September News Articles
Credit crunch leads to more equity transfers
The credit crunch is not only creating turmoil in the housing market and the wider economy, it is also having an effect on the number of equity transfers taking place.
Equity transfer is where the owner or owners of a property decide to transfer all or a share of the equity to someone else, usually for a payment but sometimes as part of a larger financial arrangement.
The number of people wanting to transfer a share of their home has leapt dramatically this year. There are several reasons. It’s partly because the current financial downturn has put a strain on many people’s relationships causing them to separate. Another reason is that economic uncertainty concentrates people’s minds making them want to improve their financial arrangements.
Equity is basically the amount of value or money in a property once the outstanding mortgage has been paid or taken into account. For people who have lived in a house for several years and paid off a substantial part of their mortgage this can amount to tens and even hundreds of thousands of pounds. It’s therefore extremely important that any transfer of equity should be carried out properly by a qualified solicitor.
There are several reasons why equity transfers might be needed. The most common are marriage, separation, tax planning and changing the number of shares that each person may have in a property.
With marriage it is often the case that one partner already has a home and the couple want to transfer the property into joint names. The opposite applies, of course, when a couple separate or divorce. This usually involves one partner buying the other’s share in the home for an agreed price. This will often be part of the divorce settlement. It could be that the transfer is made effectively as a gift as part of an overall agreement in which one of the parties forfeits certain other benefits such as maintenance payments.
In such cases it is important that both parties seek advice separately from different solicitors to ensure that their interests are fully protected. If the couple cannot agree a price for the equity transfer then it may be necessary to sell the home so the proceeds can be divided between them.
It could be that people own a property jointly but want to change the number of shares each one has. For example, they may no longer want to own the property on a 50-50 basis but prefer a different ratio. In such cases a trust deed can be set up setting out the extent of each person’s share. The trust deed must then be registered with the Land Registry.
Some people, particularly widows and widowers, may want to transfer ownership of their homes to their children to reduce inheritance tax liability or to prevent the property being sold in future to pay for care home fees. Great care should be taken, however, to make sure you achieve the desired result.
Unfortunately, the credit crunch means banks and building societies are applying tougher sanctions for changing mortgage arrangements. In the past before the Northern Rock crisis, lenders would often transfer the mortgage from joint names to a single name or vice versa without any significant cost. Now many lenders want to start a completely new arrangement with all the accompanying costs.
They may insist on a redemption fee for the old mortgage before providing a new one, especially if the amount being borrowed is less than the original loan. This also catches couples wanting to downsize from a larger property to something smaller in order to reduce their mortgage payments.
Faced with such demands it is important to try to stand firm and negotiate as it is often possible to get a better deal than the one first offered.
Equity transfer always needs to be done carefully and the current credit crisis has added new pressures. Make sure you understand what you are signing and be prepared to stand firm and negotiate when necessary.
Home Information Packs may include more details
The Government wants to expand Home Information Packs (HIPs) to provide potential buyers with more details about the property for sale.
In future they’re likely to include a Property Information Questionnaire (PIQ) covering things like building work carried out at the property, information on energy and utilities, details of parking arrangements and council tax banding. It’s intended that this will help reduce problems coming to light that delay or even prevent transactions from going ahead.
There are also plans to improve the information given about leasehold properties. This would include details about the cost and use of the leasehold property and a copy of the lease.
The Government is now in the middle of a consultation on the proposals which is due to end on 30th September. If the recommendations are accepted, the questionnaires could become part of HIPs from 1st January 2009.
HIPs were introduced just over a year ago and are now obligatory when selling homes of all sizes in England and Wales. They’re provided by the seller for the benefit of potential buyers and must include information such as evidence of title, terms of sale and the results of standard searches. There must also be an Energy Performance Certificate (EPC) rating the energy efficiency of the property.
Please contact us for more information about Home Information Packs or any aspect of buying or selling a property.
Court ruling provides boy with two fathers
A man has been a granted parental responsibility for a six-year-old boy even though he is not the biological father and in spite of strong opposition from the mother.
The man, referred to in court as Mr A, began a relationship with the mother in 2002 and the boy was born later that year. He thought the child was his own and brought him up as such. The couple’s relationship broke down in 2004 and Mr A began proceedings for parental responsibility, residence and contact.
