Contents
1. Introduction
1.1 Who should read this practice note?
Solicitors involved in property transactions.
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1.2 What is the issue?
Flooding is a growing risk for British property. Aside from physical damage caused by floods, if a property is at risk of flooding it may be difficult to:
- obtain a mortgage
- obtain suitable insurance cover, or
- sell the property.
This is likely to affect the value of the property.
Solicitors are not qualified to give advice on flood risk or interpret technical flood reports. However, this note aims to provide you with information to help your clients investigate the terms on which buildings insurance cover, including flood risk, is available, prior to their entering into contractual commitments. It provides general information in relation to flood searches and other means of investigation.
You should encourage your clients, prior to their entering into a contract, to make sure that insurance can be obtained for the property on acceptable terms. You should also liaise with clients in relation to which, if any, flood searches or other investigations, may be appropriate.
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1.3 Professional conduct
The following sections of the SRA Code are relevant to this issue:
- Chapter 1 on Client care
- Chapter 6 on Your client and introductions to third parties
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1.4 Status
Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.
For queries or comments on this practice note, contact the Law Society's Practice Advice Service: www.lawsociety.org.uk/practiceadvice.
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1.5 Terminology
Must - A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.
Should
- Outside of a regulatory context, good practice for most situations in the Law Society's view.
- In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).
These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.
May - A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.
SRA Code - SRA Code of Conduct 2011
2007 Code - Solicitors' Code of Conduct 2007
OFR - Outcomes-focused regulation
SRA - Solicitors Regulation Authority
IB - Indicative behaviour
CML - Council of Mortgage Lenders
BSA - Building Societies Association
2. SRA Principles
There are ten mandatory principles which apply to all those the SRA regulates and to all aspects of practice. The principles can be found in the SRA Handbook.
When thinking about how to meet the outcomes in the Code/Handbook, you must consider the principles which apply across the Handbook including the Code. You should always bear in mind what the ten principles are and use them as your starting point when implementing the outcomes.
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3. Flooding risks
The Environment Agency estimates that one in six homes in England (approximately 5.2m properties) are at risk from flooding. Of these, 1.4m are at risk from rivers or the sea alone, 2.8m are at risk from surface water alone and 1m are at risk from both. An estimated 200 homes are at risk of complete loss to coastal erosion over the next 20 years or so, and 2,000 more could potentially become at risk over this period (see Flooding in England: A National Assessment of Flood Risk).
It may not always be obvious that a property is at risk of flooding. Properties at risk do not need to be close to a river or the sea or on low lying ground to be exposed to flood risk. Surface water, groundwater and overflowing sewers are increasingly common causes of flooding.
The most common types of flooding are:
- Surface water flooding - occurs when heavy rainfall overwhelms the drainage capacity of an area.
- Sewer flooding - occurs when sewers are overwhelmed by heavy rainfall or when they become blocked.
- Groundwater flooding - occurs when underground water levels rise above surface level. This is most likely to occur in low lying areas underlain by permeable rocks.
- River flooding - occurs when a watercourse cannot cope with the water draining into it from the surrounding land.
- Coastal flooding - results from a combination of high tides, low lying land and, sometimes, stormy conditions.
While this note is primarily concerned with the issue of flood risk in the context of the purchase, lending on, or leasing of property, flood risk has the potential to impact on all those owning or occupying property.
If the government and the Association of British Insurers have not negotiated measures to take effect in place of the Statement of Principles before 1 August 2013, or have not agreed to extend its application, when the current statement expires the insurance market is likely to change adversely for properties perceived to be at risk of flood events. Even if agreement is reached it may not benefit commercial property.
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4. Conveyancing transactions
4.1 When acting for a buyer, tenant or lender
In all conveyancing transactions, when acting for a prospective buyer, tenant or lender in residential and commercial transactions, you should mention the issue of flood risk to your client and, if appropriate, make further investigations.
The main ways of learning more about the risk of flooding are:
- conducting searches
- making enquiries of the seller
- instructing a valuer or surveyor to carry out physical inspection, survey or valuation generally and to provide advice on the impact of flood risk
It may not be sufficient to rely on the results of any one category of investigation alone.
