ground rent formula (for example, if they are set at 50% of the prevailing ground rent), lenders will have similar expectations as set out above for ground rent formulas”.

On 25th July 2017 the Government produced a consultation paper on ground rents in leasehold houses. Possible changes include:

banning newbuild leasehold houses, with some exceptions

Banning increases of ground rent at lease than 21 year intervals

Preventing ground rents of more than £250 per annum giving rise to assured tenancies

Allowing tenants of leasehold houses to have the same rights as those in flats to question the reasonableness of administration charges.

The Government also intends to ban help to buy leasehold houses.

On 21st December 2017 a housing White paper was produced. Legislation will be introduced for new build properties only:

Banning leasehold houses, save in exceptional circumstances, e.g. shared ownership

All new long leasehold dwellings to be at a peppercorn rent

Allowing those in leasehold houses to question the reasonableness of administration charges as well as service charges in the same manner as currently available for flats.

Allowing freeholders to question the reasonableness of service charges as currently available for leaseholds. The White paper refers the service charge but presumably means such things as estate rentcharges

Speeding up the process of leasehold extensions and enfranchisement

The Government intends to produce draft legislation by the end of the Parliamentary year of 2018 and then they will introduce legislation into Parliament when time permits. The legislation will not help previous purchasers that the Government thinks that there may be possible action under the Unfair Terms in Consumer Contracts Regulations 1999.

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Higher Ground Rents

Be careful where the ground rent exceeds £250 per annum or £1,000 per annum in Greater London. Recently many mortgage companies have refused to accept this. This will also be a problem if the ground rent can double beyond these amounts. It only applies to leases created from 15 January 1989 onwards but this would include lease extensions which constitute a surrender and re-grant.

For new leases you may require a term whereby the ground rent does not increase so as to create an assured tenancy. Also, there may be provision whereby the Landlord and their successors will notify any mortgage company before they commence possession proceedings, as in shared ownership leases.

Note also that any forfeiture provisions in an assured tenancy are void and also Part 1 Landlord and Tenant Act 1987 does not apply to assured tenancies and there will be no rights of first refusal.

Assured Tenancies

On or after 15 January 1989, security is provided by the Housing Act 1988. Security will exist in favour of an assured tenant, i.e. under S.1:

(a) a tenant of a dwelling house let as a separate dwelling (as with the Rent Act 1977 above);

Miller v Eyo [1999] 31 HLR 306

If the landlord wishes to move into occupation and share with the tenant, the lease must contain a clear provision to this effect.

To be let as a separate dwelling, cooking, eating and sleeping must be carried on in the premises. Uratemp v Collins [2001] IEGLR 156 recognised that a hotel room which where there was no cleaning provided, might give rise to an assured tenancy. It is important that hoteliers realise this fact. If the premises constitute a persons principal home, even though cooking facilities are not provided, there will be an assured tenancy.

See also Adam v Akram (2002), Times 19th November – where a tenant shared a kitchen and bathroom with the landlord he still had security of tenure.

and

(b) let to an individual(s); (i.e. not a company let); and

(c) let as their only or principal home. See Crawley Borough Council v Sawyer [1988] 20 HLR98. Premises might remain an only or principal home even after a substantial absence. The best course of action would be to serve a notice seeking possession, if the lease allows this, then

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service might be at the last known address under S.196 Law of Property Act 1925: Chesterfield Borough Council v Crossley (1998) 24 April, CA.

See also Blunden v Frogmore (2002) 21EG85 – service is covered by the terms of the lease.

Again, there are certain exclusions, in Schedule 1, e.g.

(i) holiday lets;

(ii) student accommodation let by a higher education establishment;

(iii) resident landlords - however, the landlord must be resident as his only or principal home. This may prove more difficult to demonstrate than residence under the Rent Act 1977.

Possession proceedings

An assured tenancy can only be brought to an end by means of a court order: S.7. If the tenancy terminates contractually (e.g. by a break clause or effluxion of time) then S.5 operates to create a statutory periodic tenancy.

A preliminary to possession will be service of a S.8 notice seeking possession which must be in prescribed form and state which grounds are to be relied upon (during any fixed term, only grounds 2,8,10-15 and 17 may be used).

Consider e.g. Mountain v Hastings C19931 24 HLR 427, CA

The tenant was 8 months in arrears of rent. The landlord sought possession on ground 8 - defined rent arrears. When issuing proceedings under s.8 HA 1988 the landlord referred to ground 8 and wrote "At least three months rent is unpaid". Later, under the heading "particulars", he stated the monthly rent and how much was owed. Held: this was a substantial deviation from the prescribed form in that the tenant was not made aware of what she needed to do i.e. repay the arrears prior to the hearing. The notice was void.

Torridge District Council v Jones [1985] 18 HLR 107

Although a public sector secure tenancy case, the principle remains the same. Here the notice stated that "the reason for taking these proceedings are non-payment of rent ". This was an insufficient notice.

South Buckinghamshire District Council v Francis (1985) 11 CL 152

Similarly "Various acts of nuisance" as a ground did not amount to a sufficient notice.

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The Grounds for Possession

The court may award possession if grounds are shown. Again, some grounds are discretionary, and depend on reasonableness. Other grounds are mandatory.

Discretionary Grounds

The major discretionary grounds are:

Ground 9: suitable alternative accommodation

Ground 10: some rent arrears

Ground 11: persistent delay in paying rent;

Ground 12: breach of some other contractual term;

Ground 13: deterioration of the dwelling

Ground 14: nuisance of annoyance

Mandatory Grounds

Grounds 1 to 5 require written notice in advance of the tenancy agreement, unless the court dispenses with the need.

It seems that the courts are readily willing to dispense with notice as being just and equitable.

Boyle v Verrall [1997] 04EG145.

It was just and equitable to dispense with notice where the landlord had failed to serve an S.20 notice of an assured shorthold tenancy.

Service Charge Liability

The Government has commenced consultation on building regulations and fire safety in the light of the Grenfell Tower disaster. It will look at possible changes to construction, conversion and ongoing management of buildings and possible changes to enforcement. In the light of this, fire safety risk assessments in particular may be changed in the future.

Both residential and commercial service charges are likely to be greatly effected, especially, where is usually the case, service charge allows recovery of payments for improvements and statutory works. In Finchbourne v Rodrigues [1976] All E.R 581 it was held that there would be an implied term that the work must be reasonably incurred. In council house right to buys, the purchaser will be given an estimate of future works within the next five years from purchase but after this time the service

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charge may increase greatly. Due to the so called ‘Florries Law’, the liability of former council tenants cannot exceed £10,000 in any five year period. However, this will only apply in relation to works funded by Central Government.

Under the Service Charge Consultation Requirements (England) Regulations 2003 and the Service Charge Consultation Requirements (Wales) Regulations 2004, which came into force on 31 October 2003 and 1 March 2004 respectively, then if consultation does not occur between landlord and tenants in relation to service charges and dwellings, there will be a statutory cap of £250 for the works. Therefore, it is suggested that a management enquiry is made to the effect of, whether there has been any major works within the meaning of the Regulations and if so did consultation occur.

