Property Publication Volume 3 by The Solicitors Group

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PROPERTY PUBLICATION VOLUME 3

Celebrating 14 Years of Quality Legal Exhibitions & Training

An update on developments in conveyancing throughout 2018 including: Summaries of case law, decisions of tribunals, and statutory provisions.

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Contents...

Section 1 - Transfer of assets to avoid Care charges ................................. 6

Section 13 SDLT Update..................................................................................................................................... 44

Section 2 Defective Forfeiture Provision in Residential Head Lease......................... 10 Section 3 Damage Allegedly Caused by Tenant’s Negligence & Insurer’s Right of Subrogation...................................................................................... 14

1. SDLT Penalties on Lease Extension.................................................................................... 44

2. Acting in SDLT Mitigation Schemes................................................................................... 45

3. Error in SDLT Return.............................................................................................................. 47

4. Sub-Sale of Part Not Dated Contemporaneously.......................................................... 47

Section 14 SDLT Surcharge for ‘Second Homes’: How Does the Law Determine a Person’s Only or Main Residence?.............................................. 50

Section 4 Sinking Fund Contributions Due by Underlessee.............................................. 18

F. Case Law............................................................................................................................. 51

The Head Lease...................................................................................................................... 18

The Underlease....................................................................................................................... 19

The Disputed Sum................................................................................................................... 19

Section 15 Bogus Vendor & Conveyancers’ liability................................................................ 54

Tribunal’s Determination........................................................................................................ 20

Purrunsing v A’Court & Co (A Firm) and another [2016] EWHC 789 (Ch) ....................... 54

The Aborted Purchase........................................................................................................... 54

Enquiries Raised on Aborted Purchase................................................................................ 55

Section 5 Misrepresentation on Sale of Freehold Reversion........................................... 22 Section 6 Misrepresentations about Letters & Discussions Affecting the Property.......................................................................... 24

The subsequent sale to the Claimant.................................................................................. 55

Section 61 Trustee Act 1925................................................................................................... 56

The Claim against HOC......................................................................................................... 57

Allocation of Liability.............................................................................................................. 57

Misrepresentation................................................................................................................... 24

Section 16 Mortgage Credit Directive & Lenders’ Handbook........................................... 58

Question 3.1............................................................................................................................. 25

Mortgage Credit Directive Order 2015 (‘the Order’) ........................................................ 58

The Court’s Observations on Question 3.2 of the SPIF........................................................ 26

2. Consumer Buy-to-let Mortgages....................................................................................... 58

3. Purposes of the Buy-to-Let Mortgage Contract............................................................. 58

Morrell and another v Stewart and another [2015] EWHC 962 (Ch)................................ 24

Section 7 Short-Term Sublettings by Long Residential Lessee........................................ 28

Background Note................................................................................................................... 30

Background Note................................................................................................................... 32

Law Society Practice Note on Contaminated Land, updated April 2016...................... 32

Flood Re................................................................................................................................... 34

Background Note................................................................................................................... 36

Section 12 Consumer Protection Regulations (CPRs) in Conveyancing’, Law Society’s Practice Note, issued February 2016.................................................. 40

1. Selected Provisions of the Consumer

Protection from Unfair Trading Regulations 2008 ............................................................... 40

1.1 Prohibitions......................................................................................................................... 40

1.2 Misleading actions............................................................................................................ 41

1.3 Misleading omissions........................................................................................................ 42

2. Due diligence defence - reg 17....................................................................................... 43

3. Offence due to the default of another person.............................................................. 43

1 Constructive & Resulting Trusts .......................................................................................... 62

Erlam v Rahman (A Bankrupt) [2016] EWHC 111 (Ch)........................................................ 63

Section 11 Contract Signed without the Authority of One or More Seller or Buyer............................................................................................... 36

Section 18 Can Land Become Common Land After 31 July 1970?............................. 66

Section 10 Update on Flood Risk Issues............................................................................................... 34

5. Resulting Changes to the CML Lenders’ Handbook...................................................... 60

Section 17 Was the Trust Deed a Sham?............................................................................................. 62

Section 9 Law Society: Updated Guidance on Contaminated Land...................... 32

4. The EU’s Mortgage Credit Directive (‘the MCD’)........................................................... 59

Nemcova v Fairfield Rents Limited [2016] UKUT 0303 (LC), LRX/142/2016........................ 28

Section 8 Is the Deed of Variation a Deemed Surrender and Regrant?............... 30

Littlejohns v Devon County Council [2016] EWCA Civ 446 ............................................... 66

Background Note................................................................................................................... 67

Section 1 Transfer of assets to avoid Care charges

Section 70 Care Act 2014 contains provision headed ‘Transfer of assets to avoid charges’. It reads as follows ‘(1) This section applies in a case where an adult’s needs have been or are being

met by a local authority under sections 18 to 20 and where -

(a) the adult has transferred an asset to another person (a “transferee”),

(b)

(c)

(2)

the transfer was undertaken with the intention of avoiding charges for having the adult’s needs met, and either the consideration for the transfer was less than the value of the asset or there was no consideration for the transfer.

