Consultation on Home Report Guidance
Properties being placed on the market on or after 1 December 2008 will require to have a Home Report. The introduction of Home Reports creates a number of areas of uncertainty for members and the public. In an effort to help clarify these difficulties the Society's Conveyancing Committee have identified the issues and the possible benefits of Guidance and proposals.
The Society has discussed these proposals with over a thousand members of the profession during a series of roadshows in conjunction with the Scottish Government in late May and early June 2008. Please let us have your views on Home Reports and suggested guidance.
The Society is grateful to you for taking the time to respond to the Consultation on Homes Reports. For obvious logistical reasons the Society will not enter into correspondence with respondees. We are obliged to you however for your input.
Lifespan of Reports
Issue
The primary legislation and regulations are at pains to avoid prescribing a lifespan for Home Reports. The Scottish government view is that the market will decide. The Society however have prescribed lifespans for a range of other reports including for example searches. When the Society polled its members on this issue nearly 60% felt three months was a reasonable lifespan while nearly 40% felt one-month was appropriate. Lenders have not expressed a specific view.
Benefits
Members may benefit from a degree of protection under the “reasonably competent solicitor” test if they follow guidance from the Society regarding lifespan.
The public will benefit from a consistent approach by the profession in relation to the issue of lifespan
Proposal
(1) Guidance to the effect that members should intimate to purchasing clients in writing that they should not rely upon reports more than three months old.
(2) Guidance to the effect that members should intimate to selling clients the Society’s guidance in relation to purchasing clients so that they might consider the appropriateness of updating reports from time to time.
Making Reports Available to “Interested Parties”
Issue
Section 99 of the Housing(Scotland ) Act 2006 provides that “a person who is responsible for marketing a house which is on the market must comply with any request by a potential buyer for a copy of any or all of the prescribed documents in relation to the house”. Regulation 3 of The Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008 provides a time limit of 9 days. The statute and regulations provide for a large number of exceptions namely:
(1) The person responsible for marketing reasonably believes the person making the request is unlikely to have sufficient means to buy the house.
(2) The person responsible for marketing reasonably believes the person making the request is not genuinely interested in buying the house
(3) The person responsible for marketing reasonably believes the person making the request is not a person to whom the seller is likely to be prepared to sell the house
(4) Portfolios of properties where a house is sold with one or more other houses
(5) Seasonal and holiday accommodation
(6) Mixed sales comprising residential and non residential property
(7) Mixed use properties comprising residential and non residential property
(8) Unoccupied, unsafe and unsuitable for occupation
(9) New Housing
(10) Properties to be demolished
(11) Newly converted property
Clearly there is potential for issues in relation to exceptions (1 ),(2) and (3) in particular
Benefits
Guidance in this area would assist the profession in the exercise of their judgement and the public in the interests of consistency.
Proposal
(1) In relation to exceptions (1)and(2) parties who have formally “noted an interest” through solicitors or licensed conveyancers will be deemed to "have sufficient means to buy the house" and/or be “genuinely interested”
(2) In relation to exception (3 ) members should ensure that they obtain a list of persons to whom the seller would not be prepared to sell the house from the seller prior to marketing property to avoid any difficulties.
Liability for Information Contained in Property Questionnaire
Issue
In terms of section 103 of the Housing (Scotland) Act 2006 the person responsible for marketing has a duty to ensure that the copy of the prescribed documents is “authentic”. Regulation 5 of The Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008 states that “the person who may prepare the prescribed documents set out in Schedule 2 (the property questionnaire) is the seller of the house or a person authorised by the seller to act on the seller’s behalf.” To what extent does the person responsible for marketing the property have obligations to check the veracity of the information given in the property questionnaire?
Benefits
Creating a clear line of responsibility has benefits for both the profession and the public and is good risk management.
Proposal
(1) Members should ensure that they have advised sellers in writing of their obligations in regard to the preparation of the property questionnaire and the importance of accurately and truthfully answering those questions, including clarifying for the client possible liability both in terms of the Property Misdescriptions Act 1991 ,The Housing (Scotland) Act 2006 and The Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008.
(2) Members should make clear to selling clients completing such questionnaires that primary responsibility for the accuracy and truthfulness of those questionnaires rests with the client and that the member’s only obligation in terms of compliance is to ensure that the copy which they offer members of the public who are purchasers is effectively a true copy of that form and therefore “authentic” in terms of the legislation and regulation.
(3) Members do not have an obligation to check the information contained in the property questionnaire and may accept the statements therein at face value except in circumstances where they are personally aware that the statement is untrue. (For example in a situation where the firm of agents carried out the remortgage in respect of a substantial extension to the property and questionnaire states that there are no alterations.)
Who Can Complete the Property Questionnaire?
Issue
Regulation 5 of The Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008 states “ The person who may prepare the prescribed document set out in Schedule 2 is the seller of the house or a person authorised by the seller to act on the sellers behalf.” Two issues arise:
Firstly where there are multiple owners do they all have to sign the questionnaire?
Secondly what is “a person authorised by the seller to act on the seller’s behalf”?
Benefits
Creating a clear line of responsibility benefits both the public and profession and is good risk management.
Proposal
(1) Where the sale can only be instructed and carried through on the instructions of all of the owners the questionnaire should be signed by all of the owners.