During the proceedings, DNA tests proved that Mr A was not the biological father. The biological father was a man referred to in court as Mr C, whose relationship with the mother was just ending when she began her relationship with Mr A. The court was told that Mr C did not want to play a significant role in the boy’s life.
Mr A still continued with his application which was contested by the mother and resulted in court proceedings lasting more than four years. The mother contended that that he was a dominating and controlling personality who was used to getting his own way. She felt overwhelmed by him. However, the Recorder who presided over the case found that she too could be determined and controlling in her desire to marginalise Mr A’s role in her son’s life.
In spite of their differences, it was never an issue between them that the boy loved both of them and was loved by both of them.
The Recorder acknowledged that Mr A was the only father figure the boy had ever known and that a continuing relationship between them was in the child’s interest. He ordered that there should be a joint residence order which effectively provided Mr A with the parental responsibility he wanted. However, the mother was to remain the primary carer with the boy spending most of his time with her.
That ruling has now been upheld by the Court of Appeal.
Women to receive improved maternity entitlement
Women who give birth on or after 5th October are to receive improved maternity entitlements.
At present a pregnant woman is allowed to take 52 weeks maternity leave regardless of her length of service with her employer.
The entitlement is made up of two sections. The first section is the 26 weeks of Ordinary Maternity Leave. At the end of this period the woman has the right to return to the same post and is entitled to the same terms and conditions that she enjoyed before her leave began.
The second section is the 26 weeks of Additional Maternity Leave. The woman then has the right to return to the same job, but if it is not reasonably practicable for the employer to hold the job open, she can be offered another position on similar terms and conditions which are no less favourable.
During Ordinary Maternity Leave the woman must continue to benefit from the same terms and conditions that would have applied had she still been at work, apart from the terms relating to salary. Until now, these benefits did not continue in full into the 26 weeks Additional Maternity Leave. However, they will do so now for women who give birth after 5th October.
For example, they will continue to qualify for contractual benefits such as participation in share schemes, reimbursement of professional subscriptions or gym membership. They will also be able to continue using company cars and mobile phones, unless they are provided for business use only.
A woman will retain her contractual rights to compensation and statutory redundancy pay if she is made redundant. If her employment is to be terminated then she will be entitled to her contractual notice period and she cannot be dismissed for reasons relating to her pregnancy or maternity leave.
The time on Additional Maternity Leave will count towards the woman’s period of continuous employment for the purposes of such entitlements as redundancy payments, assessing seniority and length of service payments.
Women will also continue to accrue annual leave while on Additional Maternity Leave unless they have agreed otherwise with their employer.
Whiplash injuries lead to £300,000 compensation package
A 31-year-old woman surveyor who was seriously injured in a road accident has received £300,000 compensation in an out of court settlement.
The woman had stopped at traffic lights when her car was hit from behind by another vehicle. She sustained whiplash injuries and later developed fibromyalgia.
The injuries seriously affected her earning capacity. She had been a successful surveyor and was looking to advance her career. However, the accident restricted her ability to carry out surveys and she was unable to do some of the outdoor work she had done in the past.
It was likely that she would be restricted to office work instead. She would also need help with heavy household duties.
The other driver admitted liability and the woman accepted £300,000 in an out of court settlement.
More Companies Act measures come into effect
This autumn sees the latest raft of Companies Act provisions coming into force.
The measures, effective from 1st October, are designed to reduce the administrative burden on companies by streamlining procedures.
The measures include changes relating to corporate directors and under-age directors, general duties of directors in respect of conflicts of interest, declarations by a director of an interest in an existing transaction or arrangement, and new procedures for private companies to make capital reductions supported by a solvency statement instead of by a court order.
Every company will have to have at least one director who is a natural person. However, there will be a grace period until October 2010 for any company that only had corporate directors at the time the Companies Act received the Royal Assent on 8th November 2006.
All directors must now be at least 16 years old. Existing under-age directorships will cease. It is not necessary to notify the Registrar but the register of directors will need to be amended to reflect that the under-age directorship has ceased. The change is retrospective and will affect any director who has not reached the age of 16 on 1st October 2008.
There are several changes covering the duty of directors to avoid conflicts of interest, not to accept benefits from third parties and to declare any personal interest in proposed transactions.
