Changes to Building Regulations Approved Document B (Fire Safety)

On 26 May 2020, the government announced amendments to Building Regulations Approved Document B (Fire Safety). These amendments affect blocks of flats and form part of the government’s response to the Grenfell Tower disaster.

Under present regulations, the trigger height for when sprinklers are required in a block of flats is 30 metres. However, from 26 November 2020 sprinkler systems will be required to be installed where a building is 11 metres or taller. These sprinklers should be provided within the individual flats.

The updated amendments also provide a new provision for wayfinding signage for the fire service. The government have stated that each floor in a block of flats more than 11 metres above ground level should have floor identification signs and flat indicator signs provided.  Such signs should be located on every landing of a protected stairway and every protected corridor/lobby in a format and at a height that makes them easily visible.

The full amendments can be found at:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/887210/AD_B_2019_edition__May2020_amendments.pdf

Do I still need an EPC during the Covid-19 pandemic?

The Energy Performance of Buildings (England and Wales) Regulations 2012, known as the EPB Regulations, make it a legal requirement to have a valid Energy Performance Certificate (EPC) when a property is constructed, rented out or sold.

With the current ‘lockdown’ and social distancing rules in place, it may be wondered whether this legal requirement remains in force and how it can be complied with under current circumstances when you intend to sell or grant a lease of your property.

Guidance issued by the government confirms that the legal requirement to obtain a valid EPC before selling or letting a property remains in place, for both domestic and commercial premises. The position has not been relaxed due to the current Covid-19 pandemic.

Where a property remains vacant, it should be fairly straightforward to arrange for an EPC assessment to be carried out that complies with the social distancing guidelines.

However, where a domestic or commercial property is occupied, either by the owner or tenants, more consideration is required to ensure an EPC assessment is carried out in accordance with the social distancing guidelines and in a manner that is safe to all parties involved.

Government advice is that that any energy assessments should be conducted in accordance with the following:

  • Government advice on staying alert and staying safe during this period
  • Government advice on working safely during Covid-19
  • Government advice on moving home during the Covid-19 outbreak

This may involve measures such as the occupiers of the property temporarily vacating the property whilst the assessment is carried out, ensuring the person carrying out the energy assessment wears a facemask and appropriate PPE, and wiping down any surfaces the energy assessors has been in contact with. 

Suggestions include:

  • Assessors communicating with households prior to any visits to discuss how the work will be carried out to minimise risk for all parties.
  • No assessments should be carried out whilst an individual within the property is isolating with symptoms. Unless it is to remedy a direct risk to safety.
  • Prior arrangements should be made to avoid any face-to-face contact where possible.
  • In properties occupied by a tenant, landlords should consult with the tenants to ensure there is no one at the property showing symptoms, self-isolating, considered clinically extremely vulnerable or shielding.

Relief from forfeiture due to non-payment of rent during the Covid-19 pandemic

Commercial leases typically contain a clause enabling the Landlord the possibility of exercising a right of re-entry or to forfeit the lease in the event of non-payment of rent. During the current Covid-19 pandemic an increasing number of commercial tenants are finding themselves struggling to pay the rents due under their lease, especially since most leases provide for payment of 3 months’ rent in advance of each quarter day. 

On 26 March 2020, the Coronavirus Act 2020 (CVA 2020) came into effect introducing measures to help deal with the Covid-19 pandemic. Amongst these measures was protection against forfeiture for business tenancies in England and Wales (Section 82 CVA 2020).

Section 82 CVA 2020 prohibits a Landlord from exercising their right of re-entry or forfeiture under a business tenancy due to non-payment of rent during the ‘relevant period’. The ‘relevant period’ is defined as being until 30 June 2020, although there is the possibility that this may be extended if the government deems it necessary.

The definition of ‘rent’ is wide and includes any sum the tenant is liable to pay under a relevant business tenancy. This would, therefore, cover service charge and insurance rent in addition to the annual rent.

A ‘relevant business tenancy’ includes a tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies. It should be noted that tenancies of an agricultural holding, farm business tenancies, and tenancies not exceeding a term of 6 months are expressly excluded from Part 2 of the Landlord and Tenancy Act 1954 and therefore would not benefit from the provisions contained in Section 82 CVA 2020.

The Act also catches forfeiture proceeds that were commenced prior to the CVA 2020 coming into force, and separate subsections of Section 82 deal with these circumstances.