(2) Authorised persons definitely includes those acting under a Power of Attorney, Deed of Trust, Court Order , Duly Authorised Officers of a Company, but may include others with a similar level of formal authority.
Deferred Payment Arrangements
Issue
In terms of the Solicitors (Scotland) (Client communication) Rules 2005, clients must be advised in writing of “an estimate the total fee to be charged for the work, including VAT and outlays which may be incurred in the course of the work”. Accordingly clients require to be advised in advance of the cost of providing a Home Report. Where there is deferred payment (for example the cost of the report is only payable on completion of sale) issues may arise in relation to additional charges or situations in which the sum becomes payable notwithstanding the failure to sell.
Benefit
It is important that the public understand the terms and options being offered in respect of payment for Home Reports and both the public and the profession will benefit from clarity in this regard
Proposal
Terms of business should state or should include a separate covering document in relation to:
(1) The price to be paid for the Home Report
(2) A clear statement of any connection between the Home Report provider and the selling agents
(3) Details of any deferred payment option including any discount for early payment and charges in relation to property where the sale does not proceed of property is withdrawn
(4) Where a mandate is to be signed for payment a clear statement of the meaning and effect of such a mandate
Updating Reports
Issue
Sellers may wish to update their home report particularly where property is slow to sell or where remedial works have been carried out following their being highlighted in an initial report. Purchasers may wish to obtain a report (or merely a survey) independently for reassurance on value or condition.
Benefits
A consistent approach would be beneficial to the public and the profession
Proposal
Both sellers and buyers will have been made aware under the Society’s guidance not to rely on Home Reports more than three months old.
(1) Written instruction should be obtained from sellers seeking to update Home Reports and they should be made aware of the additional cost of these.
(2) Written instruction should be obtained from purchasers seeking an independent report .
For the avoidance of doubt and to maintain the advantages of the Scottish system written instruction shall include instruction by e-mail or fax.
Withdrawn from the market
Issue
Regulation 6 of The Housing (Scotland) Act 2006 (Prescribed Documents) Regulations 2008 states;
“1) The date to which information in a prescribed document relates must be no earlier than the date at the beginning of the period of 12 weeks before the date on which the house is put on the market (“the market date”).
(2) In circumstances where the house–
(a) is not sold;
(b) is withdrawn from the market for a period or periods not exceeding 4 weeks at a time; and
(c) is put on the market again;the date to which information in a prescribed document relates when the house is put on the market again remains no earlier than the date at the beginning of the period of 12 weeks before the market date referred to in paragraph (1).
There is accordingly a potential issue as to whether or not property which is "under offer" is “sold” or "withdrawn from the market" and therefore subject to the requirement of a new Home Report if either negotiations breakdown or there is a failure to settle within 4 weeks.
Benefits
Although there may be benefits in creating a situation where there are consequences for the seller who does not include a bargain within 4 weeks of marking the property as under offer, on balance there is greater benefit in preserving the situation where it is a matter for the seller to decide whether or not to update their Home Report. Both the public and the profession would benefit from a consistent approach either way.
Proposal
As property is not “sold” until a bargain is concluded property marked "under offer" is still technically available for sale (admittedly subject to a change of agent in terms of the Society's Gazumping and Gazundering Guidelines). Accordingly for the purposes of regulation 6 (2)(b) property marked "under offer" should not be deemed "sold" and it should not be deemed "withdrawn from the market" until there is a concluded bargain.
Annexation of the Home Report to Offers
Issue
It is possible that agents will consider annexing Home Reports to the formal offer with a view to creating contractual obligations particularly in relation to the property questionnaire content.
Benefits
While there appear to be benefits to purchasing clients in this approach it was not envisaged in the legislation and may cause potential difficulties in enforcing the liabilities of the surveyors which are outlined in statute and essentially restricted only to the ultimate purchaser. Creating contractual liabilities in relation to statutory obligations may have its risks for both parties.
Proposal
(1) When acting for a purchaser explicit instruction should be taken from the client to incorporate a Home Report in the offer outlining the risks and potential benefits associated with such an approach
(2) When acting for a seller explicit instruction should be taken from the client to accept, modify or reject the incorporation of the Home Report in the contract.
Conflict of interest
Issue
The Society’s existing conflict of interest rules, The Solicitors (Scotland) Practice Rules 1986, permit the firm to act for both buyer and seller in a range of circumstances. Does the ability of a firm to produce its own in-house Home Report create a greater potential conflict when acting for both parties? Is there any less conflict where a report has been provided by a third-party?
Benefit
The conflict of interest rules exist to protect both the public and the profession in avoiding difficulties.
Proposal
(1) In the interests of transparency where firms act for both buyer and seller in terms of the existing conflict rules they should clarify the source of the Home Report and any connection which their firm has with supplier of the report.
(2) Where multiple reports have been purchased on behalf of the seller in an effort to obtain a report that portrays the property in the best light the firm should not represent a purchaser without disclosing the full circumstances due to the clear conflict of interest between the parties.
(3) Where a purchaser is to be advised to seek an additional independent report in cases where the firm already acts for the seller the firm should not represent the purchaser due to the clear conflict of interest between the parties.