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ESTATES RENT CHARGES

Enforceability of Positive Covenants

1. Positive Covenants and Restrictions

The problem here is that in freehold land a positive covenant will not burden third party purchasers. See Austerberry v Oldham Corporation [1885] - this was confirmed by the House Lords in Rhone v Stephens [1994] 2 All ER 65 where maintenance of a flying freehold roof could not be required against third party purchasers. Mortgage companies may be required to be told about flying freeholds and insurance may be available. It is suggested that the best manner of enforcement would be to include direct covenants and restrictions on the register. There are many ways of circumventing this, e.g. estate rentcharges and the doctrine of mutual benefit and burden, i.e. if a right is claimed, a corresponding obligation must be taken on. The classic example of this is in relation to maintenance of private roads and drains in small estates. This is not suitable however in relation to overage.

Direct covenants and restrictions

Here each new purchaser enters into a direct covenant with the original seller or their successor. They are therefore contractually bound. A restriction should be placed on the register (in registered land) to the extent that no disposition is to be registered unless the transferee produces to the Land Registry a deed of covenant in that form.

Stamp Duty Land Tax

SDLT will attach to positive overage but not to negative. A best estimate of the total consideration based on the contingent event occurring, no matter how remote, must be made and the tax calculated accordingly, e.g., ransom strips and restrictive covenants. When the triggering event actually occurs a further return must then be made. Developers should accommodate any extra SDLT liability in their tendering process.

A deferral form may be obtained from the Birmingham Stamping Office. How any estimate of final liability may be made is debatable but note that the client must be made aware that if a trigger event occurs, they will have to fill in a new return with a balancing payment. If the estimate were to tip the SDLT liability from one band to another, the higher payment must be paid initially.

On subsequent transfers where there is clawback post 1 December 2003, enquiry must be made as to whether a deferral was requested. If this has occurred then the subsequent

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purchaser will have a further tax bill on the trigger event occurring. The CPSE Enquiries envisage that a request to see the Land Transaction Return must be made.

2. Section 33 Local Government (Miscellaneous Provisions Act) 1982

As above, Local Authorities may enforce positive covenants if they invoke their powers under the Act and the transfer refers to the 1982 Act, or its predecessor, the Housing Act 1974.

3. Estate Rentcharges

Estate Rentcharges can still be created post the Rentcharges Act 1977, which prohibited new annuity rentcharges. The rentcharges will reflect maintenance costs, and will have a right of re-entry if the payment is not made.

Note: HSBC appear not to give mortgages where the estate rent charge has right of entry.

Smith Brothers Farms Ltd v Canwell Estate Company Ltd [2012] EWCA 237. An Estate Rentcharge, to be valid, needs to reflect maintenance costs and cannot have a profit element – S.2(5) Rentcharges Act 1977. Here, the Estate Rentcharge covered maintenance for the whole of an estate including roads which would not be used by the covenantor. It was still valid as maintenance need not be in relation to the particular piece of land of the covenantor.

The Problem

S1 of the Rentcharges Act 1977 provides that a rentcharge created since implementation is void if it has any profit elements. The rentcharge must collect purely from maintenance. However, administration charges can be expensive and clients should be warned of this. Unlike leasehold flats and administration charges there is no statutory ability to question the reasonableness of administration charges. It must be made clear in the provisions that charges must be reasonable. Even then application through the Courts, and not Tribunals, to question reasonableness may be difficult.

Note: Currently there is no obligation that the estate rent charge administration costs are reasonably incurred. Even if such an obligation existed, there is no ability to question the estate rent charge in the tribunals and there would have to be much more costly court proceedings.

Note: Roberts v Lawton [2016] UKUT 396 (TCC) s121 of the Law and Property Act 1925 allows the holder of a rentcharge to appoint trustees who will be tenants under a 99 year lease if a rentcharge is not paid within 40 days of being due. This will be the case whether the charge is formally demanded or not. Here the arrears amounted to between £6 and £15. This was held to be a lease which can be registered at HMLR. The lease will continue even if the arrears are paid. In the present case, the holder of

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the rentcharge used this fact to hold home owners to a ransom in order for them to pay administration charges.

4. Mutual Benefits and Burden: The rule in Halsall v Brizell (1957)

If a landowner wants to obtain a benefit, then it must submit to any corresponding burden. This may be by way of enforcing obligations in relation to private roads in smaller developments. However, the Thamesmead Town v Allotey (1999), payments for maintenance of private roads and drains was able to be collected, but not for gardening and landscaping if the owner does not wish to avail themselves of such rights.

Note: Post the above case, a mortgage company may well require direct covenants and restrictions on the register in relation to maintenance of private roads and drains. This will often be the case in anything but the smallest of developments.

Wilkinson v Kerdene Ltd [2013] EWCA 44. Here, the doctrine of mutual benefit and burden was held to apply to the whole of a holiday village in Cornwall. This included maintenance of roads, car parks, footpaths and other recreational facilities and also maintenance to the outside of bungalows and the foul sewer system.

5. Long Leases

If the lease was created pre 1 January 1996, both positive and negative covenants will pass with the land if they touch and concern the land, i.e. they are leasehold covenants.

Note: Woodall v Clifton (1909) Options to purchase, as opposed to options to renew the lease, will not pass with the land. If the lease was created from 1 January 1996 onwards, then all covenants will pass unless expressed to be personal under Sections 2 and 3 of the Landlord and Tenant (Covenants) Act 1995. On enlargement of a long lease without a rent and without forfeiture provisions, positive covenants will pass onto the freeholds under Section 153 of the Law of Property Act 1925.

6. Commonhold

Under Part 1 of the Commonhold and Leasehold Reform Act 2002, a Commonhold Association may be set up, and the various freeholders will become members. They will agree to be bound by positive and restrictive covenants via the Memorandum and Articles of Association. Since September 2004, very few commonholds have been set up, mainly as there is no right to sublet in relation to a dwelling for more than seven years and thus affordable housing cannot be built into the developments via shared ownership leases. Moreover, as the mortgage companies are concerned at the Commonhold Association being struck off, thus giving rise to a series of flying freeholds, many are reluctant to give mortgages.

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Note: The draft Law of Property Bill was announced in the Queen's Speech 2016. Amongst other things it intends to remove the distinction between restrictive and positive covenants. It is undergoing scrutiny by parliamentary select committee.

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STAMP DUTY LAND TAX AND ADDITIONAL DWELLINGS

Introduction

Stamp Duty Land Tax at a higher rate was announced in the autumn statement of 25th November 2015. It will affect both domestic and foreign purchasers of additional residential properties in England, Wales and Northern Ireland (not Scotland where SDLT no longer applies). The government reminds people that SDLT is a self assessment tax. If a client deliberately or recklessly fills in false information in a Land Transaction Return then they could be prosecuted and also required to pay a surcharge of 100% of the tax owed. The government in their consultation, which was produced on 28th December 2015, stated that conveyancers would be well advised to require their clients to verify that the property that they are purchasing is their main residence. The Finance Act 2016 was published on 16th March 2016. It adds to the Finance Act 2007 a schedule 4 ZA. Guidance is now available but the land transaction return will not be amended. Where the higher rate applies the conveyancer must fill in code 04 in question 1.