It is important to note that Section 82 CVA 2020 places a restriction on the Landlord’s remedy of re-entry and forfeiture. It does not alleviate the obligation for the tenant to pay the rent due under the Lease, nor does it preclude the Landlord from pursuing alternative remedies for non-payment of rent (including issuing proceedings for recovery of a debt, deducting money from a rent deposit deed, CRAR, or relying on the interest provisions of the lease for late payments). A Landlord can still exercise their right of re-entry or forfeiture on the basis of other breaches of lease.

If a tenant is unable to pay their rent, they may be able to negotiate concessions with their Landlord such as a rent-free period, a temporary rent reduction, or the ability to pay rent monthly rather than quarterly. Whilst there is no legal obligation on a Landlord to agree to this, most Landlords will prefer to continue receiving at least some rent and retain their tenant rather than receive complete non-payment or an empty premises for which they would become liable.

If a tenant finds themselves unable to pay quarterly rent they could agree reduced rent, rent free, or monthly rent to alleviate cash flow problems in the short term.

What can you charge your tenant following the Tenant Fees Act 2019?

June 2019 brought in new legislation called the “Tenant Fees Act” which introduces a series of rules on what tenants can be charged for by landlords and letting agents.

So what does this new legislation mean for renters?

Well, firstly the Tenant Fees Act will apply to new tenancies and renewals of tenancies. This’ll eliminate those pesky and sometimes unfair admin fees which are notorious, additionally tenancy deposits will now be capped to five weeks.

So what can a landlord or letting agent now charge you for?

  • A refundable “holding deposit” (of up to a maximum of one week’s rent)
  • Deposits now have a maximum of 5 week’s rent for annual rent below £50,000, or 6 weeks’ rent for annual rental of £50,000 and above)
  • Utilities and communication services; Internet, TV licence, council tax, telephone, etc..
  • Replacement costs for things like keys and security.
  • Contractual damage costs for repair.
  • Payment for tenancy agreement changes. Like change of sharer, this is capped at £50 or, if higher, any reasonable costs.
  • Early termination of tenancy (Capped at landlord’s loss or the agent’s reasonably incurred cost)
  • Interest payments for the late payment of rent (up to 3% above Bank of England’s annual percentage rate)

What can a landlord or letting agent not charge you for?

  • Admin costs will no longer be a charge.
  • Check out and renewal fees.
  • Cleaning fees, unless there is certain proof that the property requires a deep clean.
  • Reference checks, credit checks, guarantor requests and insurance policies.
  • Gardening services.
  • To view a property. 

Importantly, the legislation state that unless a fee is listed as one of the permitted fees, it will not be allowed.

If you’re interested in reading the full legislature, then follow this link to the Tenant Fees Act 2019

But remember, the Act states that landlords or letting agents do not need to pay back any fees which were charged before 1st June 2019. This also means fees which are added contractually like checkout or renewal fees past the June date still stand.  This lasts until May 2020.

Additionally if an agent or landlord breaks the Tenant Fees Act it shall be counted as a civil offence and could land them a fine of up to £5,000.

It is particularly important for landlords to be aware of and consider these changes in the future.  Especially so as landlords who have charged an unlawful fee will not be able to evict a tenant until they have repaid these fees. Failure to comply with the legislation can therefore have serious ramifications.

If you require further advice on your obligations as a landlord, please contact us on 01753 486 777 to discuss your issue.

Homes (fitness for human habitation) Act 2018

On the 20th March 2019, a new law came into force to make sure that rented houses and flats are ‘fit for human habitation’.  Essentially, this should mean that they are safe, healthy and free from things that could cause serious harm.  This new law will help tenants and make sure irresponsible landlords improve their properties or face prosecution – landlords could be served with a penalty notice to improve and/ compensation to the tenant if found to be in breach.

The Act references a number of other acts (primarily the Landlord and Tenant Act 1985 and the Housing Act 2004) in relation to what could constitute the term “unfit for human habitation”.  This does not make it ideal for light reading but has meant that the breadth of definitions has been increased so as to cover a wider variety of matters.   There is however a further criteria which also needs to be met which states that the property is only unfit for human habitation if “it is so far defective in one or more of those matters that it is not reasonably suitable for occupation in that condition”.  Ultimately, it will be down to a Court to decide and no doubt case-law will shape these distinctions with time. An example of the matters which would be considered as defects are listed below, although it is important to note that any prescribed hazard” – which means any matter or circumstance amounting to a hazard acts as an effective catch-all and means the list below is not exhaustive.