The transferee is liable to pay to the local authority

an amount equal to the difference between -

(a)

the amount the authority would have charged the adult were it not for the transfer of the asset, and

(3)

(b)

the amount it did in fact charge the adult.

But the transferee is not liable to pay to the authority an amount which exceeds the benefit accruing to the transferee from the transfer.

(4) Where an asset has been transferred to more than one transferee,

the liability of each transferee is in proportion to the benefit accruing

to that transferee from the transfer.

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(5) “Asset” means anything which may be taken into account (6)

for the purposes of a financial assessment. The value of an asset (other than cash) is the amount which would have been

realised if it had been sold on the open market by a willing seller at the time of

the transfer, with a deduction for -

(a) the amount of any incumbrance on the asset, and

(b)

a reasonable amount in respect of the expenses of the sale.

(7) Regulations may specify cases or circumstances in which

liability under subsection (2) does not arise.’

Section 72 Social Services and Well-being (Wales) Act 2014 contains similar provision to s 70 CA 2014, with the main difference being that in Wales, the transfer to avoid charge may have been effected by someone other than the person whose needs are being or have been met by the local authority. Section 72 came into force on 6 April 2016 and replaced existing law on undervalue dispositions effected with possible care home fees in mind. Note: (i)

The test for deliberate deprivation is a subjective one: R (on the application

of Beeson) v Dorset County Council [2002] EWCA Civ 1812, [2004] LGR 92.

This test requires the court or local authority to ascertain the claimant’s

subjective purpose in depriving himself of capital: ibid.

(ii)

Section 70 CA 2014 has been modified by the Care and Support (Children’s

Carers) Regulations 2015, SI 2015/305, reg 12.

Section 2 Defective Forfeiture Provision in Residential Head Lease

Note: Clause 5.14.2 of the CM Lenders’ Handbook stipulates that – “There must be no provision for forfeiture on the insolvency of the tenant or any superior tenant.” LSREF III Wight Limited v Gateley LLP [2016] EWCA Civ 359 The firm had acted for a Bank in connection with a mortgage granted to a company called Method Investments Limited (“MIL”), which was to be used mainly for the development as commercial premises with residential flats above them of a building. The lease of the property was granted in August 2007, but the mortgage over the lease was granted to the Bank in September 2007. Briggs LJ, with whom McFarlane and Moore-Bick LLJ agreed, explained that “3. Gateley’s report on title, delivered shortly before the grant of the loan facility in September 2007, was negligent because it failed to draw to the Bank’s attention the existence and serious consequences of clause 35.1(c) of the Lease. It provided for the Lease to be forfeited where the Tenant, if a corporation, suffered any of a number of specified insolvency events, including administration, receivership, winding up, striking off or dissolution. The effect of that provision was seriously to impair the Legal Charge as a security, because its enforcement would be likely to require, or at least to occur at the same time as, one of those insolvency events affecting MIL, thereby triggering a forfeiture. Even if the Bank obtained relief from forfeiture under section 146(4) of the Law of Property Act 1925 as a mortgagee, in the form of a grant of a new lease, realisation of the security by the sale of the Property would still require the purchaser to take a lease of it containing the same forfeiture clause…”

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The High Court deputy judge found that the value of the interest in the Property created by the Lease was, in August 2007, only £30,000; whereas at the same date it would have been worth £275,000 with no insolvency forfeiture provision. The freeholder subsequently agreed a variation of the Lease to remove the insolvency forfeiture provision on payment of £150,000. The transaction involved putting MIL into administration. This was followed by marketing the varied Lease of the fully developed Property. The administrators of MIL sold the property at auction for £645,000, although the sale had yet to complete, due to difficulties in obtaining the freeholder’s consent to assignment. The Court of Appeal held that Gateley was liable for the full cost which the Claimant in fact incurred in curing the defect in the Lease, in the sum of £157,100, with interest thereon.

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Section 3 Damage Allegedly Caused by Tenant’s Negligence & Insurer’s Right of Subrogation

Background Note on Frasca-Judd In Mark Rowlands v Berni Inns Limited [1986] QB 211, the landlord under a 30-year lease took out insurance in accordance with his covenant. The tenant was not a party to that contract or named on the policy. A fire caused by the tenant’s negligence destroyed the whole building. The insurer paid the monies due under the policy and then brought an action in the landlord’s name against the tenant to recover the sum paid to the landlord. Kerr LJ, with whom Croom-Johnson and Glidewell LLJ agreed, articulated what has since become known as the ‘Rowlands principle’ in the following terms - The Court of Appeal held that – “The intention of the parties, sensibly construed, must therefore have been that in the event of damage by fire, whether due to accident or negligence, the landlords’ loss was to be recouped from the insurance moneys and that in that event they were to have no further claim against the tenants for damages in negligence. Another way of reaching the same conclusion, on which counsel for the defendants also relied, is that in situations such as the present the tenant is entitled to say that the landlord has been fully indemnified in the manner envisaged by the provisions of the lease and that he cannot therefore recover damages from the tenant in addition, so as to provide himself with what would in effect be a double indemnity.” Frasca-Judd v Golovina [2016] EWHC 497 (QB) On 18 December 2009 the claimant, Mrs. Frasca-Judd, let the property for 18 months to the defendant, Ms. Golovina, by a tenancy agreement in writing.

