Scottish conveyancing system for whom?
9 September 1997
14 January 2014
6 February 2014
19 December 2013
26 November 2013
12 November 2013
Leslie Dubow highlights some of the flaws of the Scottish conveyancing system that the Adam Smith Institute has recommended and offers some alternative solutions. Leslie Dubow is executive officer of the SPG.
A report of the Adam Smith Institute on the house-selling process is said to recommend adopting the Scottish legal process whereby buyers and sellers enter into a binding contract at an earlier stage than they do in England and Wales.
While the introduction of such a system would be to the advantage of conveyancing solicitors who would become the first point of contact for any client who wanted to buy or sell a property, the Solicitors' Property Group (SPG) is not sure that it would work to the consumers' advantage in the market south of the border.
This is because the public expects to coincide its sales and purchases. There are a number of reasons why things are different in Scotland. The Scots have a smaller housing market, a lower percentage of the population are owner-occupiers, they have a larger rental market and Scottish banks are more willing to consider open-ended bridging loans.
ln Scotland, sellers will move into rented accommodation or with relatives if they have not yet completed their purchase. The alternative is to take out a bridging loan. There are considerable risks in doing this before you have found a buyer for your own home. During the recent recession clients who had done so found themselves paying very high interest rates for several years before they were able to sell their own house and pay off the loan. Quite a few ended up poorer but somewhat the wiser for the experience.
The SPG believes the conveyancing process should be more transparent. The outdated legal doctrine of "let the buyer beware" should be abolished and replaced by an obligation of full disclosure. Only if this were done could the suggested production of property log books and seller-funded surveys be made to work.
If at the same time institutional lenders could be persuaded to provide prospective buyers with a mortgage status report certifying that, subject to the production of a satisfactory survey report, they will qualify for a loan of a stated fixed amount that would go a long way to speeding up the process.
It is misleading to imply that the introduction of the Scottish house purchase system would solve the problems caused by gazumping and gazundering.
In the Scottish system, prospective purchasers have to consult their solicitors at a much earlier stage and to compete with others for a property. As only one buyer can be successful for each property the unsuccessful bidders will have irrecoverable expenses.
In effect all that has been avoided is the use of the emotive words "gazumping" and "gazundering". It is surprising that the Adam Smith Institute which presumably believes in a free market economy does not understand that the law of supply and demand affects the sale price of a house as much as any other commodity.
If a number of people are competing for one property that will force the price up. If there is no competition, an astute purchaser may be able to negotiate the price downwards. It is simply a question of market forces.
There are two ways of trying to prevent this; one is a pre-contract deposit agreement where the deposit will be forfeited if either party withdraws unreasonably and the other is a lock-out agreement whereby the seller agrees to give the buyer a clear run at a fixed price provided that contracts are exchanged within an agreed period.
The drawback in both cases is that they depend on a mutual agreement being reached between the parties.
If the law were to intervene and to impose a premature binding contract, then in a rising market sellers would simply delay accepting an offer inviting purchasers in the meantime to compete and spend money on surveyors' and solicitors' fees; and in a falling market buyers would delay, hoping to force down the price.
In conclusion, the SPG does not believe that the Scottish conveyancing system can easily transpose to England and Wales. Its introduction would not resolve the problem of disappointed buyers being out of pocket for surveyors and solicitors fees. The solution as we see it is:
The abolition of "buyer beware" (a prerequisite for the following items).
A requirement for full advance disclosure by sellers (in a property log book).
Sellers to provide the survey report (from an independent surveyor).
Lenders shall pre-qualify prospective borrowers for loans (subject to a satisfactory independent survey).
The SPG is meeting the housing minister's principal private secretary today (9 September) to discuss the points raised.