The Act provides private companies wanting to reduce the amount of share capital with an alternative to the existing method of passing a special resolution and obtaining court approval. They can now proceed with a special resolution supported by a solvency statement from the directors. It’s intended that the solvency statement approach will provide a cheaper and simpler way to reduce capital.
However, if company directors make a solvency statement without having reasonable grounds to believe it to be accurate then they could be committing an offence punishable by a fine, up to two years imprisonment or both.
The Act introduces several more changes which are effective from October including measures relating to objections to company names, trading disclosures, control of public donations and the power of the court to grant relief in certain cases.
Measures introduced last April mean that firms no longer have to appoint a company secretary unless they want to and they no longer have to have the signature of two directors to execute deeds. The signature of one director will be enough provided that it is witnessed.
Many of the measures are quite technical and could have a significant impact on the way companies conduct their affairs. There will be more changes coming into effect next year.
Please contact us if you would like more information about any aspect of the Companies Act 2006.
Surveyors who assessed wrong house lose appeal over breach of contract
A firm of surveyors who were misled into valuing the wrong property have lost their appeal against a court decision that they were in breach of their contract with the lender providing a mortgage on the property.
The firm had been commissioned to carry out a valuation of a property by the lender who was considering offering an advance to a potential borrower.
The resultant surveyor’s report contained the following statement: “I certify that the property offered as security has been inspected by me and that the above valuation is a fair indication of the current open market valuation for mortgage purposes."
Based on that report the lender then proceeded to advance £154,495 to the borrower using the property as security. The borrower failed to maintain the mortgage payments and the house was repossessed. When the house was sold, however, it failed to reach the price expected leaving the lender with a shortfall of more than £30,000.
The lender sought to recover the shortfall from the surveyor and that is when the mistake came to light. The surveyor had been misled by the borrower into valuing the wrong property, a house nearby on the same plot.
The lender argued that the surveyors were in breach of contract because they had valued the wrong property. The surveyors submitted that their duty in a case of this kind was simply to exercise that degree of skill and care as could be expected of a reasonably competent surveyor and valuer. They argued that the instructions they had been given for locating the property applied equally well to the house they inspected as to the house they should have inspected. They were also led to believe they were at the correct property by the borrower who was present at the time of the inspection.
However, the court held that the surveyors were in breach of contract. His Honour Judge Collins, CBE, held that although it is generally true that a professional person only undertakes to exercise reasonable skill and care, if a surveyor agrees to inspect a particular property then he has an unqualified obligation to inspect the right property.
He said: “The scope for reasonable skill and care in the case of the valuer arises when he is performing the valuation. But in my judgment to suggest that the valuer has performed his contract when he values a completely different property to the one he is instructed to value makes a nonsense of the essential obligation which the valuation of property entails."
That ruling has now been upheld by the Court of Appeal.
To buy or lease as credit crunch takes hold?
The demand for commercial property in the first quarter of this year fell at the fastest rate for more than six years, according to a survey by the Royal Institution of Chartered Surveyors.
The upheaval caused by the credit crunch has led many businesses to think that little bit harder about their need for extra space with many deciding to make do with what they have.
In spite of the current financial climate, however, commercial life goes on and many companies, especially start-up businesses, still need premises. They should be able to negotiate favourable deals but they will still have to grapple with the familiar problem of whether it would be better for them to buy or to lease.
The great advantage of leasehold is the flexibility it offers. A firm that sees itself expanding will not want to buy a property that it’s likely to outgrow within a few years. By leasing instead it can leave itself free to up sticks and move a few years down the line, or simply expand within the landlord’s existing premises by taking on new units if they are available.
You can negotiate a short lease of say, three to five years, if you think you are likely to want to move to somewhere larger in future. Or if you want longer term stability but are unsure how well your business might perform then you could take out a longer lease with a three-year break clause. This would enable you to walk away if things don’t work out as you hope and the business fails. That might prove an attractive option in these uncertain times.
There are potential pitfalls however. If you don’t exercise the break clause then you will be tied in for the remainder of the lease.
Leaseholders may also be able to negotiate a rent free period to help cover the cost of fitting out the premises. The landlord may also be prepared to contribute to the cost, especially on a longer term lease.
The advantages of buying are in part the opposite of leasing and will often be the better option for more settled businesses where future growth and development are more predictable.