Matters which would be considered as defects

Damp and mould growth Food safety (inadequate provisions)
Excess Cold Personal hygiene, sanitation and drainage
Excess heat Water supply
Asbestos and MMF Falls (baths, between levels, level surfaces and stairs)
Biocides Electrical hazards
Carbon monoxide and fuel combustion products Fire
Lead Flames, hot surfaces etc
Radiation Collision and entrapment
Un combusted fuel gas Explosions
Volatile organic compounds Position and operability of amenities etc
Crowding and space Structural collapse and falling elements
Entry by intruders Lighting
Noise Domestic hygiene, pests and refuse

Tenants can rely on the Homes Act immediately if they signed the tenancy agreement on or after 20th March 2019.  For those that signed before 20th March 2019, the Act will only be enforceable from 20th March 2020.  After 20 March 2020, everyone who has a secure or assured tenancy, a statutory tenancy, or a private periodic tenancy, can use the Homes Act regardless of when their tenancy began. Anyone who is still on the fixed term of a private tenancy that began before 20 March 2019 cannot use the Act until the end of that fixed term.

Furthermore, the Homes Act only applies to tenants in England and does not cover people who have ‘licences to occupy’, instead of tenancy agreements i.e. lodgers.

Exceptions the landlord is not responsible for:-

– Problems caused by tenant behaviour

– Events like fire, storm, floods (sometimes called ‘acts of god’)

– The landlord will not repair your possessions or furniture belonging to previous tenants

– If the landlord hasn’t been able to get permission or access from certain other people.

Inspection

In order to assist the landlord in fulfilling their obligations to ensure the property meets this new criteria, there is also an implied covenant that the landlord may enter the dwelling for the purpose of viewing its condition and state of repair although this is only permitted –

  • at reasonable times of the day, and
  • if at least 24 hours’ notice in writing has been given to the occupier of the dwelling.

Risk of identity fraud changes the face of Conveyancing

The recent High Court decision of Dreamvar (UK) Limited v Mishcon has alerted the property and insurance markets to significant changes in property transactions. Solicitors, particularly those who act for purchasers in residential Conveyancing transactions, will need to read the judgment of the case carefully to understand the Court’s application of the Conveyancing Protocol & Law Society’s Code for Completion by post.

The facts of the case involved an imposter posing as a seller of a property to a small development company, Dreamvar UK Limited. Just before Dreamvar was registered as the owner of the property, the Land Registry discovered the fraud when carrying out their periodic checks. The fraudster and the money however, had disappeared. Dreamvar was unable to recover the purchase price paid of £1.1m.  Dreamvar therefore brought claims against Mishcon De Reya (Solicitors acting for them on the purchase). The basis of Dreamvar’s claim was that their solicitors were negligent in failing to identify features in the transaction that should have had alarm bells ringing as to the risk of fraud. The judge also held that the purchase monies were to be held on trust by the purchasers’ solicitors, until ‘genuine’ completion of the property had taken place. It was held that a genuine completion did not take place and therefore there was a breach of trust. 

The outcome of this decision has been commented on as being harsh and severe as the judge had accepted the fact that Mishcon De Reya had acted reasonably and honestly. Despite this, the firm were found liable. It is clear that the judge was keen to allocate liability arising out of such a fraudulent transaction and did so by weighing up which party would be best suited for absorbing the loss suffered by the purchaser victim. The judge was mindful that Mishcon De Reya had insurance in place to cover this type of claim, whereas failing to recover the money at all would be catastrophic for Dreamvar. 

The outcome of this case will be that solicitors acting on behalf of a purchaser in conveyancing transactions need to ensure that they obtain a legal undertaking from the sellers’ solicitors that they have taken reasonable steps to establish its client’s identity. From the facts of this case, the sellers’ solicitors had not met the fraudster and had simply accepted a driving licence and TV licence as forms of client I.D. The oddities on the driving licence were not followed up and a TV licence is not a source listed in the Law Society’s Anti-Money Laundering guidelines as acceptable verification. Whilst the sellers’ solicitors accepted that the documents provided were not adequate proof of identity and a face to face meeting should have been arranged, the sellers’ solicitors did not owe a duty of care to Dreamvar; that remained with their own solicitors.

