Paper trials: Conveyancing and the Building Safety Act

Higher mortgage rates and the cost of living crisis have hit household budgets, slowing conveyancing activity sharply since the market high of the stamp duty ‘holiday’. Recent figures by property data company Search Acumen suggest law firm conveyancing transactions are 25% down on a year ago.

‘Last year was quieter than the two preceding years, which had been pretty extraordinary,’ Farrer & Co partner Hugh Wigzell relates. But the residential conveyancing market, and the experience of solicitors working in it, is shaped by more than the state of the economy.

Grenfell – unintended consequences

The Building Safety Act 2022 (BSA), which came into force last April, remains a cause of acute concern for conveyancers. It was a response to the Grenfell Tower fire in 2017 and is designed to improve the safety of buildings, as well as giving residents and homeowners greater protections, including from the costs associated with correcting safety defects. It adopted recommendations made by Dame Judith Hackett in her 2018 review of fire safety and building regulations.

To protect residents and homeowners from such costs, the legislation creates varying degrees of responsibility for making tall buildings safe, especially through the replacement of dangerous cladding. The act allocates the cost of those works between developers and contractors, insurers, government and leaseholders. Overall, the burden falls heavily, but not exclusively, on developers and contractors.

Some requirements complicate the position of conveyancing solicitors, from whom some lenders want assurances on responsibility for future works in situations where the legislation lacks clarity. So while the BSA came in response to a tragedy, it had unintended consequences for leaseholders and their lawyers. The act’s flaws are being remedied in stages.

‘Not a day goes by where we aren’t having discussions about the act,’ says Zainab Dakhil, head of the London residential property team at Cripps. ‘Where do we start and stop when giving advice? It’s a question of balancing clients’ and lenders’ interests.

Amendments achieved

Conveyancers raised concerns last year about the wording used in the original legislation. This said that a ‘qualifying leaseholder’ would lose the protection of the act if they extended their lease, meaning they could be exposed to fire safety remediation costs.

Following representations from the Law Society and other stakeholders, amendments were made to the Levelling Up and Regeneration Act 2023 which closed the loophole.

Despite this, the BSA remains a cause of concern, because some professional indemnity insurers advise against taking on such matters, citing uncertainty around key elements of the legislation.

‘Some insurers are more concerned about the potential risk than others,’ broker Howden said in its October PII update. ‘Some are asking questions about it, some aren’t.’ As yet, Howden noted, ‘we have not seen any claims activity relating to the BSA 2022’.

‘How we approach each case has changed,’ says Dakhil. ‘We look at the scope and figure whether it is a BSA-affected building. The act touches conveyancing in a unique way and many solicitors are not taking on such work.’

This uncertainty has reduced the pool of solicitors willing to act on the sale or purchase of properties which are likely to fall within the remit of the act.

Guidance

Help is now at hand. Law Society guidance published this week provides greater clarity for conveyancing solicitors. Not least, it covers changes made in response to solicitor and industry concerns. President Nick Emmerson says the guidance ‘will help solicitors make sense of the improvements to the legislation that have been made since it was first introduced’.

The guidance was developed with government and industry stakeholders. It is supplemented by frequently asked questions and illustrations of situations solicitors may encounter in practice, developed with the Department for Levelling Up, Housing and Communities.

It provides solicitors with the necessary information to make informed decisions about taking on residential leasehold conveyancing matters where the BSA 2022 applies. The legal position is not fully settled, though. As the Society notes, ‘new primary and secondary legislation [is] yet to come’ and there will be ‘ongoing amendments to the existing legislation’.

Relevant building?

Solicitors are required to identify whether the property falls within the BSA’s remit, as well as any further information needed by clients and lenders.

‘Relevant buildings’, which fall within the remit of the BSA, are defined as those that are over 11 metres or five storeys or more high. Solicitors’ involvement starts with an appraisal of whether the property in question falls within this definition.

For purchasers of flats, the biggest concern is that such buildings may have fire safety defects and buyers may be liable for repair costs. While the act seeks to address this, if the processes set out in it are not followed, problems can arise. Hence the importance of the new guidance, and the need for secondary and primary legislation that adds to or amends the BSA.

‘As a firm we have long-established landed estate clients who own buildings where the BSA applies,’ notes Dakhil. ‘We’ve had to figure out how to deal with these transactions. If you are then dealing with solicitors on the other side who don’t have as much of an understanding of the act, it can get complicated.’

Timing is key in order not to fall foul of the legislation. Conveyancers acting for sellers need to ensure a leaseholder’s deed of certificate is served on the landlord; while buyers’ solicitors must pay close attention to the landlord’s certificate sent by return, as it states the remediation works needed.

Gathering the information needed to fulfil the requirements of the BSA is slowing down transactions considerably. And any additional time spent on a matter as a consequence is having to be written off.

