Property UPDATE

Issue No.5 April 2006

HOME INFORMATION PACKS

What are they and when will I need one?

The Government aims to speed up the process of buying and selling residential properties by introducing home information packs (“HIP”) from 1 June 2007.

HIPs will be needed for residential property sold on the open market with vacant possession. There is no need to obtain an HIP if you are selling a tenanted property or a mixed residential and commercial property. You will not be allowed to put a property for sale on the open market without an HIP, but sanctions will now be civil rather than criminal, as originally proposed.

The person marketing the property (usually an estate agent) must make sure that a HIP is made available for buyers. If no agent is used then the seller is responsible.

Final regulations as to what must be included are still awaited. It is expected that HIPs will be in a standard, formatted form and include evidence of title (including copies of any leases), replies to new, standard questionnaires, a contents list, standard searches such as local, drainage and environmental searches, copy planning permissions, warranties and guarantees. If the property is leasehold details of the landlord and/or management company, service charges and recent demands for rent, service charges and insurance contributions and other information about service charges must be included. Importantly, in addition all HIPs must include a home condition report.

What will it contain and cost?

The Government estimates that the cost will be about £635, but industry specialists consider £1,000 (plus VAT where applicable) is likely to be a more realistic figure.

What are the pro’s and cons?

The Government hopes that HIPs will speed up the housing market by enabling exchange of contracts to take place more quickly.

There are fears that the introduction of HIPs will distort the residential market. Buyers will save on wasted costs of surveys and searches but as the cost of preparing a HIP will fall on sellers, this may deter some from putting their property on the market. There are concerns that many buyers, particularly first time buyers, may delay buying until after the introduction of HIP in June 2007 as they will then save costs. This may have a knock on effect on the market generally before the introduction of HIPs. Once introduced, the fear is that fewer properties will come to market.

In addition, there are very real concerns that insufficient “home inspectors” will be available to carry out the home condition reports. Home condition reports can only be prepared by those who have been certified as being suitable, but as yet the Government has not introduced the necessary certification scheme. Further, the Council of Mortgage Lenders (CML) warns that it will still need to carry out independent valuations as no valuation will be included in the home condition report. Generally the CML has quite strong reservations about the efficacy of the Government’s HIP scheme.

If you are considering putting your residential property on the market within the foreseeable future we will be pleased to discuss the issue of HIPs with you.

REFORMS TO THE FIRE SAFETY LAW

Fire safety law is soon to change. If you own, occupy or manage premises you are likely to have responsibility for fire safety matters under the new rules.

The new regulations* will come into effect on the 1 October 2006. An earlier April start date was deferred to allow businesses more time to familiarise themselves with the legislation.

The new regulations will sweep away the existing law and the requirement to obtain fire certificates. The rules will apply to virtually all premises, other than domestic premises occupied by a single family.

Will you have responsibility for fire prevention?

Inspectors from the Fire Authority will no longer inspect premises and advise on fire safety. Instead responsibility will lie with the “responsible person”. This may and often will be more than one individual. For instance in a commercial building occupied by tenants carrying on a business the responsible person may include each of the landlord, the tenant, each employer and the managing agents. The key to being a responsible person is whether that person has control over any part of the premises. Where there is more than one responsible person at the premises they must take all reasonable steps to work with each other.

Each responsible person must appoint at least one “competent person” to assist them. This is to be someone with “sufficient training, experience and knowledge”. It could for instance be a safety officer for the building or an external fire safety consultant.

What must you do?

The responsible person must carry out a fire risk assessment. The safety of all “relevant persons” must be considered with particular attention paid to those with special requirements such as the disabled. The assessment should help the responsible person to identify risks that can be reduced or entirely removed. It should enable the responsible person to implement fire precautions such as fire alarms and extinguishers, emergency lighting, notices and signs and procedures for evacuating the building via fire escapes.

Sanctions and further information

Enforcement of the regulations is to be by an “enforcing authority” which will usually be the local fire brigade but could be a local authority.

Prospective purchasers or tenants will now need to see a copy of the fire risk assessment and any notices that may have been served by the enforcing authority. Failure to comply with the new duties can result in the payment of a fine and/or up to two years imprisonment for the responsible person. As a defence the responsible person can claim they took reasonable precautions and exercised all due diligence to avoid committing an offence.

Useful information as to the changes is available on the website of the Office of the Deputy Prime Minister (www.odpm.gov.uk). They will be publishing a series of guides to assist with the preparation of fire risk assessments.

* The Regulatory Reform (Fire Safety) Order 2005 (RRFSO) (Statutory Instrument 2005 No. 1541)

Litigation: How to Limit the Potential Cost of Disputes

Costs/Benefit analysis

Seeking early advice is essential to limit the costs of any dispute.

If not properly controlled and managed, litigation costs can spiral out of all proportion to the issues and sums in dispute. An early analysis of the likely costs involved, not just in legal and expert's fees, but also the hidden cost to you in terms of management time spent in dealing with the claim is essential. It may be that court proceedings are not the best option.

There are always a number of options available and it is important to assess these on a step by step basis. For example, in a simple debt claim where there is no real dispute, but where the debtor is perhaps juggling cash flow, the creditor who acts promptly and most effectively will get ahead of the game. Service of a statutory demand is often a quick and cost efficient method of obtaining payment, carrying with it the threat of insolvency or bankruptcy proceedings if the debt is not paid within 21 days. At CVS we have used this method to good effect on many occasions, often at a cost of no more than a few hundred pounds.

CVS is well placed to advise on the best way forward. We appreciate not only the legal issues, but also the wider commercial perspective. The decision whether or not to forfeit a lease for any breach is usually a commercial one. There are many options available in the case of breach of covenant to pay rent or service charges, and we can assess the most efficient and cost effective way to proceed. The moment a tenant is late in making payment is the moment to act.

Negotiated Settlements

The modern trend in litigation, encouraged by the courts is to try to achieve a negotiated settlement in the first instance. Our litigation team has the depth of experience to do this. We recently achieved a five figure settlement of a professional negligence claim for a client without a procedural shot being fired, simply by legal argument and negotiation. All of our client’s costs were paid by the other side.

Mediation

Mediation is an important tool in modern litigation, as it can prove quicker and less expensive than court proceedings. Mediation has an even greater role to play where there is an ongoing commercial relationship which is unlikely to be preserved if proceedings are issued, but may be retrieved by negotiation. One of our litigation team is a mediator, and therefore has experience of the process from both sides of the fence.

Our Costs

We think you will find our rates competitive. Even where a litigant is successful and is awarded his costs, these are subject to assessment by the court. Our hourly rates have been upheld on recent assessments and are well within the court's guidelines. More often than not, we are able to agree our fees with the other side without the need for assessment, as it is difficult for other firms whose fees are higher than ours to suggest they are unreasonable. In the last assessment of costs for our successful client we achieved a return of over 80%, where the accepted rule of thumb is between 70 & 75%.

Everyone wants to avoid litigation, but if you have to litigate our legal team all act swiftly and economically, and we appreciate the importance of keeping costs under control. It is in our interests after all, as we want to retain our clients and for our clients to feel safe in our hands.

Note:

Please note that this newsletter is not intended to be a comprehensive statement of the law and should be used for guidance purposes only. If you require specific legal advice please contact Alastair McClean, Michael O’Shea or Sharon Rutter or by telephone 020 7493 2903.