Managing risk in residential property and conveyancing transactions

Ascertaining the planning status of the property is fundamental to the transaction. Sellers are legally obliged to disclose a wide range of matters relating to planning and building work. Any lack of transparency when responding to enquiries could undermine the buyer’s confidence ahead of completion and endanger the deal. It could also result in a legal claim by the buyer against the seller if discrepancies come to light after completion.

Here are some things to bear in mind about planning when you are buying or selling a home.

• Certain alterations might require Planning Permission, Conservation Area Consent, Listed Building Consent or Building Regulation Completion Certificates
• Enforcement of breaches of planning or building regulations depends on the nature of the works and when they were carried out
• Enforcement of certain breaches of planning law, including a failure to obtain Listed Building Consent is not time-limited and can carry criminal liability
• Where gaps in the planning history of the property appear, being upfront with the purchaser and taking steps to rectify the issue can instil confidence and prevent the transaction falling through

Top Tip

It is essential for a seller to ensure appropriate permissions and consents have been obtained and for a buyer to be satisfied that this is the case. Seek expert legal advice from your conveyancing solicitor to calculate the cost and risk involved if the local authority were to take enforcement action in relation to any planning matter and factor this into the purchase/sale price.

Property transactions can trigger a number of tax liabilities for private individuals as well as businesses. A failure to pay the correct amount can carry serious consequences. Taxation issues that may arise in residential conveyancing transactions include:

• Stamp duty land tax (SDLT) will almost inevitably be charged on most residential purchase transactions over £125,000 (or over £300,000 for first time buyers)
• Annual tax on enveloped dwellings (ATED) applies to residential properties owned by companies or partnerships valued at more than £500,000
• Capital gains tax (CGT) will be charged on the profit when you sell residential property that is not your main home
• Income tax and corporation tax apply to income generated through real estate
• Selling a deceased person’s property when going through the probate process can produce a liability to Inheritance tax (IHT). Tax will be chargeable based on the total value of an individual’s estate – this includes property owned by the deceased

Top Tip

Your tax liability and when you are required to pay will depend on the nature of the transaction and the specific tax that arises. You should always get expert advice from a conveyancing solicitor to ensure you pay the correct amount within the required timeframe. Professional legal advice can ensure you to take advantage of all available tax reliefs and exemptions and that you hold or dispose of the property in the most tax efficient manner.

Leasehold title is generally regarded as an inferior class of ownership to freehold for several reasons. Here are some issues to be aware of when buying or selling leasehold property. When purchasing a leasehold title or obtaining secured lending on a leasehold property, it is quite common for the lease to require updating or correcting in some way. A Deed of Variation or other documentation may be necessary. This can add to the cost of the transaction and lead to delays. Service charges have a tendency to rise over time and the running cost of the leasehold property can be negatively impacted over the long term. Often the leaseholder has very little influence in the level of these charges. Although recent legislation means new leases cannot include ground rent, many old leases still reserve rent and can impose high or doubling ground rents. This can affect the future marketability of the property. Building safety issues in the aftermath of the Grenfell Tower Disaster are now of paramount concern. The required certification and statutory red tape can make it very difficult, if not impossible, to sell affected properties. Even smaller leasehold blocks of flats are caught by much of the safety regulations introduced following Grenfell.

Top Tip

Leasehold property presents challenges for both buyers and sellers. However by carrying out the necessary checks you can satisfy yourself that the lease you are acquiring is not unduly onerous and is acceptable to your lender. There is then no reason why the transaction should not proceed smoothly. For more information speak to a residential property solicitor to help you understand the risks associated with leasehold properties.