Clause 2.3.12 of the agreement imposed upon the defendant an obligation: “To take all appropriate precautions including any such as may be required from time to time by the Landlord to prevent damage occurring to any installation in the Premises which may be caused by frost including providing background heat at all times during the winter months especially when Premises are vacant, provided that the sub-clause shall not oblige the Tenant to lag or otherwise protect pipes that are not already lagged or protected.” On 21 December 2009, the defendant left the property to return to her London flat (which was her permanent residence) over the New Year period. On 14 January 2010 the claimant’s gardener attended the property, whereupon he discovered that severe water damage had occurred inside the house. He telephoned the claimant to notify her of the damage, switched off the mains water supply and called the claimant’s plumber. The plumber discovered that the heating was not on and consequently the water pipes had frozen. The same day the claimant notified her insurers of the damage. The insurer paid £128,089.71 to the claimant and remedial works were carried out. The tenancy was surrendered on 26 October 2010 and the claimant sold the property on 7 December that year. In June 2013, the insurer brought a claim in the name of the claimant landlord pursuant to its rights of subrogation. The claim was based on a breach of clause 2.3.12 of the tenancy agreement and negligence. Holgate J identified the following principles from the authorities:“(1) The court should construe the terms of the tenancy agreement in order to

determine how the parties have agreed to allocate risk between themselves;

(2)

A covenant by a landlord with his tenant to insure the demised premises in

return for mutual obligations by the tenant is an important indicator that the

parties intended that the tenant (a) need not take out insurance for the risk

covered by the landlord and, (b) would not be liable for any loss or damage

suffered by the landlord falling within the scope of that which the landlord

has agreed to cover; 15

(3)

The strength of that indicator will depend upon the other terms of the

tenancy, including whether they provide some alternative explanation

for the covenant to insure;

(4)

The strength of that indicator is greater where the tenant is contractually

obliged to pay for, or to contribute towards, the cost incurred by the

landlord of insuring the premises;

(5)

Other relevant indicators include terms of the tenancy which relieve the

tenant from repairing or other contractual obligation in the event of damage

by an insured risk, or which require the landlord to lay out insurance monies

on remedying damage caused by an insured risk, or which suspend the

obligation to pay rent whilst damage from an insured risk prevents use of the

demised premises. But the application of the principle in Rowlands does

not depend upon the inclusion of all or any of these terms in the

tenancy agreement;

(6)

Where applicable the principle in Rowlands will defeat a claim brought

against the tenant in negligence even in the absence of a clause expressly

exonerating the tenant from liability for negligence.

I would add that Woodfall’s Law of Landlord and Tenant also treats the covenants discussed in Rowlands as factors or indicators in deciding whether the court should infer that the parties’ common intention was that the landlord would look to an insurance policy rather than the tenant for indemnification, rather than as prerequisites for drawing that conclusion (see paragraph 11-104).” The High Court then considered how the tenancy agreement distributed risk between landlord and tenant. Taking into account Rowlands and related authorities, the Court held that the claimant was not entitled to bring the pleaded claims for damages against the defendant, whether under clause 2.3.12 or in negligence, because they fell within the scope of the landlord’s obligation to insure and, according to the terms of this particular tenancy agreement, it was the common intention of landlord and tenant that the landlord’s sole remedy would be to claim on that policy. For these reasons the subrogated claim by NFU Mutual failed.

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Section 4 Sinking Fund Contributions Due by Underlessee

Balkhi v Southern Land Securities Ltd [2016] UKUT 0239 (LC), LRX/76/2015

The Head Lease The building in question was in mixed use. Upon the ground floor (and perhaps also basement) there were commercial premises which were held by commercial tenants from the freeholder. The respondent held the upper residential parts of the building under a headlease from the freeholder. The headlease made provision for the recovery by Pollen (the freeholder) from the respondent of a service charge which was reserved as one of the additional rents and in respect of which there was a covenant to pay the service charge (including an estimated service charge). Paragraph 5 of the fifth schedule thereof provided, so far as material, as follows: “The expression “the expenses and outgoings incurred by the landlord” as hereinbefore used shall be deemed to include … such provisions as the Landlord or its Surveyors shall in their discretion consider prudent to make in any Service Charge year towards expenditure which the Landlord or its Surveyors reasonably expect will be incurred by them in respect of expenses outgoings or expenditure recurring at intervals greater than a Service Charge Year whenever disbursed incurred or made or to be disbursed incurred or made ...”