If a rebate is claimed this must be done online and within a year of submission 3 months of the rebate becoming due whichever is the latter. The rebate must refer to the reference number on the original land transaction return and so presumably this will have to be filled in by the conveyancer. The HMRC say they expect any money to be paid within 15 days but cannot promise this. A hard copy is also available via the Birmingham Stamping Office. The Finance Act 2016 finally received the Royal Assent on 15th September 2016.

Note: The HMRC guidance was amended in December 2016 and again in March 2017.

Basic Principles

The provisions apply to any second property where a major interest is being acquired. This will include a freehold purchase or a lease of more than 7 years duration. The purchase price must be not less than £40,000. The provisions will not apply to the purchase of a reversionary interest which does not take affect in the future for more than 21 years. The provisions will also not apply to the replacement of a main residence.

Note: Bizarrely, the provisions would apply to leasehold enfranchisement and leasehold extensions where the consideration is £40,000 or more. HMRC have now confirmed that they believe this to be the case.

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Transitional provisions

If contracts were exchanged prior to 26th November 2015 but not completed until on or after 1st April 2016 then the old regime will still apply. However, there are exceptions i.e. where there is an assignment of rights under the contract, an assignment of the contract or a sub-sale or where there is a variation of the contract or completion through exercise of an option or right of pre-emption. The Guidance suggests that variations such as changing the colour scheme or the completion date are not sufficient to trigger the surcharge but adding a name to the contract or adding to the duration of the lease or presumably adding to the premises, will be.

Higher Residential Thresholds

As of transactions from 17th March 2016 the commercial non domestic thresholds also change.

Relevant consideration Current SDLT rate Higher rate

Up to £40,000 0% 0%

Between £40,000 and £125,000 0% 3% *

Between £125,000 and £250,000 2% 5%

Between £250,000 and £925,000 5% 8%

Between £925,000 and £1,500,000 10% 13%

More than £1,500,000 12% 15%

* This rate will also be charged on the first £40,000 of consideration.

Note: Once the £40,000 threshold is exceeded then the higher rate is due on the total consideration.

Note: Mixed business/residential properties may be treated as commercial premises.

Multiple Dwellings Relief

The original government consultation suggested that they were looking at an exemption where the company or collective investment scheme owned 15 or more properties or where an individual was buying 15 or more properties as part of one transaction. This is not included in the Finance Act.

If a person is claiming multiple dwellings relief, which was introduced on 16th July 2011 by virtue of the Finance Act of that year, then they will have to pay on the average unless they elected for it to be a link transaction. In any case the higher threshold will apply and the average will have to be 4% and

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not the current 1% per dwelling. If 6 or more residential properties are being purchased as part of one transaction then it may be treated as either a domestic or a non-domestic transaction. Because of the changes to commercial property SDLT, as above, then it might not be beneficial to claim as a commercial transaction as it previously might have been.

Definition of a dwelling

Regulation 17 of the Finance Act sets out the rules for determining what defines a dwelling:

A building or part of a building counts as a dwelling if:

(a) it is used or suitable for use as a single dwelling, or

(b) it is in the process of being constructed or adapted for such use.

Land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds (including any building or structure on that land) is taken to be part of that dwelling.

Land that subsists, or is to subsist, for the benefit of a dwelling is taken to be part of that dwelling.

The main subject matter of a transaction is also taken to consist of or include an interest in a dwelling if:

(a) substantial performance of a contract constitutes the effective date of that transaction by virtue of a relevant deeming provision

(b) the main subject-matter of the transaction consists of or includes an interest in a building, or a part of a building, that is to be constructed or adapted under the contract for use as a single dwelling, and

(c) construction or adaptation of the building, or part of a building, has not begun by the time the contract is substantially performed.

The Guidance states that buying off plan will trigger the higher rates. There is no mention of a plot purchase with planning permission but presumably this will not. The guidance also recognises that in certain circumstances it may be difficult to decide whether one or two dwellings are being purchased. This will be a question of fact. Consider, for instance, the purchase of a house with an annexe or a granny flat.

The Government have now announced that they will change the Finance Act to make clear that the existence of a residential annexe or granny flat will not give rise to two separate dwellings.

Note: The Government announced that the final version of the Finance Act 2016 will make clear that residential annexes and granny flats will not come within the provisions.

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Note: In April 2018 Stamp Duty Land Tax will be delegated to the Welsh Government. In July 2016 they announced that they would change the additional dwelling provisions.

Residential annexes and granny flats

Originally residential annexes came within the legislation. The government has now changed section 1.1.7 of the Finance Act as follows:

A residential annexe will not qualify as an additional dwelling if it is in the grounds of the original dwelling and if the value ofany annexe or combined value of annexes is one-third or less than the value of the whole. HMRC seem to interpret the meaning of grounds widely. The provisions do not apply to linked transactions although multiple dwellings relief may be available.

Islamic Mortgages

Originally the creation of an Islamic mortgage could give rise to the additional liability. This will also be retrospectively changed under the final Finance Act 2016.

The need for more than one property

The higher rates of tax will not apply if the individual only has one residential property at the end of the date of the transaction, irrespective of whether it is the main residence or not.

If the purchaser at the end of date of the transaction is replacing the main residence with another then the higher SDLT rate will not apply. See examples (as extracted from the ‘higher rates of SDLT on purchases of additional residential property’ consultation paper from www.gov.uk):

Example 6

Z already owns a main residence and is purchasing a property that will be used as a buy-to-let. At the end of the day of the transaction she owns two properties and has not replaced her main residence, so the higher rates will apply.

Example 7

A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply.

Example 8

H owns a main residence. He is purchasing a new main residence, but rather than selling his previous main residence he will rent it out. At the end of the day of the transaction H owns two properties and is not replacing a main residence (as he is not selling his previous main residence), so the higher rates will apply.

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Example 9

N purchases her first property, which she will use as a buy-to-let. At the end of the day of the transaction she owns one property, so she will not pay the higher rates of SDLT, even though she is not using it as her main residence.

Two years later, N purchases a residential property which she will use as her main residence, but she decides to keep her buy-to-let property. In this instance, as she has two properties at the end of the day of the transaction and has not replaced a main residence (as she has not sold a previous main residence), the higher rates will apply.

Example 10

O is a buy-to-let investor with 10 residential properties in his portfolio. He also owns one residential property which he uses as his main residence. He decides to sell his previous main residence and purchase a new main residence.

At the end of the day of the transaction, he owns 11 properties – his new main residence and his 10 buy-to-let properties. However, as he has replaced his main residence he will not pay the higher rates of SDLT.

If by the end of the day of the transaction the purchaser has two properties which have been, is currently, or are to become their main residence then the higher rate will apply. If one property is then sold within the next 36 months (and not 18 months as proposed by the consultation) then they can specifically ask for a rebate.