If you feel you are likely to want to remain in a property on a long term basis then buying may well work out to be more cost effective. Most landlords work on the general rule of charging an annual rent that is 10% of the value of the property.
If you think you are likely to stay in your premises then buying might be a better option because the amount you pay on a lease could be enough to buy the property outright within ten years.
The problem may be finance because in the current climate, banks are unlikely to provide loans of more than 75% of the value of the property.
Many surveyors now tend to value the properties lower than the buyer seeking a loan would like because they are expecting prices to fall. Lenders want to make sure that there will still be enough equity to protect their interests a year down the line when property prices might be even lower.
Banks have money to lend but they are now extra careful about where they place it. Buyers are coming under greater scrutiny by lenders who don’t want to risk their money with someone who might soon go out of business. Your existing bank with whom you already have a rapport might be the most likely to help. Other lenders may even be suspicious of someone who hasn’t gone with their existing bank and wonder whether there is a problem with your ability to service the loan.
Given the difficulties and uncertainties in the market, it’s likely that we will see more leasing but for those who feel they would be better off buying, there are good deals to be had if you can raise the finance.
Landlord did not ‘discriminate against disabled tenant’
The House of Lords has ruled that a housing authority did not discriminate against a disabled tenant when it sought to evict him because he had sublet his flat.
The ruling could be significant not just for landlords but for employers as well.
The case involved Lewisham Borough Council and one of its tenants, Courtney Malcolm. Mr Malcolm suffered from schizophrenia which could be stabilised by medication.
In 2002, he was granted the tenancy of a flat and two months later he applied to exercise the right to buy. The following year, his medication changed and it altered his behaviour. His doctors then discovered that he had stopped taking his medication altogether.
Mr Malcolm then sublet the flat in June 2004 before having completed his application to exercise his right to buy. Lewisham responded by serving notice on him to quit in August and then began possession proceedings in December.
Mr Malcolm submitted that this amounted to discrimination under the Disability Discrimination Act 1995 because it was his schizophrenia that had caused him to sublet the property.
He lost the case in the county court which made the possession order. However, that ruling was overturned by the Court of Appeal and so the case was taken to the House of Lords.
The Lords have now found in favour of Lewisham. They said the issue under the Act was whether Mr Malcolm had been treated any differently to the way a tenant who was not disabled would be treated if he had sublet. The answer was that he had been treated in exactly the same way and consequently there had been no discrimination because the possession proceedings did not relate to Mr Malcolm’s disability.
Lord Bingham said: “Lewisham’s reason for seeking possession - that Mr Malcolm had sublet the flat and gone to live elsewhere - was a pure housing management decision which had nothing whatever to do with his mental disability.”
The ruling could have implications in other areas such as the workplace and affect whether an employer’s decision to dismiss a disabled person is lawful or not. Each case is different, of course, and will depend on the individual circumstances.
All landlords or employers facing difficult decisions like these should seek legal advice before taking any action.
New National Minimum Wage rates
The National Minimum Wage rates are set to rise on 1st October.
The rate for workers aged 22 and over rises from £5.52 per hour to £5.73. For those aged 18-21 the rate increases from £4.60 per hour to £4.77.
The rate for workers aged 16 or 17 rises from £3.40 per hour to £3.53.
Protect your trademark as application process is streamlined
Companies may need to take extra care to protect their trademarks in the wake of new regulations to modernise the application process.
The Trade Mark Rules 2008, effective from 1st October, reduce the opposition period to a trade mark application from a fixed three-month period to two months. However, there can be a free extension to three months by anyone considering opposition.
Two months also becomes the standard period for taking actions such as altering a registered trademark, making a classification change or filing a counterstatement to oppose registration of a trademark.
It is also the time period in which you can file a counterstatement for revocation of a trademark on the grounds of non-use. The owners of the trademark will be given a single opportunity to file the evidence of use or the reasons for non-use with which they intend to defend the registration.
The cooling off period once opposition has been initiated is reduced from 12 months to nine months. However, this period can be extended to 18 months if both parties so wish and are prepared to make certain statements.
The Registrar has wider powers and greater flexibility. He can accept late defences where someone applying to register a trade mark fails to file a counterstatement on time in response to an opposition. He can also set aside decisions within six months of them having been made if proprietors can prove that they were unaware that their trademark or application to register a trademark was under threat.