The Underlease The Appellant held a fourth-floor flat on a long underlease. The fifth schedule of the appellant’s underlease made provision for the Services in respect of which the tenant was to make a contribution. One of the items mentioned in the fifth schedule as being services in respect of which the tenant was liable to make a contribution was described in paragraph 14 of the fifth schedule as follows: “Set aside (which setting aside shall for the purposes of the Sixth Schedule hereto be deemed an item of expenditure incurred by the Landlord) such sums of money as the Landlord shall reasonably require to meet such future costs as the Landlord shall reasonably expect to incur in replacing maintaining and renewing those items which the Landlord have hereby covenanted to replace maintain or renew (such sums set aside to form a sinking fund).” The sixth schedule of the underlease provided that the appellant was liable to pay an appropriate proportion (in fact 20.04%) of what was defined as the “Total Expenditure”. Paragraph 1.2 of the sixth schedule provided, so far as material, as follows: “Total Expenditure” - means the total expenditure incurred or payable by the Landlord in any Accounting Period in carrying out its obligations under this Underlease including (for the avoidance of doubt) all costs and expenses payable to the Superior Landlord under the Head Lease in respect of insurance and services relating to the Building …’

The Disputed Sum The respondent included in the statement of anticipated service charge expenditure for various years an item called the Landlord Estate Charge which, it transpired, was an amount which the respondent as landlord had paid to Pollen as freeholder under the terms of the headlease in respect of various matters including a sinking fund as contemplated under paragraph 5 of the fifth schedule of the headlease.

Tribunal’s Determination The Upper Tribunal (Lands Chamber) 1.

Determined that the wording of paragraph 1.2 of the sixth schedule and

the definition of Total Expenditure was wide enough to make the applicant

liable to make a payment of service charge which included sums payable

into Pollen’s sinking fund.

Then relied on section 19(2) of the Landlord and Tenant Act 1985,

which provides –

“Where a service charge is payable before the relevant costs are incurred, no greater amount than is reasonable is so payable, and after the relevant costs have been incurred any necessary adjustment shall be made by repayment, reduction or subsequent charges or otherwise.” 3.

Applied the above subsection, ruling that it was for the landlord in this case,

who itself held under a headlease, to show the reasonableness of the

amounts demanded from the tenant by way of on account service charge

payments, where the amounts demanded were based (in part) upon sums

which the landlord had paid over to the freeholder. It was not sufficient for the

landlord merely to say: “I have paid this sum to the freeholder and so it is

reasonable for me to recover it from you through the service charge.”

Then accepted that a sinking fund of £40,000 was a reasonable sinking fund

to build up for the purpose of the prospective external redecoration.

The increase in the sinking fund to £70,000 in the years 2012

and 2013 was not justified.

Concluded by determining the amount payable by the lessee

towards this expense, based on the appellant’s proportion (namely 20.04%).

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Section 5 Misrepresentation on Sale of Freehold Reversion

In Greenridge Luton One Ltd and another v Kempton Investments Ltd [2016] EWHC 91 (Ch), In 2013, the Defendant (Kempton) sold property consisting of three office buildings to the Claimant (Greenridge). The former failed to disclose to the latter, in replies to enquiries, that that there had been a dispute with the tenant TUI, to whom 79% of the office space had been let. The dispute concerned specific elements of the service charge. The representations made included the following In response to an enquiry about any service charge arrears, the reply was: “There are no arrears. The tenants pay regularly and the landlord has never had to take any action for recovery”. In response to an enquiry as to any complaints or disputes relating to the service charge, the answer was: “There have been no complaints or disputes as such. From time to time TUI have raised queries on mainly historic issues. TUI have recently raised further enquiries”. Between September and October 2013, Mr Connick (the Defendant’s Solicitor) sent Mr Polden (the Claimant’s Solicitor) a number of documents including “Schedule of payments by TUI for rent and service charge”. However, the schedule provided showed the rent and service charge demanded, not that paid. It did not therefore reveal the fact that TUI had withheld money.

Clause 8.3 of the Contract provided – “The Seller has made full disclosure of the matters referred to in clause 8.1 and the Buyer (in acknowledgment of such disclosure) will not raise any enquiry, objection, requisition or claim in respect of any of them”. The Court held that the replies to the CPSEs were misleading in what was said about “disputes” and “complaints”. Moreover, Clause 8.3 also operated as a warranty and a misrepresentation. Moreover, the Court awarded damages of £395,948 for deceit. Note: So the lesson from this case is that when acting on the purchase of a residential lease, it is important to check the documents supplied with the replies to enquiries to ensure that they provide evidence that ground rent and service charges have actually been paid, not merely that such payments have been demanded.

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Section 6 Misrepresentations about Letters & Discussions Affecting the Property

Morrell and another v Stewart and another [2015] EWHC 962 (Ch) The premises consisted of a house with a boarding kennels and cattery business on the surrounding land that were sold in December 2007 under two separate contracts. This note only considers the agreement for the sale of the property. It subsequently emerged relatively quickly that there were problems with the foul drainage on the property. The house and some of the kennels, but not all of them, drained into a septic tank, and the Claimants discovered soon after they moved in that an overflow from that tank was allowing effluent to flow onto adjacent land, into a dyke from which it was pumped away by a pumping station. The Claimants were advised by the Environmental Agency that this discharge was unlawful and it must cease, and they were also told that the Defendants had been given a similar warning previously prior to the sale.