Forsters partner Charles Miéville notes: ‘There’s a bit of a learning curve, and some of the legislation hasn’t been tested in the courts. For example, when selling a flat, you need a landlord’s certificate – the seller’s lawyer will apply for this and the landlord has four weeks to provide it. If they don’t, they can’t recoup the cost [of remedial works] from the tenant. A lot of landlords don’t understand or aren’t aware of the costs issue. When acting for sellers, the issue that’s arising is convincing the buyer’s lawyers that we have served the relevant notice and the landlord hasn’t responded.

‘We need to advise clients where they sit in terms of remediation costs. If one deadline is missed, costs cannot be recouped from the tenant.’

Slower transaction times must also be seen in the context of the challenging profit margins within which conveyancers work.

‘As a profession, conveyancers deal with the most high-risk work, and yet we are charging a tiny percentage compared with estate agents,’ says Anna Newport, director of Newport Land and Law.

Conveyancing ‘factories’, says Nexa Law partner Zahrah Aullybocus, are ‘dumbing down conveyancing. A lot of firms do treat it as a factory, when in fact no two properties and no two clients have the same requirements. Unqualified staff on the frontline are slowing transactions down. The race to the bottom is still on in terms of fees – but we are expected to give a Rolls-Royce [service on] legal advice’.

Lenders – a divided response

Conveyancers have also voiced concerns about the ‘part 2’ requirements of lenders. This requires solicitors to provide confirmation that the act’s provisions have been complied with. It is, they point out, a surveying point and outside their remit to confirm information they are incapable of checking.

‘A lot of lenders have simplified their requirements and are taking a much more pragmatic approach,’ says Dakhil. ‘With lenders whose requirements are too burdensome, where they ask us to verify information which is outside our control it gets difficult. We are relying on the sellers’ deeds of certificate, and it can be very hard to give some lenders the comfort they need.’

Early last year, the Conveyancing Association noted that individual part 2 requirements failed to make it clear that these requirements could be ignored on buildings to which the BSA did not apply.

Following consultation with the Law Society, in July UK Finance amended its handbook’s building safety provision, to make it clear lenders’ part 2 requirements only apply where the flat is in a ‘relevant building’.

However, the Society says more needs to be done. The onus should be placed on lenders to satisfy themselves that the act has been complied with, and on ‘the lender to confirm it is not looking to the conveyancer to warrant or verify the validity of the leaseholder deed of certificate or the landlord’s certificate’.

‘A proper understanding of how things work is needed,’ says Miéville. ‘It would be helpful if there was some standardisation across lenders.’

‘We are entitled to take information from clients at face value,’ Newport notes. ‘Our hands should be clean on that point, but there is no clarity at the moment.’

‘There are still so many loopholes, and we are relying on people being honest with the certificates being provided; for landlords to give the correct information,’ notes Aullybocus.

She believes that (chartered surveyor) the Earl of Lytton’s proposal for a Building Safety Remediation Scheme is the most ‘sensible solution’. The scheme envisages protection for all leaseholders by placing liability on the developer and main contractor if a building does not comply with regulations. If neither is able to pay, remediation would come from a levy on the construction industry.

However, such an amendment was not included in the Levelling-up and Regeneration Act. In a September debate in the Lords, Earl Howe, deputy leader of the House, responding to the proposed scheme, noted: ‘The leaseholder protections are showing real promise on the ground, so it would seem folly to scrap them and start again from scratch.

Signing off

The Law Society has been consulting on a new code for signing and exchanging property contracts. The pandemic saw a growing number of transactions conducted remotely, bringing with it an increasing reliance on e-signatures, such as PDF scans of wet-ink contracts and the use of secure e-signature platforms such as DocuSign.

The draft code’s intention is to ‘remove the uncertainty around exchanging contracts for commercial and residential property by allowing [the use of] new technology to conduct transactions’.

Speaking to the Gazette last year, Philip Freedman CBE KC (Hon), a member of the Society’s conveyancing and land law committee, noted that practitioners need to satisfy themselves that section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 had been complied with. Also, before exchange of contracts, they should address whether the contract will be signed on paper or electronically, and the method for such signing, whether that be wet-ink, screen writing or electronic secure signature.

The Immediate Exchange Protocol 2024 will replace formulae A and B, and the Release of Contracts Protocol 2024 will replace formula C of the Law Society’s formulae for exchanging contracts.

‘It’s great that the Society is reviewing the formulae,’ Wigzell says. ‘But my view is that it is designed to fit HM Land Registry requirements for execution of deeds, and contracts aren’t deeds, so it doesn’t matter how they are signed.’

The draft code leaves it to the parties’ solicitors to confirm what they have agreed on ‘the media to be used for the contract’. Dakhil hopes for greater clarity in a final version: ‘A new protocol needs to include what types of electronic platforms are acceptable. It needs to be far more prescriptive.’

Clients are divided on digital signatures. At the Gazette’s last roundtable discussion, software company Clio’s chief executive Jack Newton described the ability to use digital signatures for transactions as ‘table stakes’.

Aullybocus has a different experience. ‘People won’t use digital signatures,’ she says. ‘I have been advocating for it for a while, but there is a lot of resistance.’ There needs, she concludes, to be a wider appreciation of the protections that digital signatures can provide.

 

Maria Shahid is a freelance journalist