Conveyancing update: SDLT deadlines, leasehold reform and PII
As the first stamp duty land tax (SDLT) holiday deadline approaches, we share tips on managing your clients' expectations, look at the potential impact of the Leasehold Reform (Ground Rent) Bill and consider how to prepare for your professional indemnity insurance (PII) renewal.
Managing expectations ahead of 30 June SDLT deadline
The chancellor extended the stamp duty land tax (SDLT) holiday in the March budget until 30 June, followed by a new tapered rate coming into force from start of July to end of September.
In Wales, the land transaction tax (LTT) concession will come to a hard end on 30 June with no tapering arrangements after this date.
Challenge and correct client assumptions
We understand that many of you are under terrific pressure now ahead of the 30 June deadline and that some of you have been under this pressure for some time.
It's key at this stage to take steps to manage your clients’ expectations in the lead up to 30 June.
Any assumptions that clients and those along the chain may have on timing should be interrogated and corrected as necessary.
Inform your clients of the, admittedly not-so-beneficial, arrangements that will come into force from 1 July until the end of September and try to make sure they have realistic expectations as to what the impact of not making the 30 June deadline would be.
Factor in lenders’ notice periods
It will potentially be difficult for many lenders to be remitting huge volumes of mortgage monies very close to the deadline. They may not be able to achieve this unless they receive plenty of notice.
We understand that some lenders are requesting at least a week’s notice when you’re sending in certificates of title and requests for money.
Arranging completion dates as much in advance of the end of June is advisable, if at all possible.
Clients’ expectations need to be managed generally and on the basis that it may not be possible for lenders to send mortgage monies out in time.
You may want to explain the risks to your client, such as late completion and the resulting charge to SDLT for them and any potential compensation payments to others in the chain if a transaction does not complete by 30 June.
Communicate across the chain
The different values of properties across chains means the impact on transactions in chains will be different.
In light of that factor and the new tapering arrangements, we encourage communications across the chain so that everyone understands the up-to-date position on the status of the chain.
Asking estate agents to keep you updated on the position across the chain may prove helpful.
Ask clients to consider taking tax advice
You may want to encourage clients to take tax advice (for example, by instructing their tax advisers or accountants) to start calculating the likely post-30 June SDLT now.
This will help clients to understand the likely cost so they can instruct you as to whether they will want to proceed if their sale and/or purchase doesn’t take place by 30 June.
Keep communicating with your clients
We encourage you to keep managing the expectations of your clients by communicating with them to see if they:
- are aware that, although you will do your best to mitigate any hurdles, the speed of the transaction is outside your control and you cannot guarantee that transactions will complete before 30 June 2021 (especially where they form part of a chain)
- are aware that the solicitor is often the last link in the move, and it’s only when the solicitor has all the pieces from others that buyers and sellers can move
- still want to proceed if the SDLT concession is not available? Have you taken detailed instructions about this? If your clients do still want to go ahead, do they have the funds available to do so? If they’re in a chain, they need to understand that even if they want to continue without the concession, others in the chain may not, which may mean that they will not be able to proceed
- understand that if they exchange contracts but do not complete on the completion date, they may unwittingly become liable for SDLT. As explained above, you may want to explain the potential risks to your client. To mitigate against these risks, you may need to develop policies for your firm so that, for example, you will not agree completion dates of later than 20 June and will amend the notice to complete timings so that the period is reduced to no longer than five working days. Be extremely cautious about whether or not to make ‘time of the essence’. Rights to terminate in certain circumstances need to be discussed and incorporated in the contract
We also suggest that you check whether:
- their lender has imposed a condition that the transaction can only proceed provided that the SDLT concession is available
- in areas where there are significant delays in obtaining official searches, they have the option of using a personal search carried out by firms registered under the Search Code, monitored by the Property Codes Compliance Board (remember to explain the difference to your clients and check the Part II requirements of their lender if there is one)
We understand that fallback, price changes and penalty clauses are all being discussed and negotiated at present. Discuss the effects of these with clients if these are being considered.
We appreciate that everyone is trying to do their best for their clients in unparalleled circumstances, but it would help if everyone tries to maintain a professional manner even though they are feeling very stressed.
Try to remember that everyone is working to the same end and make sure that you operate fairly and kindly to everybody you deal with in the process in accordance with the Conveyancing Protocol.
We know that you’ve been under pressure for a long time and that this can’t be easy, but the next phase comes to an end at the end of this month and it’s hoped that the further phase until end of September will be more manageable.
Prepare for the 30 June LTT deadline
As with the SDLT concession in England, the Welsh government extended the land transaction tax (LTT) concession currently in place in Wales until 30 June 2021.
However, unlike in England and Northern Ireland, there will be no tapering of the nil-rate band after the end of June.
We encourage you to manage your clients’ expectations as the deadline draws nearer and the likelihood of transactions completing in time to take advantage of the concession in Wales diminishes.
Thank you for all of your efforts so far. Please keep it going for a short while longer.
Consider the potential impact of the Leasehold Reform Bill on new leases
A new Leasehold Reform (Ground Rent) Bill was introduced in the Queen’s speech on 11 May with its first reading on 12 May.
The bill’s second reading took place on Monday 24 May and we briefed the House of Lords on some of the technical issues around the scope and definition of ‘rent’ to prevent disputes.
The Law Society was referenced three times during the debate, notably in relation to our concerns around the scope and definition of ‘ground rent’.
The aim of the bill is to stop onerous and rising ground rents from affecting future leaseholders.
It seems likely that the bill will become law and be effective as from 2023 and you should consider the advent of this bill when advising clients buying new leases.
We understand that five large developers say they have already removed ground rents from their leases. You may wish to consider informing your clients about the potential legislation.
We’re grateful for the contributions we’ve received so far for our parliamentary briefings and would welcome any further comments you may have on the bill at email@example.com.
Professional indemnity insurance (PII)
Whilst you’re under pressure, you still need to consider all the usual aspects of the process.
Residential conveyancing remains the highest area of claims for most PI insurers with the main areas of concern including:
- ground rent clause disclosure
- complications around multiple dwellings relief from SDLT and other aspects of SDLT reliefs
Some insurers have been concerned about the sudden increase in workload you’ve been dealing with since the re-opening of the market after the first lockdown coupled with the introduction of the SDLT concession.
Carrying out a high proportion of conveyancing can limit the market who are willing to quote.
A hard market for PI insurance has made underwriters more risk averse. Fewer are willing to provide cover to firms that do a lot of conveyancing work, and diminished competition means fewer alternatives if you’re hoping to switch insurers to find a better deal.
Remember that effective communication with clients, good supervision of staff and ongoing training for staff and fee-earners, especially when they are working from home, continues to be key in defending claims.
It may be helpful for you to make a record of your experiences of working during the pandemic, including details of how you’ve overcome the negative impacts to make your firm more operationally resilient.
Points to consider might include:
- how are you working now?
- how do you intend to work in the future?
- what has not worked so well, and how have you adapted to overcome issues?
- how are you promoting staff wellbeing?
Being able to provide a concise note, alongside your proposal form, which evidences the steps you have taken to manage risks, could give you an edge when the time comes to renew your PI policy.
If your firm has had a significant uptick in the number of transactions (perhaps an increase of 15% or more), this ought to be notified to your insurer.
Significant changes – such as new partners, or new areas or volumes of work – should be brought to the attention of insurers as they occur. That way, they will not come as a surprise when the time comes to renew your policy.
For more information, read this Gazette article on conveyancing risks and indemnity insurance.