Different clients, including lenders, will have different appetites for risk.
You should consider advising your clients before they enter into a binding commitment to buy, lease or finance property that they should:
- Establish the terms on which buildings insurance, including flood risk cover, is available.
- Discuss the level of risk to which the property is exposed with their building surveyor or, if necessary, a flood risk assessment consultant.
Where appropriate you should discuss with your client whether they are instigating their own investigations. As a result you may wish to make further enquiries of a commercial company. You may wish to record these discussions and your clients' decisions.
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4.2 When acting for a lender
You may have additional obligations when acting for lenders. Lenders are increasingly likely to investigate the potential flood risk of prospective security either as part of their valuation process or by searching. Lenders may impose additional requirements in their instructions to you as a result of their investigations.
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4.2.1 In residential transactions
You will often be required to advise your client to arrange insurance cover usually starting from the date of contractual commitment.
If the lender is not arranging buildings insurance, which is almost invariably the case, the obligations in section 6.14.2 of the CML Lenders' Handbook or section C 28 of the BSA Mortgage Instructions are likely to apply in most cases.
Lenders may impose additional requirements. For example, you may be required to ensure that the excess payable does not exceed an amount notified to you by the lender or as is set out in part 2 (6.14.1) of the CML Lenders' Handbook.
You may wish to record the lender's requirements.
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4.2.2 Commercial transactions
In commercial transactions, the lender will usually instruct you as to their insurance and other requirements. Lenders' requirements will vary.
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5. Flood searches
5.1 Government agencies
5.1.1 The Environment Agency Flood Map
The Environment Agency Flood Map provides a free postcode search for information on flooding from rivers and the sea but not the common flood causes of surface water and groundwater.
The Flood Map provides the following information:
- flooding from rivers or sea without defences
- extent of extreme flood
- flood defences
- areas benefiting from flood defences
- main rivers
The Flood Map does not:
- Give information about a specific property.
- Provide information on flood depth, speed or volume of flow.
- Show flooding from other sources, such as groundwater, surface water flooding, or overflowing sewers.
Because of these limitations, the Flood Map should not be used as the sole means of assessing the flood risk for a property.
The Environment Agency service is only designed to be used by the general public.
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5.1.2 Land Registry Flood Risk Indicator
Land Registry has combined its data with the Environment Agency's flood data to produce its Flood Risk Indicator which provides information about the possible risk of flooding to a property. The result is provided on a title-by-title basis for registered properties within England and Wales. It can be purchased online via Land Registry's Find a Property Service.
Land Registry states that the information only shows the predicted likelihood of flooding from rivers or the sea for defined areas and notes that it is not detailed enough to account for precise properties. As noted above, the Land Registry data is based on the Environment Agency Flood Map and so the Flood Risk Indicator should not be relied on as the sole means of assessing flood risk for a property.
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5.2 Screening reports
Screening reports are first-stage, high-level, non-property specific reports that do not require the organisation supplying the report to visit the property. Screening reports are often available at low cost and provide quick results.
However, they provide limited information. They may provide an indication as to whether further investigation would be merited. These searches may use data from local authorities, British Geological Survey, Environment Agency and Land Registry.
The Environment Agency Flood Map and the Land Registry Flood Risk Indicator are both types of screening reports.
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5.3 Commercial searches
Some commercial search providers provide information about all kinds of flood risks including surface water and groundwater flooding information.
The market for flood searches is not regulated. There are different types of searches available with marked variations in the cost, quality, range, analysis and interpretation of data.
It is not always easy to establish which data sets are being used, how accurate the data is and how often it is updated. Before choosing a search provider, you should attempt to check that the search will provide the information most aligned with your client's requirements, which may not be straightforward.
Providers and their products are subject to change.
As well as providing information from various data sets, a flood search should also provide an assessment of the risk of flooding. Depending on the means used to describe the likely incidence of flooding, these can be more or less easy for you or your clients to understand.
When reporting the results of any flood search to your client, you should tell them that you are not qualified to advise on technical matters regarding the results and that they should raise any questions they have with either their surveyor or the consultant who prepared the report.
