As the home information pack finally becomes law, Paul Marsh looks at the implications for all parties in the house-buying process
Some five years after its launch, the government's controversial plans for a compulsory seller's pack as part of the home-buying process has finally become law. All residential properties offered for sale with vacant possession from 2007 will need to have available for any prospective purchaser a seller's pack, which has been renamed home information pack (HIP).
It is the government's objective that a HIP will enable a buyer to make 'an informed decision' whether or not to make an offer for the property. The HIP will have to comply with new regulations to be published this April.
The pack will be in two parts. The first will be the home condition report (HCR). These reports will be prepared by accredited home inspectors and will be produced in a prescribed form. The HCR will not be a valuation.
The regulations will ensure the competence and integrity of home inspectors. It is likely that lenders will accept the HCRs as evidence of the condition of a property, but they will need to have a separate valuation.
The second part of the pack will contain searches and title information. The government has established a HIP components board to advise on the format and contents and the Law Society is represented on this board. It is likely the HIP will contain:
If the property is leasehold, the HIP will contain a copy of the leases, service charge, management company and insurance information. It is not intended that the HIP will contain a contract for sale.
One issue that needs to be decided is whether the HIP will contain any summary or explanation. The Law Society maintains that it should contain a 'health warning' making it clear to buyers receiving a HIP that they will need to take legal advice on the transaction before entering into any form of commitment.
Who will prepare the pack? The obvious person will be sellers' solicitors. Not only will they understand the documents contained in the HIP but they may be the only people who have immediate access to some of the necessary information. Most lenders do not now hold any documentation at all relating to properties over which they have a charge. The solicitors who acted in connection with the original purchase of the property will have on their file copies of most of the relevant documentation. The retention and availability of this information will be crucial in ensuring that solicitors become the principal providers of the HIP.
But it is clear that solicitors will face stiff competition from other parties. Several corporate estate agents have already made it clear that it is their intention to provide HIPs. New providers such as search agents will also be ideally placed to supply significant parts of the HIP.
Small independent agents may be unable or reluctant to prepare HIPs and they will be looking for someone to provide the packs for them. This is where solicitors will have the opportunity to compete - provided they act quickly.
Although packs with HCRs will not be compulsory until 2007, it is possible that voluntary packs without HCRs will be in common use in the summer of this year. Those solicitors who get organised now will gain an advantage.
Speed, accuracy and cost will be key issues in the manner of delivery. Although the Housing Act 2004 requires the HIP to be in paper form, it is almost inevitable that it will be put together electronically and be available to estate agents for distribution in that format. Solicitors who do not have the facility both to prepare and to deliver HIPs electronically may find it difficult to compete.
The cost of the HIP is a major issue. The government has convinced itself that the HIP will be supplied on a 'no sale, no fee' basis. This will be crucial because if sellers have to pay for HIPs before they can put a house on the market, it might be a major disincentive. Uncommitted sellers may decide not to put property on the market, and that could create a shortage of properties for sale.
The government may have miscalculated this particular issue. The first signs are that even the large chains of estate agents are reluctant to commit themselves to providing HIPs on a 'no sale, no fee' basis. This is perfectly understandable. On the basis that a HIP with a HCR could cost in the region of £750, those providing HIPs will have to underwrite substantial cost with no guarantee that the outlay will be recovered. Of the 2 million houses offered for sale each year, only 1.5 million actually sell. This means that each year half a million packs will be prepared where there is no sale. It would be financial suicide for estate agents or solicitors to underwrite such a huge cost. It remains to be seen whether or not the public will be prepared to do so.
It will be interesting to see how the introduction of HIPs affects the debate over conveyancing referral fees. As the availability of a HIP will be a pre-requisite of offering a property for sale it is highly likely that estate agents' requirements will move away from wanting to be paid an introductory fee to requiring assistance with the preparation of a HIP.
Even Lord Rooker, who pushed the legislation through the House of Lords, admitted that a compulsory HIP is a high-risk strategy. At the last minute, the government decided under considerable pressure from a variety of sources that it would be its intention to have a dry run, including a compulsory regional test prior to full implementation.
The Law Society is acutely aware of the huge impact that these proposals could have on the property market and is of the view that it is in the interests of the consumer that solicitors should be the primary providers of a major part of the HIP. Chancery Lane's representatives on the HIPs components board will attempt to ensure that the regulations provide a cost effective pack that is both accurate and meaningful.
Solicitors who wish to be part of the new process will need to:
Solicitors have shown over the years a unique ability to adapt to the changing demands of the housing market. Many of the improvements in recent years in the conveyancing process have resulted from initiatives pioneered by the profession. Solicitors who make the effort to meet the new challenges will have nothing to fear.
The Law Society will do everything it can over the next few months to help the profession to retain its key role in the house-buying process.
Paul Marsh is the Law Society Council's member on the Office of the Deputy Prime Minister's HIPs component board
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