Buyer beware: tips to a smoother exchange of contracts

Many property lawyers and agents will welcome the recently released video explaining "how property listings are changing" by The National Trading Standards Estate and Letting Agency Team. 

Estate agents and online portals are now required to ensure property listings include “material information” for buyers such as the council tax band and service charge information. This is just the first phase of the Government agency’s project and is also part of the Government’s wider Levelling Up initiative. 

Buyer beware

Many will already be familiar with the legal principle of “caveat emptor” which translates to “buyer beware”. This means that the onus is on a buyer to take steps to ensure they are aware of any issues relating to a property before completing the purchase.

This explains the reason why residential property lawyers carry out searches and raise extensive enquiries before exchanging contracts for a buyer, so as to limit any risk to a buyer by ensuring the seller discloses all relevant information about the sale property. Buyers normally are already aware of the need for a building survey to reveal any physical defects at the property but what other “material information” would it be useful for prospective buyers to be informed of from the outset and how can the parties make the transaction smoother and quicker to reach the key milestone of exchanging contracts?

Understanding the keys issues of leasehold properties 

An estate agent’s property listing will almost always state whether the property is leasehold or freehold and prospective flat buyers increasingly know to enquire about the lease term and service charge information. Most are also familiar with the fact that a shorter lease term will mean a premium will be payable if the buyer wants to extend the lease term to protect its future marketability. There is already a noticeable trend of agents providing this information which makes it very helpful for buyers. More recently, the media has also raised awareness of increasing ground rents and this has in turn resulted in new legislation putting an end to ground rents for most new long residential leasehold properties.

There are, however, more nuanced points prospective buyers need to consider such as whether the service charge is a fixed amount or a percentage of total expenditure on the building and exactly what the service charge includes. Often buildings insurance is payable in addition to the annual service charge payment and can come as quite a surprise to some.

Prospective buyers should also familiarise themselves with any expected major repairs or renovations to the building (often referred to as section 20 notices) and when viewing a property, should consider the decorative state of the building and any communal parts, which might indicate that redecoration works are due to which the buyer will need to contribute in the future. Transactions can sometimes halt once information involving major works comes to light which can lead to discussions around price deductions, which is best avoided at a late stage in the transaction.

There are also more bespoke considerations depending on the future plans of the individual purchasing the property which may be key terms of the lease such as whether the owner can let the property or make alterations to the property and whether landlord’s consent is required. Some individuals will be more concerned about lease covenants prohibiting their beloved pet or the absence of lease covenants preventing “Airbnb” lettings to protect their privacy. The terms of the lease can be fundamental for some and sharing this information with prospective buyers at an early stage of a transaction will help prevent delays.

Freehold properties and London’s most desirable estates 

Some freehold properties are  also subject to similar restrictions as the above-mentioned leasehold pitfalls. For example, many of the houses in London’s most prestigious estates in Kensington, Chelsea and Belgravia are more akin to leasehold properties due to the nature of the historic obligations and restrictions which are binding on them. There may be prohibitions to making alterations to the property or third party consent might be required in the interest of preserving a high standard, uniform appearance and value of the estate. There may also be shared amenities offering a gym and swimming pool or private gardens with a rent-charge payable which is similar to service charge. Other properties may require access over a private road and owners may be obliged to contribute towards its repair and maintenance.

Any information concerning restrictions such as garden rules or payment obligations should be forthcoming and provided to a buyer as early as possible. 

Caveat emptor: are the tables turning? 

Despite the well-established principle of caveat emptor, the recent case SPS Groundworks and Building Ltd -v- Mahil [2022] EWHC 371 (QB) highlights that a seller is not entirely free from disclosing any known defects to potential buyers and there’s an increasing shift towards expecting sellers and their representatives to disclose more information. In that case, the seller failed to bring an overage obligation to the attention of the buyer and the Court of Appeal ruled that it was a seller’s duty to disclose defects in the property and the duty was not removed because the buyer did not make the relevant enquiries.

The list of “material information” included in estate agent’s property listings could go on to include planning permission and building regulations consent or information concerning flood risk but ultimately the easiest way to help speed up a transaction is for a seller to engage a solicitor at the earliest opportunity and ideally before marketing the property so that a full set of legal papers including all material information is collated and ready to go out to a prospective buyer as soon as their offer for the property has been accepted by the seller.