Is Caveat Emptor the key to Conveyancing Reform?
The past couple of years has been full of discussion on how to improve the home buying and selling process. Indeed, at a roundtable meeting held by the Council for Licensed Conveyancers (CLC) it was noted that the rapid adoption of technology due to Covid-19 could see the conveyancing process move from an emphasis on the buyer and caveat emptor to one of vendor disclosure.
The need for change has always been evident, especially when one reflects that, apart from a botched attempt in 2007 to make changes with the introduction of the home information pack, this country has not seen any major property legislation reform since 1925.
The question of whether there exists sufficient political will, and indeed strength, to bring about much needed change is debatable, and only time will tell if anything comes from some of the initiatives in play.
The need for change has always highlighted some of the major deficiencies which exist within, what has become, a very archaic conveyancing system.
As a conveyancer who encounters the daily frustrations and limitations of the current conveyancing regime I outline below my thoughts on what could be done to bring about an instant and simple change, and plans which would not take too much political effort and legislative time to implement.
One thing is for sure, we will not be seeing, at least in my lifetime, far reaching and detailed changes. There is far too much vested interest, and without the full support of all stakeholders (which was completely lacking in 2007 when HIPs were introduced), even the strongest of Governments would find it difficult to find the courage to meddle too much. Indeed, this was acknowledged within the Call for Evidence back in 2018 where the Government on commenting on what happens in certain other countries, concluded:
‘The thoroughness of the current system for buying and selling homes in England and Wales is one of its great strengths and there is no desire to completely uproot it and replace it with something else’
Issues within the current conveyancing process
The Government has in the past, identified mistrust and delay as major issues. There was within the 2018 Call for Evidence multiple reference to ‘Guzumping’, and the frustration home sellers and buyers experience during the process. Mistrust and delay are clearly linked, and there is no doubt they present, when combined, a major problem for the consumer when embarking on the conveyancing journey.
On this subject Government provided the following statistic:
‘Around 40 per cent of buyers and sellers felt that the exchange of contracts was delayed and where a delay occurred, they were likely to blame the conveyancer for the other party. When asked about how the home buying and selling service could be improved, around a third of buyers and sellers wanted a faster service from conveyancers’
This is of no surprise when you take into account the number of steps there are in the current process ( the Government highlighted 70), the lack of immediate control over the role others play in the process, such as lenders, estate and management agents and Councils, and also the varying standards of the conveyancers operating within the system. I always say to clients when asked about the time it will take, that it will all depend on who is acting for the other parties in the chain, since I will only be able to go as fast as the slowest party permits.
As for ‘guzumping’ I am not sure this is a widespread issue. I believe clients are more concerned about seeing a joint commitment to progress with a transaction once an offer is accepted. Clearly as the system currently operates, either party to a transaction can pull out, without any financial penalty, right up to the point of exchange. This creates uncertainty, fear and an unwillingness to commit both financially and emotionally to a quick progression of the transaction. Why pay for searches and a survey too early in the process, when there is a fear the seller may withdraw and re-market.
So, what is the proposed solution?
There is no instant or magic fix. As I say earlier, the only way of major improvement is to start with a clean piece of paper. However, this will simply not happen, and the only hope is that through some light touch regulation, the Government may be able to bring about some small changes which will make the conveyancing experience a little more certain and far more transparent.
I say regulation will be required, since without it, as the voluntary uptake of the Law Society Conveyancing Protocol, or rather lack of it, has shown, any hope of improvement will simply not materialise. The limited success of the Home Information Pack demonstrated that you need to mandate and impose requirements to bring about change, and to make sure it is implemented in a uniform and strict way.
Acknowledging as I do, that any change will need universal support from all stakeholders, and take a form which is not too out of alignment with the current process, my proposal ( which is not new), is that thought should be given to reversing the legal basis on which the sale of a property takes place. Currently this is based on the principle ‘caveat emptor’. This means that the buyer needs to make investigations about the property before exchanging contracts to purchase. Broadly this is on the basis that, subject to certain exceptions, the buyer will take the property subject to matters that he didn’t know about, if he failed to search or make enquiry.
This is a long-established principle of law and some would argue that it is unlikely a Government would look to interfere with it. There is some strength in this view, although in recent times it does appear the Government has an appetite to challenge its application. Take for example, the Consumer Protection (Amendment) Regulations 2014, which, though not directly impacting on residential conveyancing, clearly demonstrates a will to impose an obligation on a ‘trader’ to be upfront and honest about everything. Interestingly the 2014 Regulations changed the definition of “trader” as contained in the Consumer Protection from Unfair Trading Regulations 2008 to include not only a person acting for the purposes of the person’s business but also someone “acting in the name or on behalf” such a party. A conveyancer will often act “on behalf” of a client in matters such as issuing replies to enquiries, so their action may directly affect the client, and could be captured by these regulations.
There seems to exist therefore a blueprint for the imposition of a similar obligation on a seller in a residential property transaction.
So, how would this work in practice?