Misrepresentation The High Court held that the sellers had fraudulently made the following misrepresentations in the sense that the statements were made knowing them to be untrue – In response to question 3.1 (of the then edition of the Seller’s Property Information Form, TA6) asking, “Have you either sent or received any letters or notices which affect your property or the neighbouring property in any way (for example, from or to neighbours, the council or a government department)?” the answer was “no”. On the face of it, the answer to that question was not incorrect at the time that the form was completed and sent. However, the sellers did subsequently receive a letter from the Environment Agency on 10 December 2007, four days before exchange of contracts. 24

In replying to Question 3.2 which asked the following: “Have you had any negotiations or discussions with any neighbour or any local or other authority which affect the property in any way?”, the answer given was “no”. That answer was clearly untrue as the Defendants had had discussions both with the Environment Agency at two meetings and with the environmental health department of the local council and the neighbouring landowner, the Drainage Board. In response to an additional enquiry raised by the buyer’s solicitor asking, “whether any recent replumbing work has been carried out and/or whether there has been recent testing of the drainage”; the sellers said the property had not been rewired and that there had been no replumbing work or testing of the drainage during their ownership. This was wrong because at 28 November Mr McGuire (a local builder) was either still doing work on the septic tank or had just completed the work that he said he had done to the septic tank and the soakaway. [Both the experts agreed that the soakaway that Mr McGuire constructed was wholly inadequate for the quantity and type of waste that it was required to deal with.] Note: The High Court in Thorp v Abbotts [2015] EWHC 2142 (Ch) made the following observations on questions 3.1 and 3.2

Question 3.1 (i)

The reference to a “notice or communication” which “affects the property”

suggests a degree of certainty of intention to do something sufficient to give

some formal warning of it to the owner of a property that will be affected.

(ii)

For a notice or communication itself to “affect” the property must mean that it

is a step taken towards implementing some act or intention which will have

an effect on the property, and one which indicates a present real likelihood

that the event will happen.

(iii)

This in turn means that it must be a notice or communication from someone

who is proposing to take some action, or from some regulatory body

responsible for authorising or permitting that action.

The Court’s Observations on Question 3.2 of the SPIF The Court held that – (i)

The reference to “negotiations or discussions” with a neighbour or local or

other authority affecting the property is aimed at circumstances in which

there is some proposal or intention to do something that would affect the

property, and the negotiations or discussions are with either the person whose

proposal or intention it is or an authority in a position to authorise or permit it

to happen.

(ii)

Whether a communication or discussion about some possible future event

itself “affects” the property also depends both on the nature of the future

event and on the degree of probability that it will occur, assessed at the time

of the representation.

(iii)

“Affecting the property” requires that the possible future event will if it

happens have some effect on the property itself, or the use or enjoyment of it.

A possible effect on its value would not be enough on its own.

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Section 7 Short-Term Sublettings by Long Residential Lessee

Nemcova v Fairfield Rents Limited [2016] UKUT 0303 (LC), LRX/142/2016 Pursuant to the long lease of the appellant’s flat, the Lessee covenanted with the Lessor as follows: (1)

Not to use the Demised Premises or permit them to be used for any illegal

or immoral purpose or for any purpose whatsoever other than as a

private residence.

The appellant, as the current Lessee of the premises, had granted a series of shortterm lettings of her flat and had advertised its availability on the Internet. The Upper Tribunal proceeded to construe the clause in question in its context, taking into account factors such as (i)

The covenant did not refer to the word ‘home’, nor did it require the occupier

to use the premises as his or her home.

(ii)

The clause did not state that the premises were to be used as the private

residence of the lessee or the occupier, but as ‘a private residence’. There

was no requirement that the occupier use the property as his or her only (or

main, or principal) residence.

The Tribunal also considered that in order for a property to be used as the occupier’s private residence, there must be a degree of permanence. Therefore, the granting of very short-term lettings (days and weeks rather than months) as the appellant had done necessarily breached the covenant under consideration.

Note: Short-term lettings by one or more long lessee might also – •

render the block insurance policy void or voidable; or

•

Increase significantly the premium paid on renewal of the policy.

See for instance, the First-tier Tribunal decision of 20 Nottingham Place Management Company Ltd v Cooper and Cooper LON/00BK/LBC/2016/0020.

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Section 8 Is the Deed of Variation a Deemed Surrender and Regrant?

Background note •

Where a landlord and tenant enter into a Deed of Variation with the clear

expression that the lease should continue in full force and effect save as

modified by the deed, the courts will give full effect to the parties’ intentions:

Friends’ Provident Life Office v British Railways Board [1996] 1 All ER 336, CA.