It may be asked how they are to find the money in the first place as after 30 days they will then start to pay penal interest rates. It was announced in the budged of 2017 that the submission time for tax returns could go down to 14 days in early 2018.

Note: If there is a problem in the chain the client may have to pay the additional higher rate SDLT but this will not be known in advance. The client may not have the money. Currently mortgage companies will not release funds unless all SDLT has been obtained by the conveyancer prior to release of funds. This is obviously a problem right now and not just as of 1st April 2016 as completions may not occur by 31st March 2016.

Married Couples and Civil Partners

Married couples and civil partners who own one property at the end of the date of completion will not be liable to the extra tax. However, if one then buys an additional property it may be chargeable to SDLT if not their main residence.

As with Capital Gains Tax private residence relief will not be applied if there is a:

divorce through court order

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deed of separation has been executed by reference to s1107 Income Taxes Act 2007.

they no longer live together and there is no realistic possibility of this occurring in the future.

Note: If any minor children have any interest in the property then this may also give rise to tax liability on behalf of the married couple.

Corporations

If a company or collective investment scheme purchases a single dwelling then this will be chargeable to the higher rate. It may also be chargeable to annual tax and enveloped dwellings if the purchase price is more than £500,000 as of 1st April 2016. This is an anti-avoidance provision.

Unless exempt, a company purchasing a property for more than £500,000 will pay SDLT at 15%. The additional 3% will not be added to this. However, exempt companies, such as property letting companies, will pay the additional 3%. It appears that transactions which are completely exempt from SDLT such as, with provisos, buying by a property trading company or part exchange with a builder will still be completely exempt.

Certain corporations can still claim relief for instance part exchange with a builder and chain breaking companies. It appears from the latest HMRC guidance that this will not apply if the company does not complete on the purchase but transfers under a power of attorney.

Joint Purchasers

As with other tax systems, any joint purchaser who has two properties by the end of the day of completion and are not replacing their main residence will be required to pay the additional tax.

Purchasing property for children

For children to live in, e.g. whilst at university, will also attract the additional tax.

Timeshares

In the government guidance they recognise that not all timeshares give right to property rights and leases. Some do and if this was the case then it would be subject to the additional tax.

Holiday Lets

Holiday lets will also be subject to the additional tax.

Caravans / Mobiles Homes / Houseboats

These are not subject to SDLT and therefore any additional liability will not apply.

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Partnerships

As with SDLT generally these will be treated as joint purchasers, i.e. when any one partner buys an additional property this will be chargeable at the additional SDLT.

Determining a main residence

Although not in the Finance Act, the government consultation suggests the following are factors:

where the residence is stated on government documents

correspondence addressed to various organisations, e.g. driving licence

where the purchaser and family spend their time

where children go to school

where the majority of belongings and furniture are

where the workplace is

In Frost v Feltham [1981] STC 115 it was stated that the main residence is not necessarily where the person spends most of their time.

Determining main residence will be a question of fact.

Replacing the main residence

The government guidance suggests a two stage process:

Stage 1

Whether in the last 36 months the property being sold has been a main residence. This will be a question of fact, as above.

Stage 2

Whether the new property is intended as the main residence. This will be subjective and depend on what the purchaser’s true intentions are. Note it may be prudent to require some statement from purchasers as to whether the property is their main residence together with making the purchaser aware of the consequences of their statement being false.

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Properties owned outside England, Wales & Northern Ireland

Purchasing abroad or in Scotland will not be chargeable to SDLT. However, if someone owns a property abroad and then purchases a non main residence in England, Wales or Northern Ireland post 1st April 2016 this will be chargeable to SDLT. Again, a statement to this effect may be required. The government also suggests that lawyers and agents should be looking at any past transactions relating to the particular client. Examples below, as extracted from the ‘higher rates of SDLT on purchases of additional residential property’ consultation paper from www.gov.uk:

Example 30

R owns a property in Wales, which she uses as a main residence. She decides to purchase a buy-to-let property in Scotland. SDLT is devolved to Scotland, so she will not pay SDLT, but the Land and Buildings Transactions Tax (LBTT) on the purchase of the buy-to-let property. The rates and structure for LBTT are set by the Scottish Government.

Example 31

S owns a property in Scotland, which she uses as a main residence. She is purchasing her first property in England, Wales or Northern Ireland, which she will use as a second home. At the end of the day of the transaction she owns two or more properties globally and is not replacing her main residence, so she will pay the higher rates of SDLT.

Example 32

T owns a property outside England, Wales and Northern Ireland which he uses as a main residence. He decides to sell that property and purchase a residential property in England, Wales or Northern Ireland. At the end of the day of the transaction he owns one residential property globally, so he will not pay the higher rates of SDLT.

Beneficial interest behind a trust

Where there is a bare trust or interest in possession, any property will be deemed to that of the beneficiary and if the beneficiary has other properties the additional tax will apply. More remote interests such as under a discretionary trust, will be treated as properties of the trustees.

If a beneficiary behind a bare trust or with an interest in possession owns another property this may attract the additional tax. It will not matter if someone else also has an interest in that property. The additional tax will still be paid.

Inheritance

Where a person becomes entitled to an interest through inheritance in the past 3 years, the property can be ignored provided that the beneficiaries became joint owners with no more than a 50% interest together with their spouse or civil partner at the date of inheritance.

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LAND TRANSACTION TAX & ANTI-AVOIDANCE OF DEVOLVED TAXES (WALES) ACT 2017

On 1st April 2018 the Welsh Government will introduce a new version of Stamp Duty Land Tax for Wales.

The Collection and Management of Tax (Wales) Act 2016 has now created the Welsh Revenue Authority (WRA) which replaces HMRC in the collection of LTT. New forms will be introduced but we do not yet know what they will look like. The Land Registry is assisting in defining where exactly the English-Welsh border is.

Transitional provisions were produced in January 2018. The legislation will apply if contracts were exchanged prior to 1st April 2018 unless exchange was prior to 17th December 2014 (when the Wales Act 2014 came into force) and the contract has been substantially performed. Linked transactions that occur from 1st April onwards will be within the new regime as will the surrender and re-grant of any lease.

On 4th October 2017 the Welsh Government produced the new rates and thresholds for the tax. However, it was announced in February 2018 that the starting residential threshold would go up from £150,000 to £180,000. New forms were produced in February 2018.

SDLT and additional dwellings, as above, will remain but with some clarification.

The following changes will be made:

General Anti-Avoidance Rule

This will allow any devolved tax that has been avoided as a result of an artificial tax avoidance arrangement to be recovered.

Relief Targeted Anti Avoidance Rules

The Act includes a single rule applicable to all relief that prohibits a relief from being claimed where the transaction forms part of tax avoidance arrangement.