The onus would be on the seller to provide the buyer with a full and honest disclosure of all known ‘bricks and mortar’ and legal issues relating to the property to be sold.
Borrowing the wording of the criminal offences created by the 2008 Regulations mentioned above, this could be implemented by imposing the following legal obligation on a seller:
- Not to provide false information or present information in a way which deceives or is likely to deceive the average consumer and, as a result, causes or is likely to cause the average consumer to take a transactional decision that they would not otherwise have taken.
- Not to omit or hide material information or provide material information in a manner which is unintelligible, ambiguous or untimely, or fails to identify its commercial intent and, as a result, causes or is likely to cause the average consumer to take a transactional decision that they would not otherwise have taken.
I am not advocating the creation of a criminal offence, but legislation could be introduced along these lines to provide the buyer with a right to rescind the contract/claim damages, if it could be shown that the seller had not complied with these obligations.
This would also supplement and enhance the already existing exceptions to the caveat emptor rule namely:
- Latent defects: technical defects in the quality of the legal title to a property that are not reasonably discoverable by looking at the paperwork or from inspecting the property, eg an undisclosed restrictive covenant. If they exist, their presence may allow the buyer to walk away from a transaction.
- Misrepresentation: incorrect replies to enquiries that cause damage to the buyer can lead to a claim. A misrepresentation is not only an out-and-out incorrect answer but also overly distorted answers deigned to mislead.
The change in emphasis would mean the seller would need to get his or her ducks all in line before embarking on the sale process by submitting a contract pack.
A prudent seller looking for certainty would probably have the property surveyed, to ensure the survey had recommendations if there were issues, and to be willing to make this available to the buyer.
Estate agents will probably argue this could turn potential buyers off. I am not sure I agree. If the report is structured in a positive way with constructive recommendations, it would make the property more appealing to the buyer, and would avoid the cost of a late withdrawal from the transaction, which happens pretty regularly. It would also assist a seller in securing an early mortgage offer, as I suspect the lender would need to see the survey as part of the application process. It would also lay a safer, and more secure, foundation for the introduction of a pre-exchange deposit requirement.
I would also envisage the existing Property Information Form becoming larger in its scope, and encompass questions on the legal title, probably requiring the seller to produce the Land Registry title documents, as well as including the disclosure of any apparent title defects, together with positive recommendations by the seller on how these could be addressed e.g the offer of indemnity insurance.
I could also see the Property Information Form having to be supported by the three standard property searches – Environmental, Water and Drainage, Local Authority, together with recommendations on addressing issues which may arise from out of each of these search results.
The search industry might wish to use this an opportunity to design a new type of search which encompasses all of the important material contained in these separate searches, but which also includes nearby planning applications and flood data.
I agree all of this involves a lot of front loading. I also agree it smacks of the home information pack days. We shouldn’t however be too dismissive of that effort to quicken the process, and I am sure had the legislation had the full support of all of the stakeholders, and had become law with the survey requirement still intact, it may have very well survived.
The difference here is that the change would not be prescriptive. The onus on the seller and the seller’s conveyancer would be to make sure the seller is complying with the disclosure rules and to be made aware of the consequences in the event of a failure to adhere. All the proposal would do is to shift the emphasis for investigation away from the buyer and onto the seller.
So, what would the advantages be of this system?
To begin with, there would be less scope for delay once the transaction is commenced. The role of the buyer’s conveyancer would still be to check the disclosure and to report to the buyer, and the buyer’s lender. There may be several options for addressing disclosed defects, and the conveyancer will need to be able to advise the buyer on these. The role may change slightly. The buyer conveyancer may become more involved in price re-negotiation on the basis of the recommendations, and the risks to the buyer proceeding in the knowledge of the disclosed facts.
There would be less need to report issues to lenders, which often spring up late in the course of a transaction, and which nearly always lead to delay.
The disclosure would also rule out the lengthy and sometime stressful part of the conveyancing process where the buyer asks the seller countless questions and asks for documents mentioned in search results, which often cant be found or don’t exist. It would get around the inquisitorial and defensive approach to information that is actually readily available to the seller.
Secondly, the obligation to disclose will almost certainly promote greater trust between the seller and the buyer. The buyer is able to proceed knowing remedies would be available in the event of a failure to provide full and frank disclosure. The buyer would also be purchasing in a more transparent way, and this in itself would create more certainty over choice and lead to less abortive transactions.
Knowing more about the type of transaction at the outset will also make it easier for the conveyancer to quote for the work, and reduce the scope for fee increases during a transaction, when issues not known at the quote stage arise.
Collating data on a property at the outset, and exposing all of its weaknesses, and putting forward solutions to address the defects, could also lead to greater speed and less cost in future transactions , especially if a structure for recording the issues and resolutions for future reference is also implemented ( such as a property log book ), at the same time. It is madness that a legal title to a property is investigated time after time by different lawyers yet there is no record of what was found, and what action was taken to remedy defects. Surely a mechanism within the Land Registry could be devised to address this, and make it easier and quicker for registered property titles to be relied on.
The solution I would say is simple and as demonstrated would not take too much to implement.