Written evidence submitted by the Property Institute [HBS 053]

 

Introduction

The following submission from The Property Institute focusses primarily on the buying and selling of leasehold properties, which represent around 20% of the English housing stock.

Leasehold properties have particular characteristics which buyers need to be aware of before they purchase a property. Consequently, there is a substantial amount of information which sellers are required to share with potential buyers, through a standardised form known as an LPE1. Typically, this information is collated by the managing agent responsible for managing the common parts of the building on behalf of the seller, for a fee, since the cost of collating information for the sale of a property is not usually included in the managing agent’s fee as it does not relate to management of the building.

This submission calls for:

1)                        Information about leasehold properties to be made available to buyers earlier in the buying process;

2)                        A maximum fee for the provision of sales information on leasehold properties that is reasonable and index-linked, and a maximum timeframe for delivery of information of 21 calendar days (unless there is a good reason for more time being required);

3)                        All properties to be given a UPRN for easy tracking across multiple datasets and platforms;

4)                        The Government’s How to Buy, How to Sell and How to Lease Guides to be shared by agents to potential buyers on a mandatory basis;

5)                        Mandatory qualifications for all property agents, including estate agents and managing agents, as part of wider regulation of the sector; and

6)                        A single, legally enforceable Code of Practice for all property agents.

 

Information Provision

Do buyers have the right information available at the right time during transactions?

Currently, when a consumer wishes to sell a leasehold property they must provide to the potential buyer the information set out in the LPE1 form, which is usually completed by a managing agent.

 

This contains several pages of information including a checklist of questions such as:

The LPE1 form also requires documents to be disclosed, including:

The full LPE1 form is a comprehensive set of information for a potential buyer. therefore, it is not usually made available to the buyer until after an offer has been accepted and therefore some way through the home buying and selling process, when the buyer already has a strong sense of commitment to the eventual purchase.

In The Property Institute’s view, it would be beneficial for buyers to have much of the information contained in the LPE1 form at an earlier stage before they make an offer on a property. This would enable them to take all relevant information into consideration, including what costs they may need to cover for the management of common parts of the building and the likelihood of additional sums for major works or building safety measures. It would empower future leaseholders to be more informed about the particular characteristics of this tenure so they can make a sound decision about whether it is right for them.

The consequence of making information available to buyers earlier in the process is the seller would need to provide two sets of information to the buyer: an initial set at the start of the process and then an updated set of information before contracts are exchanged. This is because some information, such as whether there are any outstanding service charges on the property, may have changed since the initial information was shared. The provision of two sets of information would demand more time on the managing agent or other body preparing it and so would be an additional cost to the seller. Such a two-stage process should, however, make the buyer better informed and so less likely to pull out of the buying process at a later stage.

 

Maximum timeframes and fees for the provision of sales information

The Leasehold and Freehold Reform Bill currently moving through the House of Lords gives powers to Ministers to bring forward secondary legislation which would introduce mandatory timeframes for the provision of sales information when requested by a seller, and a cap on the fee that can be charged for compiling this information.

The Property Institute supports this provision, providing the regulations adequately reflect the cost and time resource required for completing this sales information work, especially for buildings with complexities such as fire safety remediation works, which can require in-depth reporting and ongoing correspondence.

Charges are applied to the seller individually when they wish to sell their property, rather than included in the general management fee for building management, because the benefit of the work in compiling information is only received by the seller. This means that other leaseholders in the building who are not selling their home do not have to pay towards their neighbour’s moving costs.

The information needed is not simply such that can be stored and downloaded from a computer with no further work. Questions in the LPE1 need live interaction, as they include aspects like whether any issues have been raised on certain matters and whether there are any plans or proposals that may be of relevance to a potential buyer.

However, in this unregulated sector, it is possible for some agents to charge excessive fees or take many weeks to provide information which can be very problematic for leaseholders seeking to move home.

Back in June 2019 the Government set out a proposed maximum fee in response to its consultation of £200 plus VAT. However The Property Institute believes this is no longer sufficient to cover the costs of the work required. A stepped fee structure is required to accommodate large and complex buildings, especially ones with building safety remediation issues, where considerable correspondence is often required, and maximum fees should be reasonable and index-linked to reflect inflation.

A maximum time period of 21 calendar days is recommended, as some buildings can be complex and often agents get multiple requests for LPE1s at the same time (e.g. after the Easter break).

 

What effect would it have on the transaction process if sellers were required to provide set information about a property when it was marketed?