In view of the large sums of money involved in residential property transactions, there is a big risk of fraudulent activity from various quarters. Being alert to the possibility of online criminal activity and taking steps to minimise the threat of your funds being stolen is crucial. This means being aware that:

• Emails can be intercepted by fraudsters so you should always speak directly to your solicitor via a known phone number to verify bank details. Buyers should be especially suspicious if there appears to be a change to any bank or other details originally provided to them by their solicitor
• Fraudsters can obtain fake domains that are similar to legitimate domains and send emails that look identical to the ones you typically receive from your solicitor.
• Buyers and sellers should always double-check the sender’s address and speak directly to the solicitor if something doesn’t look right
• Fraudsters can pose as property owners to sell or obtain a mortgage. Irrespective of whether their property is for sale or not, owners should register with the Land Registry for property alerts so that they are notified of any suspicious changes to the property register
• The day of completion is the key danger point. Fraudsters can gain access to your email accounts and change bank details just before completion of your sale. Ensure you use strong, unique passwords and multi-factor authentication across all accounts

Top Tip

Your residential conveyancing solicitor will have extensive precautions in place to protect your identity and funds. However you should always take steps to ensure your own vigilance online at each stage of your property transaction. If you suspect any suspicious activity, contact your property solicitor for advice immediately and reduce your risk. 

Most of the land (88%) is registered in England and Wales. However, problems can arise on a property sale or when refinancing if there is unregistered land involved. Risks associated with these transactions include delay, financial hardship and even aborted sales. In particular you should be aware of the following:

• If the unregistered land is on or near a property boundary, this can result in costly boundary disputes with neighbours over where the precise legal boundary is
• If the land being sold is unregistered questions can arise over legal ownership. There may, for example be a legitimate claim for adverse possession (‘squatter’s rights’) provided the relevant criteria are satisfied. Applications for adverse possession can take several months, or even years to be finalised, depending on the complexity
• Often the Title Deeds for unregistered land have been misplaced. This can cause practical issues in establishing and enforcing rights over the land, including easements relating to matters such as access rights or drainage rights. The property may be subject to unknown restrictive covenants which the seller could unwittingly be in breach of
• Lenders may be reluctant to fund the purchase of unregistered land and may impose strict conditions on the loan. This can lead to delays and complications where the buyer is relying on a mortgage to complete the transaction
• Following completion, the purchaser is required to apply for first registration of the land at the Land Registry. This involves additional cost and should be factored into the agreed sale price

Top Tip

Extra caution is required when dealing with unregistered land. You should make sure your conveyancing solicitor is familiar with the additional checks and safeguards necessary to ensure legal title is transferred securely.

It is important to establish if the land being sold is affected by Common Land when buying or selling property. Here’s why:

• Common Land is generally open to the public for recreational use. This includes a right to roam, meaning the land can potentially be used for walking, climbing or horse-riding
• Where rights of common exist, individuals other than the owner can use it in certain ways. Rights include the right to put livestock on Common Land, take wild animals from it, take timber, turf or peat or take fish from ponds, lakes and rivers located on the land
• Ownership of common land carries responsibilities. You must consider the interests of both the owner and people who have rights over the land. Sometimes the Council can step in and make decisions over the land irrespective of the wishes of the legal owner.

Top Tip

Purchasing land on or near Common Land involves weighing up the benefits of ownership against the drawbacks and risks of having to share certain aspects of the land with others. Your residential property solicitor can help advise you to make an informed decision on whether to proceed by visiting your local authority and checking the Commons Register. This sets out the location of Common Land in your area, who the owner was (at the time the register was made in 1970), who can use the land and what they can use it for.

The presence of Japanese Knotweed (JK) at a property presents huge issues for property owners. If purchasing land with JK or where its presence is suspected the following issues and risks arise:

• The cost implications are likely to be considerable. JK can devalue a property, cause issues when securing a mortgage and impact marketability
• There is also a risk of JK spreading to neighbouring properties and, if it does, there is case law that supports claims against property owners for JK originating from their property causing damage to adjoining properties
• Treatment of JK is expensive and may need to be carried out over a prolonged period. Sometimes, it is impossible to completely remove it, and ongoing treatment and monitoring may be required

Top Tip

Sellers are obliged to disclose whether the property is affected by JK at an early stage of the transaction. They can be liable for misrepresentation to the buyer of they fail to disclose its presence. Where JK is present or suspected, the buyer may decide to withdraw from the sale or renegotiate the agreed price. Always seek independent legal advice to ascertain any associated risks with residential property transactions.