•

A deed of variation that varies the extent of the demised premises or to

alters the term of lease is treated, by operation of law, as a deemed surrender

and regrant: Friends’ Provident Life Office v British Railways Board [1996] 1 All

ER 336, CA.

In Stevens v Ismail [2016] UKUT 0043 (LC), LP/16/2015, the deed of variation to the lease of a flat contained the following clauses – 1.1

the plan attached to this Deed shall be substituted for the plan attached to

the Registered Lease

‘1.2 that there be added to the Second Schedule of the Registered Lease a new

paragraph 6 which will read “The exclusive right and liberty for the Lessee and

all persons authorised by him to park one private motor vehicle only on the

area shown edged blue on the said Plan and denoted with the word

“Parking” together with a right to vehicular access thereto from

Buckland Crescent”

The new plan was different from the original plan. For instance, it showed an area at the front of the Building over which the lessee was now entitled to park signified by the word “parking”. The Upper Tribunal (Lands Chamber) concluded that the effect of the Deed of Variation was not a surrender and re-grant. The Deed simply added a right to park on the land at the front of the Building over which the lessee had previously enjoyed only a right of way on foot. 30

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Section 9 Law Society: Updated Guidance on Contaminated Land

Background Note â&#x20AC;˘

For the purposes of Part IIA Environmental Protection Act 1990 (inserted by s 57

Environment Act 1995), land is only considered to be contaminated land if

it is in such a condition, by reason of substances in, on or under the land, that

(a) significant harm is being caused or there is a significant possibility of such

harm being caused; or (b) significant pollution of controlled waters is being

caused or there is a significant possibility of such pollution being caused.

(Controlled waters included coastal waters, inland waters and groundwaters.) â&#x20AC;˘

Local authorities are obliged to inspect their areas for the purpose (a) of

identifying contaminated land; and (b) of enabling the authority to decide

whether any such land is land which is required to be designated as a special

site. Where land is so identified or designated, the local authority then comes

under a further duty to serve on all appropriate persons a remediation notice

requiring remediation of the site; the notice will specify what needs to be

done for this purpose and the periods within which each of the things so

specified has to be done.

â&#x20AC;˘

A person who caused or knowingly permitted the contaminative substances

to be in, on or under the land is an appropriate person. If after reasonable

inquiry no such person can be found, the owner or occupier for the time

being of the contaminated land is an appropriate person.

Law Society Practice Note on Contaminated Land, updated April 2016 The Practice Note provides guidance to conveyancers about the provisions of Part 2A of the EPA 1990 in the light of the Contaminated Land Statutory Guidance 32

2012. The updated Note includes reference to the separate regime that applies to radioactive contaminated land. The Practice Note also covers the steps to be taken in a conveyancing transaction to investigate land contamination, including; •

“In all purchases, leases or mortgages, you should, unless your buyer, tenant

or lender client instructs you otherwise, undertake a CON 29 and LLC1

search to ascertain whether the land has been designated by the local

authority as contaminated.”

•

Outlining specific advice that should be given and enquiries that should be

raised if it appears that contamination is an issue and you are acting for a

buyer, tenant and/or lender.

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Section 10 Update on Flood Risk Issues

Section 1.2 of the Law Society’s Practice Note on Flood Risk, updated February 2016 reads, so far as material: “Solicitors are not qualified to give advice on flood risk or interpret technical flood reports... 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.”

Flood Re •

Note: The Flood Reinsurance (Scheme and Scheme Administrator

Designation) Regulations 2015, SI 2015/3078 were brought into force

on 10 November 2015.

The Flood Re scheme was launched in April 2016. In order to qualify for Flood Re, a qualifying property has to comply with all of seven criteria, including that 1)

The property must be used for residential purposes;

The holder of the policy, or their immediate family, must live in the dwelling

for some or all of the time (whether or not with others) or the dwelling must be

unoccupied; and

The property must have been built before 1st January 2009.

Qualifying properties include -

(i)

Holiday/Second Homes;

(ii)

Individual leaseholders protecting own property/flat;

(iii)

Leasehold blocks will be eligible for buildings cover if they contain 3 units or

fewer, and the freeholder(s) lives in one of the units to be insured.

Some domestic Properties not eligible for the Flood Re scheme, such as: (i)

Blocks of residential flats;

(ii)

Multi-use under commercial or private ownership;

(iii)

Residential â&#x20AC;&#x2DC;buy to letâ&#x20AC;&#x2122; (which do not meet the aforesaid 7 criteria).

Section 11 Contract Signed without the Authority of One or More Seller or Buyer

Background Note; 1.

In Singh v Sardar Investments Ltd [2002] EWCA Civ 1706, a company director

signed a contract on behalf of the company purporting to bind the company

to sell the property, without the requisite authority, such as a board resolution.

He only escaped liability for breach of warranty of authority because the

buyer was not ready, able and willing to complete on the completion date.