If sellers of leasehold properties were required to provide certain set information when it is marketed, for example, a subsection of the information required in the LPE1 form, this could speed up the transaction process because:

1)                        The time taken for the compiling of relevant information by the landlord or managing agent on the request of the seller would largely fall before a property is marketed rather than as part of the transaction process i.e. after an offer has been made; and

2)                        The buyer is less likely to pull out of a sale once they have received information in the LPE1 form, because information which may have a material influence on their decision to buy or the price offered is likely to be already known to them in the initial marketing information.

 

How much data associated with housing transactions still needs to be digitised and how can the digitisation process be accelerated or prioritised?

Most information is held digitally, but across multiple platforms which do not “speak” to each other.

The Property Institute supports the use of UPRNs on properties, which would enable a single property to be tracked across different IT systems and datasets, including those which may be developed in the future. This is particularly relevant for building safety information, which may need to be cascaded to a number of actors including the buyer, the lender, the lender’s valuer and the insurer. A unique number for the property would speed up transactions by making it clearer to identify the relevant information and reduce the risk of errors.

 

Conveyancers

Do consumers have sufficient information to determine which conveyancer to use? How could information provision on conveyancing be improved?

It is The Property Institute’s view that consumers currently have insufficient information to determine which conveyancer to use. Consumers will not always know what to look for or expect in a conveyancer.

When conveyancers provide information to the home buyer they can sometimes “hide information in plain sight” by giving a large amount of information for the consumer to digest without advice or warnings about any parts of the information which the consumer should give particular consideration to. It is not unheard of that a consumer is given over 150 pages of information in a conveyancing pack without any accompanying advice and the consumer must decide what is relevant to them. This is particularly problematic in the case of leasehold properties, where there is a large amount of legal complexity and much variation between leases.

Managing agents regularly encounter leaseholders who have not understood the terms of their lease before purchasing the property. This can present real difficulties for the leaseholder especially where they did not understand the full extent of costs that they are responsible for and have not budgeted accordingly. Such lack of leaseholder understanding can also be problematic for the effective running of a building.

The practice of using the recommended solicitor or conveyancer on the sale of new homes needs to end, as it can create perverse incentives for the conveyancer who may not act in the best interest of the consumer. For example, there is a risk the conveyancer may not give sufficient caution to the consumer about clauses in the contract that could have a detrimental impact on the consumer because they wish to retain custom and referrals from the property company recommending them.

Previously, a large number of homes were sold with “doubling ground rents” clauses, where the ground rent doubles every ten years – a practice which has now been ruled as unfair by the Competition and Markets Authority.

One solution to improve the information available to consumers is to make it mandatory for the Government’s How to Buy Guide, How to Sell Guide and How to Lease Guide to be shared with consumers at the earliest opportunity in the home buying and selling journey (first point of contact). It is already the case that the Government’s How to Rent Guide must be shared with those looking to rent a home. These Guides include some important information about conveyancers and what factors to consider when selecting a legal professional.

 

What effect would a mandatory professional qualification for estate agents have?

The Property Institute believes that introducing mandatory professional qualifications for all property agents – not only estate agents but also managing agents – would have a significant positive impact for consumers.

Mandatory qualifications should be framed around technical knowledge, customer service, ethics and safety. This would drive up competence across the sector and help to stamp out poor practice, which can have a detrimental effect on consumers. Over time, this should lead to an increase in consumer trust when engaging with these professionals, resulting in a better experience for consumers when they buy, sell or occupy homes.

Since managing agents are involved to some degree in the home buying and selling process (primarily through the provision of information), a well-qualified and competent managing agent sector will aid a smooth and efficient moving process and improve the consumer experience of buying or selling their home.

Mandatory qualifications for property managers in the social housing sector have recently been introduced through the Social Housing (Regulation) Act 2023 and so it is a natural next step to extend such a provision to the private sector as well.

TPI supports the findings of Lord Best’s working group on the Regulation of Property Agents (RoPA) which recommended mandatory qualifications as well as a new regulator, a licencing regime, and a mandatory Code of Practice for all property agents.

A voluntary approach to qualifications is not sufficient. This option is already open to agents and qualifications are voluntarily taken up by many of the more diligent in the sector. The Property Institute is an accredited provider of qualifications for property managers and has awarded almost 10,000 qualifications to professional members in the last 20 years.

Qualifications must be made mandatory to stamp out poor practice by unqualified and rogue players and level up the playing field, in both the managing and estate agent sectors.

 

Should there be a single, legally enforceable Code of Practice for property agents?

Yes, The Property Institute supports a single, legally enforceable Code of Practice for all property agents including estate and managing agents. This Code of Practice, alongside mandatory qualifications, could pave the way for much-needed wider regulatory reform of the sector in the future. Such an overarching code could draw from the recommendations of Lord Best’s working group on the Regulation of Property Agents, and build on existing codes of practice such as the  TPI Consumer Charter and Standards (available  here)

 

April 2024