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Deferral of Tax

There will be new rules relating to the deferral of tax in cases of contingent or uncertain considerations, such as overage. They seem to be similar to current provisions

Overage

SDLT will attach to positive overage but not to negative. A best estimate of the total consideration based on the contingent event occurring, no matter how remote, must be made and the tax calculated accordingly, e.g., ransom strips and restrictive covenants. When the triggering event actually occurs a further return must then be made. Developers should accommodate any extra SDLT liability in their tendering process.

How any estimate of final liability may be made is debatable but note that the client must be made aware that if a trigger event occurs, they will have to fill in a new return with a balancing payment. If the estimate were to tip the SDLT liability from one band to another, the higher payment must be paid initially.

On subsequent transfers where there is clawback post 1 December 2003, enquiry must be made as to whether a deferral was requested. If this has occurred then the subsequent purchaser will have a further tax bill on the trigger event occurring. The CPSE Enquiries envisage that a request to see the Land Transaction Return must be made.

Rent in new residential leases

Unlike SDLT the rental element will not be chargeable to tax.

Higher Rates residential property transactions

There will be additional rules including:

- The acquisition of certain residential properties will be exempt from higher rates where an interest in a dwelling is retained by the buyer pursuant to a court order on divorce or dissolution of a civil partnership.

- Whether a tax payer owns or acquires a residential property subject to a lease is judged at the end of the affective date of acquisition.

- A dwelling purchased and held by a court appointed deputy on behalf of a minor who lacks mental capacity not deemed to be owned by the child’s parents and not subject to higher rates.

- LTT requires an assessment for the higher rates of tax liability to be undertaken on intermediate transactions and a further return submitted if additional tax is due.

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- If property is inherited, spouses and civil partners who are no longer living together are not to have their respective interests combined in order to establish whether the interest held exceeds 50%.

- There will be clarification of rules in relation to major interest. A major interest is defined as a fee simple absolute or a term of year’s absolute either legal or beneficial.

Land Transaction Wales

On 3rd October 2017 the Welsh Government issued details of the new bands, as below:

Residential Properties

RESIDENTIAL LTT RATES

Price Threshold Main Residential Rates

£0 - £180,000 0%

£180,000-£250,000 3.5%

£250,000-£400,000 5%

£400,000-£750,000 7.5%

£750,000-£1.5m 10%

Over £1.5m 12%

The current rates for SDLT are:

RESIDENTIAL SDLT RATES

Price Threshold Main Residential Rates

£0 - £125,000 0%

£125,000-£250,000 2%

£250,000-£925,000 5%

£925,000-£1.5m 10%

Over £1.5m 12%

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Commercial Properties

COMMERCIAL PROPERTY RATES

Price Threshold Main Residential Rates Rates of SDLT

£0 - £150,000 0% 0%

£150,000-£250,000 1% 2%

£250,000-£1m 5% 5%

Over £1m 6% 5%

NET PRESENT VALUE THRESHOLD

£0 - £150,000 0%

£150,000-£2m 1%

£2m+ 2%

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FIRST TIME BUYER RELIEF The budget of 2017 announced that as of 12:01am on 22nd November 2017 first time buyer relief would be available. Nothing will be chargeable on a purchase price up to £300,000 as long as the purchase price does not exceed £500,000. The dwelling must be the purchaser’s only or main residence and all co-owners must be first time buyers, never having held a major interest in a dwelling anywhere in the world.

This provision will apply in Wales until 31st March 2018. After that date it will not apply in Wales.

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FRAUD THREATS FOR PROPERTY TRANSACTIONS

In October 2010, the Land Registry and The Law Society produced joint guidance on frauds and threats to property transactions. A new version was produced on 8th September 2017. It adds examples of various frauds, primarily based on the various cases below. The guidance may need to be changed when Dreamvar v Mishcon de Reya is decided by the Court of Appeal.

Impersonation of conveyancers and conveyancing practices

Those proposing to carry out fraud may purport to:

be a conveyancer in their own right, or

work for an authorised practice.

If you do not know either the conveyancer or the conveyancing practice acting for another party in a matter you should check their details to help assess the risk of fraud.

When accepting identification (or any other) information from a person holding themselves out to be a conveyancer you should consider the following:

Is the individual a conveyancer?

Is the name of the signatory an identifiable registered individual within a conveyancing practice?

Are they registered with an appropriate professional body?

The Law Society, the Solicitors Regulation Authority (SRA), the Council for Licensed Conveyancers (CLC), The Chartered Institute for Legal Executives (CILEX) and other professional bodies hold such information (see paragraph 7.4.3). More information is provided in the Conveyancing Handbook under ‘Dealing with non-solicitors’.

Where a party is unrepresented and you are unable to confirm that sufficient steps have been taken to verify that party’s identity, Land Registry requires you to provide certified identification information obtained by you or another conveyancer in respect of that party. This is explained in Land Registry’s Practice Guide 67 – Evidence of identity – conveyancers which was amended in January 2018.

Obtaining identification information at an early stage in the transaction may avoid difficulties or delays at a later stage. You may wish to keep a record of the steps you take. These may assist you if Land Registry or other bodies contact you to make enquiries but see paragraph 4 below on reporting fraud.

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Impersonation of solicitors’ firms

There have been instances where fraudulent applications have been made to Land Registry by fraudsters impersonating legitimate firms of solicitors by using forged headed paper, faxes and emails. Email addresses that are non-distinct, for example Hotmail addresses, are more difficult to trace.

If you receive communications from Land Registry, including any acknowledgement of an application, and you are unable to identify the client name, the property or the application reference you should contact Land Registry. It is possible that your firm name or its headed paper has been forged or misappropriated and used fraudulently by a third party, or even a member of your staff.

See paragraph 4 below on reporting fraud.

Misuse of websites

Web sites have been fraudulently set up purporting to be sites of solicitors and/or new sub-offices of legitimate firms in order to perpetrate fraud. Some firms periodically search the internet to establish if they are being targeted in this way. If you become aware of an unauthorised web presence for your practice you should notify the relevant agencies.

Seller and buyer frauds

Certain properties and owners are particularly susceptible to fraud. Most fraudulent activity falls into distinct categories.

Intra-family/associate frauds which are perpetrated by family members, friends or partners.

Third party frauds where tenants or those who have access to tenants and are able to divert post

perpetrate the fraud.

Third party frauds that constitute ‘organised crime’.

Methods of Identity Fraud

The Practice Guide lists the following:-

False passports from the UK or overseas (these can be checked with electronic identity verification services). Formats of passports can change from time to time and where there is a separate signature page, you should ensure that you retain a copy of that page.

Genuine passports and/or driving licences where the fraudster has changed his/her name through deed poll. A change of name may be perfectly innocent but should always be checked carefully.

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False driving licences. The format for driving licences from different time periods can be found on the Public Register of Authentic travel and Identity Documents. The government has published an explanation on how to read a driving licence number.

False payslips, bank statements or utility bills are easily forged or available from the internet. Look at them carefully; fakes can often be detected because they may contain anomalies such as incorrect figures, minor typos or unlikely transactions (for instance a recent transaction with a company which no longer exists, such as BHS or Woolworths).