2. In Koenigsblatt v Sweet [1923] All ER Rep Ext 758, CA, the vendor signed a

contract to sell two leasehold houses to the plaintiff and his wife. The wife then

dropped out of the transaction; and on 14 July 1921 the vendor’s solicitor

agreed to the striking out of her name from his client’s signed part of the

contract. Contracts were then exchanged.

The Court held that the solicitor had exceeded his authority by making the alterations after the document had been signed. “The defendant [vendor] could have repudiated these unauthorised acts of Roe [the vendor’s solicitor], or they could be ratified and adopted by him. After consideration he told Roe to proceed with the contract; in other words, he adopted the acts of Roe and ratified them. This ratification relates back to the time when the acts were done, and accordingly the position is just as if on 14 July 1921 Roe had in his possession a document containing all the alterations, but signed by the defendant after the alterations had been made, with authority to hand it over as one part of an operative agreement in writing in exchange for a similar document signed by the plaintiff, and had exchanged the two documents accordingly.” 3 In Laditi and another v Marlbray Ltd [2016] EWCA Civ 476, a contract under

which two purchasers (first and second respondents) ostensibly agreed to buy

a flat off-plan for a 999 year term was signed only by the first respondent.

They were subsequently unable to secure a mortgage, which meant they could not complete the purchase.

The Court of Appeal reached the following conclusions -

(i)

“…(T)here is nothing in the authorities relating to agency which would

preclude a person, who contracts on his own behalf as principal, and who

also purports to sign the relevant contract as agent for another party, from

being contractually bound in his capacity as principal under a contract

imposing joint and several liability, notwithstanding that, in the particular

circumstances, he had no authority from his principal to sign the relevant

contract on the latter’s behalf. It all depends on the terms of the

relevant contract...”

(ii)

On a proper construction of the contract, the first respondent’s signature

was clearly a signature by him, not only on his own behalf, in respect of

his joint and several obligations, but also a signature purporting to be one

on behalf of the second respondent, in respect of her joint and

several obligations.

(iii)

There was a binding contract, between the first respondent on the one

hand and the appellant vendor on the other, imposing several obligations

on the former. A key finding in reaching this conclusion was that the

agreement expressly provided that where two or more persons constituted

the Purchaser, the Purchaser’s obligations were joint and several obligations

on the part of such persons.

(iv)

There was insufficient evidence that the second respondent had ratified the

contract which had been signed by the first respondent.

(v)

The contract complied with s 2 Law of Property (Miscellaneous) Provisions

Act 1989. In particular, the joint and several provisions of the contract

made it clear that the first and second respondents were not being regarded

as a “composite” purchaser. Moreover, section 2 requires the contract to

be signed by “each party to the contract”, not by “each party to the

prospective conveyance or transfer”.

Note: It was common ground in the appeal that for ratification to occur:

“i) there had to be an act, or an omission, showing an intention to ii)

adopt the transaction; that it is necessary that the party concerned should have knowledge of the full circumstances relating to that which he is said to have ratified…;

iii) that in cases of implied ratification from conduct, the words or conduct

must be unequivocal…”

Moreover, the Court of Appeal commented that the circumstances of this case were to be distinguished from – “… the position where property is owned jointly by X and Y as legal joint tenants and trustees, where the obvious inference (in the absence of express wording) is that both have to be contractually bound to sell the property in order for a purchaser to be able to enforce the contract for sale…”

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Section 12 Consumer Protection Regulations (CPRs) in Conveyancing’, Law Society’s Practice Note, issued February 2016

The Law Society 2016 Practice Note considers the two capacities in which a solicitor is a trader for the purposes of the CPRs •

First, by providing a service to a consumer/client; and

•

Second, when acting on behalf, or in the name of, a trader in a trader/

consumer transaction (typically when he is selling or letting a property).

Given that the CPRs cover ‘immoveable property’ in trader-consumer transactions, the Law Society tentatively suggests that the definition of ‘commercial practice’ could extend to a solicitor in dealing with a third-party consumer even when he is not acting for a trader (for example, in selling residential property). Section 3.6 considers the advice to give to clients on the effects of the CPRs. The Practice Note considers how the CPRs affect the common law duty of disclosure: see section 4.2. At section 5.2, the Practice Note says “Incorporating an exclusion clause in the contract in order to restrict the seller’s duty of disclosure is likely to breach the CPRs.”

Selected Provisions of the Consumer Protection from Unfair Trading

Regulations 2008

1.1

Prohibitions

Reg 3 prohibits unfair commercial practices, which include -

(a) a misleading action under the provisions of regulation 5; (b) a misleading omission under the provisions of regulation 6; 1.2

Misleading actions

By virtue of reg 5(2) a commercial practice is a â&#x20AC;&#x2DC;misleading actionâ&#x20AC;&#x2122; â&#x20AC;&#x201C; (a)

if it contains false information in relation to any of the matters in paragraph (4

(such as the main characteristics of the product) or if it or its overall

presentation in any way deceives or is likely to deceive the average consumer

in relation to any of the matters in that paragraph, even if the information is

factually correct; and

(b)

it causes or is likely to cause the average consumer to take a transactional decision he would not have taken otherwise.