If the sellers’ solicitors’ client due diligence procedure in the Dreamvar case were adequate then the fraud would never have happened.  Mishcon De Reya on the other hand had done nothing wrong – they simply relied on the sellers’ solicitors to perform its client due diligence obligations. The decision shows the real risks of such fraudulent transactions and highlights the fact that the parties in conveyancing transactions must remain vigilant as fraudsters are adopting more and more sophisticated methods.

Firms will now look to avoid the risk of identity fraud by developing risk assessment strategies; asking for evidence of the vendor’s solicitors client due diligence and the buyer carrying out limited checks on the vendor’s identity. Purchasers solicitors will need to ensure they obtain confirmation from the sellers’ solicitors that they have taken reasonable steps to verify their client’s identity in accordance with the Law Society’s Anti Money Laundering Guidance and that enhanced due diligence has been carried out where they have not met their client face-to-face.

Permission was granted in this case for an appeal to the Court of Appeal and the Law Society were to intervene because of the potentially substantial implications for property solicitors and how this may affect a firm’s insurance premiums in the future. This is because the High Court effectively ruled that insured solicitors were best placed to carry the financial burden of fraud, where they had been neither negligent or dishonest. This will affect market choice for those requiring legal conveyancing because firms will need to have sufficient insurance in place to absorb such costs associated with the risk of fraudulent transactions. Furthermore, solicitors acting for purchasers may need to change their retainers to cover themselves from potential liability, which could fall foul of provisions in Consumer Rights legislation. The outcome of this case will undoubtedly bring about massive changes to traditional conveyancing and its processes in England and Wales. 

Ashika Patel, Conveyancing Solicitor

Boomerang Kids, Transfer of Equity and Tax

Your kids have fled the nest to attend University – to study and get a “good job”. Then, they graduate, but have been struggling to get the job they hoped for and subsequently they return home, unable to take that first step onto the property ladder. This move back home can be very stressful for both children and parents, especially when lifestyles have adapted to the new environment.

You decide you would like to do something to help your child, but all your assets are tied up in your property. Someone mentions a “Transfer of Equity”, whereby you could transfer some or all of the property’s assets to your children and that way, they would have something of their own.

In this case, there are a few matters you need to consider: firstly, the Tax implication of making the Transfer; and secondly, whether your child would be able to draw up a second charge on your property in order to purchase another of their own. Assuming your child is able to obtain the finance for their new property, have you considered what would happen should your child be unable to repay the 2nd charge on your family home? In addition, have you considered the Tax implications? At the very least, there are possible Inheritance Tax implications for you transferring a share of your family home to your children as well Stamp Duty Land Tax considerations for your children as they will be deemed to own two properties.  What if your child becomes bankrupt in the future? The share of your property which they own would automatically form part of their estate and it would be for the trustee in bankruptcy to distribute, along with anything else your child owns, in accordance with their duties.

All of the above factors, and more, need to be considered. This has become an increasingly common situation in today’s property market and we work together with our clients, tailoring our services to their individual needs. If this has raised any queries concerning your personal situation in relation to a potential transfer of a property, Inheritance Tax, Trusts, or you simply find yourself in a position to purchase your first property – we are here to help!

Nicola Darby

Conveyancing Secretary

Solicitor’s Duties – Liability Capped?

Solicitor’s Duties – Liability Capped?

The Supreme Court has recently deliberated on a professional negligence case against a firm of solicitors in the matter of BPE Solicitors and Anor –v- Hughes –Holland (in substitution for Gabriel). The Court considered limitation of liability and recoverable losses in accordance with the SAAMCO test (South Australia Asset Management Corp v York Montague Ltd).

Background

The Claimant in this matter instructed his solicitors in relation to a loan he intended to make to his friend’s company Whiteshore Ltd. The loan was for £200,000.00 for a period of 2 years and interest at 28% per annum. The loan was secured by way of first legal charge against the company’s development property which was due to be converted into offices. The company used £150,000.00 to pay off a loan secured on the property. It came to light once the Claimant enforced against the company and took possession of the property, that it was in fact worth only £13,000.00. The Claimant sued the firm for breach of duty in drawing up the relevant documents, namely the facility agreement.

SAAMCO Test

The SAAMCO test distinguishes between the duty of the solicitor to provide information to allow the client to decide a course of action (information duty) and the duty to advise the client on the relevant course of action (advice duty).

Advice Duty: the solicitor assumes full responsibility and owes a duty to the client to consider all the relevant factors involved in the transaction. In the event, there has been any negligent advice then the solicitor will be liable for all the foreseeable consequences of the transaction entered into.