Companies

false companies are created, particularly, impersonating well-known companies

a UK company, for example, is set up in the same name as that of an overseas corporate registered proprietor in order to impersonate them

the company’s officers are impersonated which may be accompanied by a change of office holder notification to Companies House (sometimes referred to as ‘company hijack’).

Legal Practitioners

For solicitors check the Law Society’s ‘Find a Solicitor’ website but do not rely on this alone. You should carry out further checks on the Solicitors Regulation website or through their contact centre on 0370 606 2555. For licensed conveyancers check the Council for Licensed Conveyancers website.

For legal executives check the Chartered Institute of Legal Executives website.

Possible signs of fraud include the following:

Spelling or typographical errors in letter-headings

No landline telephone number

Inconsistent telephone or fax numbers with those usually used by the firm

Telephone calls being diverted to a call-back service

A firm apparently based in serviced offices

Email addresses using generic email accounts, such as Hotmail

Sudden appearance in your locality of a firm with no obvious connection to the area, probably

not interacting with other local firms at all

A firm appearing to open a branch office a considerable distance from its principal office for no

obvious reason

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A firm based in one part of the country supposedly having a bank account in another part of

the country

A firm's client account apparently overseas

A strange or suspicious bank account name - for example, the account not being in the name of

the firm you are supposedly dealing with

The details of a bank account to which money is to be sent change during the course of a

transaction

Consider also:-

Have you received at least one piece of correspondence on headed notepaper? Are the details on that notepaper consistent with the information about the firm on the website of their professional body, and is there no other cause for suspicion?

Looking up the name of a large firm in the area and speaking to them to see if they have had dealings with and know the other firm. Keep a note on your customer due diligence file of the actions you have taken (see Record keeping, below).

Before transmitting funds or accepting undertakings from another conveyancer, verifying their bank details or transmitting a small sum first as a test transfer.

Examples of suspicious behaviour

The Practice Guide quotes the following:-

If you are instructed on the sale of the property which has been owned by the registered proprietor for a long time, but the client appears to be younger than would be expected.

Where a client is reluctant to answer questions from you or from the purchaser. In Purrunsing for example, the fraudster withdrew from the sale to a buyer who requested details of the alleged overseas employer of the purported seller, which should have raised suspicions on the part of the seller’s solicitor, a factor which contributed to the finding that the firm was not entitled to s. 61 relief for breach of trust (see para 19 of the case report).

If the sale is by a supposed owner-occupier but the client wants you to write to a different address. Various reasons may be given (which may be genuine).

A client who requires the transaction to be completed with great urgency without a feasible explanation.

There are inconsistencies between what the seller states in the seller’s property information form (SPIF), and what a local search reveals. In Purrunsing, for example, the local authority

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search confirmed building works had been carried out although the seller had indicated in the SPIF that no works had been done on the property.

Transactions in which the property is being sold at what appears to be a low price, which may or may not be linked to a desire for a quick sale.

Statements or explanations are provided such as:

- ’I’ve already put my furniture into store and am living with a friend’

- ‘I’ve moved in with my boy/girl-friend’

- ‘We have trouble with our post being stolen’

- ‘It will be quicker if you write to my office address’

- ‘Don’t send me letters - use email for speed and I’ll call in to sign any paperwork

Contact details

Client contact details may suggest an increased risk of fraud, such as:

where the only contact details provided for any party are a telephone number, mobile number

and/or an email address

where a family member or associate is gifting the property and you are instructed by and meet

only one party to the transaction, and only have contact with the other party by post, telephone

or email

where the address is not the subject of the transaction without obvious reason

where the address changes occur mid-transaction without obvious reason.

There may be entirely valid reasons for all of these examples.

Vulnerable registered owners

Land Registry has identified that certain categories of owners may be more susceptible to registration frauds. These vulnerable registered owners include, for example, elderly owners who are in hospital or have moved into a care home. These types of owners often own properties without a legal charge. Attempts could be made to sell or charge their property by use of identity fraud.

Owners who live abroad are also particularly vulnerable to this type of fraud.

Some clients may be particularly at risk from fraudulent activity because, for example:

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they no longer live in the property and there was an acrimonious break up with a partner

they let the property or it is empty

they have already been the victim of identity fraud

they are a personal representative responsible for a property where the owner has died and the

property is to be sold.

Vulnerable properties

Land Registry has identified that certain types of properties may be particularly vulnerable to registration frauds, such as:

unoccupied properties, whether residential or commercial

tenanted properties

high value properties without a legal charge

high value properties with a legal charge in favour of an individual living overseas

properties undergoing redevelopment.

Keeping addresses up to date

In order to minimise risk where there are vulnerable registered owners or vulnerable properties Land Registry advises registered proprietors to keep any addresses they have registered for service at Land Registry up to date. See Land Registry Public Guide 2 Keeping your address for service up to date

Clients intending to leave their property empty for a significant period of time, such as for redevelopment purposes, should consider registering some other address(es) for service (see paragraph 4.2.1).

Note: The Land Registry suggests a Form LL Restriction might be registered to prevent dispositions without the consent of a solicitor. There is now a Form RQ which allows restrictions to be registered at no cost.

Mitigating fraud threats

Client identity

You should be aware that exercising reasonable care in viewing documents intended to establish identity may not conclusively prove that the person or company is the person or company they are purporting to be. In addition it may not be possible for you to conclusively establish that such person

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or company is either the registered proprietor of the relevant property or entitled to become so registered.

Even where you have followed usual professional practice the court may hold that the steps taken exposed someone to a foreseeable and avoidable risk and amounted to a breach of duty of care. See Edward Wong Finance Co Ltd v Johnson Stokes & Master [1984] 1 AC 296.

Conveyancing anti-money laundering

Conveyancing transactions are regulated activity under the Money Laundering Regulations 2017. You must therefore take steps to:

identify and verify your client by independent means

identify and, on a risk-sensitive approach, verify any beneficial owners, and

obtain information on the purpose and intended nature of the business relationship.

This last requirement means more than just finding out that they want to sell a property. It also encompasses looking at all of the information in the retainer and assessing whether it is consistent with a lawful transaction. This may include considering whether the client is actually the owner of the property they want to sell.

You should also comply with Money Laundering Regulations and Law Society general practice information.

For further information about fraud prevention see the Law Society’s anti-money laundering practice note.

You may keep a record of any steps you take.

Address for service at Land Registry

Since July 2008 Land Registry has inserted an entry in the register indicating whether the registered proprietor has changed their address for service (see paragraphs 4.2 and 4.2.1 below), to alert people to the change. For example, the entry may state: ‘The proprietor’s address for service has been changed’. People proposing to commit fraud have been known to change the address for service registered at Land Registry as a precursor to fraud. If you see this on your client’s register and are not aware of the reason for it you may ask your client why it was done.

Surrounding circumstances

Further factors you may consider include the following.

Where the registered proprietor is a company, does a search at Companies House indicate that

the company was incorporated after the registered proprietor was registered as the owner?

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Have you met your client face to face?

Have you seen the original identity documents or only copies?