A general environmental search may provide some limited information about flood risk, but commercial search providers are increasingly providing dedicated flood searches and reports. You should consider the terms and conditions on which the search or report is provided, including any limits on the liability of the provider. Generally, searches or reports for commercial property can be tailored for the property and its use, or proposed use, and will be more detailed than for residential property.
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6. Enquiries of the seller, landlord and borrower
Enquiries about flooding should be raised with the seller, landlord or borrower as appropriate as part of the pre-contract enquiries. You should not rely only on replies given to enquiries about flood, environmental or other physical issues, in respect of the property. The answers provided may indicate the need for:
- further enquiries,
- further investigations,
- or further information.
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6.1 Residential properties
The Law Society Property Information Form (TA6) asks for details of any flooding that may have affected the property.
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6.2 Commercial properties
The Commercial Property Standard Enquiries Form (CPSE 1) requires the seller to provide details of any flooding of which it is aware and asks whether the seller has had any difficulty in obtaining insurance at normal rates, excesses and exclusions.
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7 Physical inspection, survey and valuation
7.1 General valuations and surveys
Lenders will usually have a valuation carried out. Commercial clients may commission their own survey report. Residential clients may commission a homebuyers report or structural survey. These valuations and surveys may provide information about potential flood risk.
The Law Society Conveyancing Protocol (at Stage A step 5 and at Stage B step 19) says that when acting for the buyer you should discuss the advisability of having a survey carried out and suggest that the buyer consult an independent surveyor for advice on valuation and survey.
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7.2 Specialist surveys
Your client may wish to commission a specialist survey of the land to be acquired to provide further information in relation to flood risk. The following organisations may be able to assist in providing suitably qualified professionals:
A flood risk survey, in addition to providing information about the likely risk of flood, can provide information about steps that can be taken to mitigate exposure to flood damage. It may also analyse the efficacy of existing flood mitigation measures.
The Flood Risk Report has been developed by government and industry. It is a standard template for recording flood risk before and after the installation of flood resistance and resilience measures.
Provided that a suitably qualified and independent professional surveyor has completed the report, it may be useful for your clients to provide it to their prospective insurers. Insurers may consider any flood protection measures when assessing the terms they will offer.
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8 Buildings insurance
Some insurers may have investigated the insurance risk by collating data sets in order to evaluate the terms on which they are willing to insure against flood risk. Encouraging your client to investigate the terms on which insurance is available from a number of different insurers can contribute to their assessment of the likely level of flood risk.
Even if the property is leasehold and the landlord insures, if flood becomes an uninsured risk, the tenant may be liable to make good any flood damage depending on the wording of the lease.
The Law Society Standard Conditions of Sale (fifth edition) oblige the buyer to assume the risk from exchange of contracts. You should discuss the liability to insure with the buyer if appropriate.
For leasehold properties the responsibility may lie with the landlord. For freehold properties it is likely to be the responsibility of the buyer. You should consider advising the buyer to investigate the terms on which buildings insurance is available for all risks, including flood, prior to being committed to the purchase.
The Law Society Conveyancing Protocol states that you should encourage buyers to investigate the buildings insurance position at an early stage in the transaction and in any case in advance of exchange of contracts. Making investigations of a number of insurers may indicate whether the property is at risk (Stage A, step7 and Stage C, step 46 of the Protocol).
Where a property is perceived to be at risk of flooding, insurers may decline to insure, require high premiums, impose high excesses or impose unusual conditions. The British Insurers Brokers Association may be able to assist in locating specialist brokers if your clients encounter difficulties.
The Department for the Environment, Food and Rural Affairs have produced a guide, ‘Obtaining flood insurance in high risk areas', for those experiencing difficulty in obtaining flood insurance.
Clients who are buying and encounter difficulties in obtaining insurance on usual terms will be on notice of the risks and may not wish to proceed at all, or at the same price, as a result. They may not be able to proceed, even if they wish to, if this prevents their being able to obtain suitable mortgage finance.
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9 More information
9.1 Law Society products
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9.2 Law Society services
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9.3 Other
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