Information Duty: this is where the solicitor provides a limited part of the material on which the client relies on before entering into the transaction. The overall assessment of the commercial viability of the transaction is solely at the discretion of the client. In the event, negligent information has been provided; the solicitor will only be liable for the financial consequence of the incorrect information and not for all of the losses.

Findings

The Judge at the first instance held that the solicitors had been in breach of their duty as they failed to inform their client of the intended purpose of the loan to the company. Therefore, the Judge awarded the Claimant all of his losses.

BPE appealed the decision; the Court of Appeal overturned the decision by applying the SAAMCO test. The Court of Appeal held that the solicitors had provided information only and did not advise the client on the course of action to take. As a result of the client entering into an information retainer the Court of Appeal held they would only consider losses attributable to the information being incorrect.

The Supreme Court confirmed the Court of Appeal’s position, as the solicitor’s had only provided the Claimant with information regarding one of many issues. The Claimant had failed to investigate the commercial risk involved in providing the loan, as he did not obtain a proper valuation of the property or assess the company’s financial situation. The Court held that in any event the Claimant would have suffered losses as they arose from commercial misjudgements and such misjudgements were not in the remit of the solicitor’s control.

This case has provided further clarity on liability and recoverable losses from solicitors when providing wrong information. It has removed any doubts that solicitors are liable for full transactional losses and that their costs are only capped to consequences of the information being incorrect.

The Minimum Energy Efficiency Standard

The Minimum Energy Efficiency Standard

The Minimum Energy Efficiency Standard (MEES) for commercial & residential properties comes into force on 1st April 2018It is estimated that buildings account for 43% of the UK’s total carbon-dioxide emissions.

Government estimates that 18 per cent of commercial properties hold the lowest EPC ratings of F or G. While Building Regulations ensure that new properties meet the current energy efficiency standard, MEES will tackle the UK’s older buildings.

From 1st April 2018 Landlords will not be permitted to grant a lease of a property with an EPC rating below E unless they’ve carried out all possible cost-effective energy efficiency improvement works, or an exemption applies.

From 1 April 2020: (in the case of residential properties) or 1st April 2023 (in the case of commercial properties), landlords will not be permitted to continue to let properties with an EPC rating below E on an existing lease unless an exemption applies.

What are the exemptions?

Landlords do not have to carry out any improvement works where –

  1. Third Party Consents (eg from the tenant, planning authorities, mortgagee’s consent etc) are not available. To be released of its obligations the Landlord needs to show that despite reasonable efforts by the landlord to obtain any necessary third party consent, that consent has been refused or granted subject to a condition with which the landlord cannot reasonably comply.
  2. The works are not cost effective. The Landlord will need to be able to demonstrate that within seven years, the expected energy bill savings will not equal or exceed the cost of purchasing, installing the improvement measures.
  3. A report from an independent surveyor states that the works will reduce the value of the property by 5% or more, or that written confirmation by an expert states that wall insulation required to improve the property may damage the fabric or structure of the property, or the building of which it forms part.

In order to apply for an exemption the landlord will need to provide such evidence to a centralised register, the “PRS Exemptions Register.” The exemptions have a limitation period of 5 years. Therefore, the landlord will have to regularly review whether energy efficiency measures can be implemented to bring the EPC rating up to band E or above, or whether the grounds for the exemption still apply.

Enforcement & Penalties

The enforcement authorities for the MEES Regulations are the:

  • Local authority for a domestic PR property.
  • Local weights and measures authority for a non-domestic PR property.

The authorities will have the power to enforce civil penalties for non-compliance with the MEES Regulations. The penalty will reflect the property’s rateable value, and will range from a minimum penalty of £5,000 to a maximum of £150,000.

Future Implications

  • Marketability of properties with low EPC ratings will be more difficult unless the upgrading is reasonable and easy to implement. This could have a knock on effect on the valuation of the properties.
  • Lenders will also be affected by the new regulations as they will need to take measures to ensure that the value of their security is not involuntarily affected.
  • New Leases will need to be carefully drafted in order to ensure adequate provisions are in place for compliance with the MEES Regulations.

No doubt there may be further implications to consider upon the implementation of the MEES Regulations in 2018, and it is important that your solicitor advises you, whether you are a Landlord or a Tenant, of how the forthcoming regulations will impact you in the future.