Is the registered proprietor’s date of birth inconsistent with their being the owner?

For example:

Someone purports to be a registered proprietor and offers identification information, but there is an inconsistency between their date of birth and information on the register.

The date appearing immediately before a proprietor’s name in the proprietorship register is the date of registration of that owner:

(13.10.1970) JOHN SMITH and JANE SMITH

In this example the proprietors have been registered since 1970 and must have been at least 18 at that time. Consequently, if, in cases where you are seeing the client face to face, the person presenting the identification information appears too young, this may be a case of impersonation.

In the case of Nouri v Marvi [2010] EWCA 1107, a solicitor was held liable when he had failed to spot a licensee who was in occupation had forged signatures and was pretending to sell on behalf of the licensor.

Note: In May 2012 the SRA produced a Warning Card in relation to fraud. Suggestions include checking letterhead and email addresses are identical, being careful in relation to out of area branch offices, firms without a landline telephone number or with callback, bank account details which are different from the name of the firm or in a different part of the country.

SRA Warning Card on Bogus Law Firms

Some examples of factors giving rise to suspicion are:

Errors in letter heading – in one case the bogus office had letter heading which misspelt the name

of the town in which it was supposedly based

No landline telephone number – note that numbers beginning with 07 are mobile telephone

numbers

Inconsistent telephone or fax numbers with those usually used by the firm

Telephone calls being diverted to a call-back service

A firm apparently based in serviced offices

Email addresses using generic email accounts – most law firms have addresses incorporating the

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name of their firm. If in doubt, check the genuine law firm’s website to identify its contact email

address. You may well notice a difference.

Sudden appearance in your locality of a firm with no obvious connection to the area, probably not

interacting with other local firms at all

A firm appearing to open a branch office a considerable distance from its head office for no

obvious reason

A firm based in one part of the country supposedly having a bank account in another part of the

country – this is a strong indicator and has been seen several times.

A client account apparently overseas – this is a breach of rule 13.4 of the SRA Accounts Rules and

is a major red flag

A strange or suspicious bank account name – such as the account not being in the name of the

law firm you are supposedly dealing with either at all or by some variation.

If you become concerned, you should consider checking some of the above points yourself. Because of the possibility of the theft of the identity of a genuine solicitor, it is worth trying to speak to the solicitor concerned. For example, if the solicitor is supposedly at one particular office but is also based at a head office of the firm, you could speak to the head office preferably after verifying its genuine nature, perhaps by contact with the senior partner.

You should check the Find a solicitor website since there are sometimes bogus law firms which have not sought registration with the SRA and will not appear there; but bear in mind also that the nature of identity theft is that fraudsters may have obtained some form of registration by fraudulent misstatement to the SRA and therefore an entry on ‘Find a solicitor’ should not be taken as verification that the firm is genuine.

In the case of Schubert Murphy v The Law Society 2017 [EWCA Civ 1295] a firm of solicitors have been given leave to sue the Law Society. They had relied on Find a Solicitor and paid £735,000 to a bogus seller. In fact, the property which was supposedly being purchased was actually a property in the process of being repossessed. The supposed seller’s solicitor had their identity stolen. They had recently retired and the fraudster had claimed that they had changed their name by deed poll. Find a Solicitor was updated accordingly. In September 2017 the Court of Appeal confirmed the first instance decision. It was reasonable for conveyancers to rely on Find a Solicitor. Find a Solicitor now contains a disclaimer that it cannot be relied upon. The disclaimer will be subject to s3 of the Misrepresentation Act 1967 in that it can only be relied upon if reasonable.

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Law Society and Land Registry Guidance on Fraud and Property Transactions

Where you do not see a client face-to-face, the Money Laundering Regulations 2007 provide that you must undertake enhanced due diligence. Not undertaking face-to-face checks may increase the risk of the transaction being exposed to investigation by the law enforcement agencies and/or the SRA.

For further information see paragraph 4.9.1 of the Law Society’s Anti-Money Laundering Practice Note.

Non face-to-face transactions increase the risk of fraud and these risks may be mitigated in the following ways.

If you are accepting instructions from one client on behalf of others or by a third party, rule

2.01(c) of the Code of Conduct requires you to check that all clients agree with the instructions

given. For example, an unwary conveyancer might deal solely with the son or daughter of a

registered proprietor and have no contact with the person who is the owner.

Where you know or have reasonable grounds for believing that your instructions are affected by

duress or undue influence, you should bear in mind also the provisions of rule 2.01(d).

In the case of a third party charge created to secure debts of another, you should consider

contacting the purported lender independently. If there is a purported representative for the

lender, then consider contacting that representative for confirmation of the transaction. In these

circumstances there is a regulatory requirement for separate representation.

Risks of fraud are increased if documents are provided to clients for execution other than in the presence of you or your staff.

In order to protect or to mitigate risk for you and your firm, you may keep a contemporaneous record of the steps you take, including the reasons why you took a particular decision and the consideration you gave to risk.

0n 8th January 2018 the Land Registry amended is Practice Guide 67 on identity checks, stating when ID must be provided and what is acceptable. If a person who is unrepresented is known to HMLR, due to the number of transactions they go through, ID1’s and ID2’s are not required, e.g. for large investors.

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Record Keeping

The new Practice Guide stresses the need to keep contemporaneous records of identity checks that were carried out.

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SEPTIC TANKS

As of 6 April 2010 Consent to Discharge is being phased out, to be replaced by the need for a Discharge Permit or Exemption from the Environment Agency. By 1 January 2012 all septic tanks will need to be registered, no matter how old. New tanks which are fully compliant with modern Building Regulations will be registered as being exempt. In August 2011 it was announced that the registration of small septic tanks would be reviewed in England. Registration for an exemption may occur, but will not be necessary by 1 January 2011.

The provisions will still come into force on 1 January 2012 in Wales however.

On 18 December 2011 the Environment Agency clarified the rules in relation to registration of septic tanks. In England, registration will be required by no later than the end of December 2012. There are two exceptions to this where registration should occur by 1 January 2012, i.e. where there is a discharge of more than 2m3 a day or where the discharge is within a Zone 1 ground water protection zone. The Environment Agency will advise over the telephone whether the latter is the case. In Wales registration should occur as soon as possible, but the Environment Agency will accept registrations until 30 June 2012. The Welsh Assembly intends to send leaflets to anyone with a septic tank. In England and Wales the cost of a discharge permit is temporarily set at £125.

The Environment Agency announced on 6 June that they were still consulting on the registration of small septic tanks and there will be no obligations in the immediate future.

Note: Regardless of registration, maintenance records should be kept in relation to the tank and TA6 Enquiries ask for these to be provided to the buyer.

Note: That implementation of these provisions in England was put on hold in August 2011. However, they came into force in Wales on 1 January 2012.

Note: On 6 June 2013 the Environment Agency announced that small septic tank registration would not be required in the immediate future, although larger tanks and those in water protection zone areas should have been registered already.

On 9th October 2014 the Environment Agency announced results of their consultation and draft regulations will be produced for implementation on 1st January 2015. As of 1st January 2015 large septic tanks discharing more than 2m3 of waste a day will need to be registered with a discharge permit costing £125. Small tanks will not need to be registered with an exemption but will need a discharge permit if in a zone 1 water protection zone area or within 50m of a drinking supply or if the discharge is above the low water mark. Tanks in areas of outstanding natural beauty will now not need to be registered. None registration is a criminal offence although the Environment Agency intend to be lenient and educate property owners rather than prosecute.

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The provisions came into force in England on 1st January 2015. New tanks in designated areas will need to be registered and obtain a permit but not existing tanks. The number of designated areas has been reduced. Larger tanks will still require a permit.

The above provisions are contained in the General Binding Rules. In addition, if a septic tank eventually flows into a water course as opposed to a drainage field, this must be replaced on a sale of the property and by January 2020 at the latest. A treatment plant will not need to be replaced.

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S1 LANDLORD AND TENANT ACT 1988

The Landlord and Tenant Act 1927 gave rise to a practical problem, i.e that landlords when asked to give consent to an assignment would not reply to any written request either at all, or within a reasonable period of time. The tenant was, therefore, unsure whether consent was being withheld or not.

To meet this difficulty, the Landlord and Tenant Act 1988 was passed. By s1, when a landlord is asked in writing for consent pursuant to a qualified covenant against assignment, sub-letting or parting with possession, he is required:

(1) to give consent (unless it is reasonable not to) within a reasonable time, and to give written notice to the tenant of his decision, also within a reasonable time, specifying any conditions attached to consent; or

(2) if consent is refused, the reasons for refusal (within a reasonable time).

These provisions effectively shift the burden on to the landlord either to give a reasonably swift, unequivocal consent, or to give precise reasons for withholding consent, which the tenant can either challenge, if he consider them unreasonable, or accept. If the landlord fails to comply with s1 the tenant may sue for damages in tort: s1 should not be forgotten and should always be discussed in conjunction with s19 above.

It seems that the parties cannot contract out of s1, but it is possible that the landlord could require an indemnity, e.g. against a guarantor against potential liability.

In the few cases which discuss the subject, a reasonable time for the purpose of replying to a request for assignment or sub-letting is enough time to allow the landlord to check the creditworthiness and suitability of the proposed assignee. Thus, in Midland Bank v Chart Enterprises [1990] 44 EG 8, the landlord was successfully sued on not replying to the tenant’s request after three months. In Kened LTD v Connie Investments Ltd [1997] 04 EG 141 assignment was subject to a satisfactory replacement surety being found. The Court of Appeal found for the tenant. The landlord was not entitled to particulars of the assignment but was only concerned with the character and identity of the assignee. Moreover, an objectively suitable surety should have been accepted by the landlord.

Finally, the fact that the landlord had not notified the tenant of a reason for refusal suggested that it was not in his mind at the time of refusal. There was consequently a breach of s1 by the landlord.

Dong Bang Minerva Ltd v Davina Ltd [1996] 31 EG 87, CA

The Court of Appeal have confirmed that the landlord could not withhold consent to assignment by requiring an undertaking as to costs which were estimated as being unreasonably high.

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The question of whether consent to an assignment can be refused prior to any undertaking as to costs being given was left open, as was the question as to when time began to run for the purpose of S.1, i.e. whether or not before a reasonable undertaking as to costs had been requested.

In Norwich Union Life Insurance Society v Shopmoor Ltd [1998] 3 AllER 681, the court made it clear that the landlord must decide any information required to make his decision and then put the questions clearly and precisely to the tenant. Where the landlord had not asked the tenant about the financial standing of the proposed assignee, he could not subsequently use the lack of information as a reason for refusing consent.

This has been taken further in Footwear Corporation Ltd v Amplight Properties Ltd [1998] 25 EG 171. The landlord could not refuse consent to a sub-letting for reasons he had intimated to the tenant in a telephone conversation but were not given in writing. The Court said that the policy behind the 1988 Act is that a landlord who has not given his reasons for refusing consent in writing within a reasonable time cannot afterwards justify his refusal by putting reasons forward which he had in his mind but had not sufficiently notified the tenant of.

Note: That the case also said that there was no blanket rate that if profits were not 3 times rental, consent to a sub-letting could be refused. In relation to an assignment, post Landlord and Tenant (Covenants) Act 1995, there could be an absolute condition here.

In NCR v Riverland Properties the court said that lack of creditworthiness of a sub-tenant was a good reason for refusal of consent as if the head lease were disclaimed the sub-tenant would become the immediate tenant.

In Proxima GR Properties v Dr T D McGhee [2014] UKUT 0059 (LC) the Tribunal held that under s1 of the Landlord and Tenant Act 1988 the landlord had to show that the charge for a notice of assignment was reasonable. Moreover the response must be given in a reasonable time. If a landlord tried to charge an unreasonable amount for a notice of assignment then the tenant would not have to pay anything as the landlord would be deemed to have given their consent. In this case £90 was held to be reasonable.

No 1 West India Quay (Residential) Ltd v East Tower Apartments [2018] EWCA Civ 250 here the landlord had responded to a request for an assignment within a reasonable time as originally the tenants had sent the request to the wrong address. He was also acting reasonably in the circumstances in requiring guarantors and also a surveyor to inspect the premises. However, requiring an undertaking as to costs of £1,250 + VAT amounted to an unreasonable refusal of consent which allowed the tenant to assign without consent. In spite of this the landlord was entitled to £350 contractual costs. In February 2018 the Court of Appeal heard this case and decided that the fact that the cost of the license to assign was unreasonable, did not affect the other conditions as to assignment relating to the need for a survey and guarantors. This overrides decisions going back to Footwear Corporation Ltd v Amplight Properties Ltd [1998].

In Singh v Dhanji [2014] AllER(D)131 the landlord refused consent to an assignment of a 15 year lease unless alleged breaches arising out of refurbishment work were remedied. It was held that breaches

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were not proven but even if they were they would be minor and would not be a good reason for refusing consent.

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Copyright © Davitt Jones Bould (“DJB”) and Richard Snape 2018

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Published March 2018

DISCLAIMER

This oral presentation including answers given in any question and answer session (“the presentation”) and this accompanying paper are intended for general purposes only and should not be viewed as a comprehensive summary of the subject matters covered. Nothing said in this presentation or contained in this paper constitutes legal or other professional advice and no warranty is given nor liability accepted for the contents of the presentation or the accompanying paper. Richard Snape and Davitt Jones Bould will not accept responsibility for any loss suffered in consequence of reliance on information contained in the presentation or paper. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical or otherwise without the prior written permission of Davitt Jones Bould. www.djblaw.co.uk. Davitt Jones Bould is the trading name of Davitt Jones Bould Limited. Registered in England (company registration No 6155025) Registered Office: 12-14 The Crescent, Taunton, TA1 4EB. A list of Directors is available for inspection at the registered office. This firm is authorised and regulated by the Solicitors Regulation Authority. © Davitt Jones Bould and Richard Snape 2018

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