The matters referred to in paragraph 4 include (i)

the risks the consumer may face.

(ii) benefits of the product; (iii) risks of the product; (iv) fitness for purpose of the product; and (v)

quantity of the product.

A trader is guilty of an offence if he engages in a commercial practice which is a misleading action under regulation 5. A commercial practice is also a misleading action if it concerns any failure by a trader to comply with a commitment contained in a code of conduct which the trader has undertaken to comply with, if -

(i)

the trader indicates in a commercial practice that he is bound by that code of conduct, and

(ii) the commitment is firm and capable of being verified and is not aspirational,

and it causes or is likely to cause the average consumer to take a

transactional decision he would not have taken otherwise, taking account of

its factual context and of all its features and circumstances.

1.3

Misleading omissions

Reg 6(1) to 6(3), as far as material, provides (1) A commercial practice is a misleading omission if, in its factual context, taking

account of the matters in paragraph (2) -

(a) the commercial practice omits material information, (b) the commercial practice hides material information, (c)

the commercial practice provides material information in a manner which is unclear, unintelligible, ambiguous or untimely, or

(d) the commercial practice fails to identify its commercial intent, unless this is

already apparent from the context, and as a result it causes or is likely to

cause the average consumer to take a transactional decision he would not

have taken otherwise.

(2)

The matters referred to in paragraph (1) include

(a) all the features and circumstances of the commercial practice; (b) …; and (c) (3)

…. In paragraph (1) “material information” means -

(a) the information which the average consumer needs, according to the (b)

context, to take an informed transactional decision; and ...

It is an offence for a trader to engage in a commercial practice which is a misleading omission under regulation 6. 42

Due diligence defence - reg 17

It is a defence in any proceedings for an alleged offence that the defendant had engaged in a commercial practice which is a misleading action or misleading omission to prove “(a) that the commission of the offence was due to (i) a mistake; (ii) reliance on information supplied to him by another person; (iii) the act or default of another person; (iv) an accident; or (v) another cause beyond his control; and (b)

that he took all reasonable precautions and exercised all due diligence

to avoid the commission of such an offence by himself or any person under

his control.”

Offence due to the default of another person

Reg 16 provides that where a trader (‘X’) commits an offence under any of the above provisions or would have committed an offence under those regulations but for a defence of due diligence, and the commission of the offence, or of what would have been an offence but for X being able to rely on the due diligence defence, is due to the act or default of some other person “Y”; then Y commits an offence. This is the case, whether or not Y is a trader and whether or not Y’s act or default is a commercial practice.

Section 13 SDLT Update

1. SDLT Penalties on Lease Extension Marzouk and Hasoon v The Commissioners For Her Majesty’s Revenue & Customs TC05297, TC/15/6839 and TC/15/6841 Each appellant entered into a ‘lease extension deed’ with respect to different flats in the same block with the same freeholder and both instructed the same solicitor to act on their behalf. There was no evidence of any other connection between them. Both lease extension deeds were dated 21 August 2015. The Appellants’ solicitors sent two letters by DX post to HMRC on 18 September, each enclosing an SDLT return for each of their clients. The letters and returns were not received by HMRC until 20 September (the last filing date). Both forms were incomplete, however. Neither form included the effective date of the transaction. Moreover, one of the forms omitted the client’s unique identifying number. Consequently, HMRC returned both forms on 22 September. The duly completed forms were returned to HMRC, who received them on 25 September. HMRC issued both appellants with a £100 penalty for late filing. The issue was whether they had a reasonable excuse pursuant to the provisions of s 97 FA 2003. The First-tier Tribunal (Tax Chamber) pointed out that any mistake of the agent is the mistake of the taxpayer, as the agent is carrying out the responsibilities of the taxpayer. 44

Mosedale J then ruled that neither appellant had a reasonable excuse for late submission of the LTR for the following reasons - (i)

The late submission was due to the failure to fully complete the form. Only a

properly completed return was sufficient to discharge the obligation to file.

(ii)

The fact that no tax was at stake was not, of itself, a reasonable excuse.

(iii)

Despite the fact that the appellant’s solicitors received the lease extension

deeds by letter from the freeholder dated 11 September, the solicitors

nevertheless did receive the documents in time to lodge a timely tax return.

(iv)

The original submission of the LTR was sent by DX but this method did not

ensure that the forms would arrive in time (ie by 20 September).

Oliver v The Commissioners for Her Majesty’s Revenue and Customs TC/2015/06384, TC05180 Mr Oliver appealed against the imposition of a flat rate penalty of £200 for the failure to submit a return of land transactions within 30 days after the effective date of completing a lease extension of residential property. HMRC received his Land Transaction Return (SDLT1) 252 days after the effective date. The First-tier Tribunal ruled that the appellant’s excuse for the late submission (that he had been “advised by the freeholder’s solicitor, verbally, that they would do the return”) was not a reasonable one. As the Appellant was primarily responsible for submitting the form, he could not rely on the inaction of the freeholder’s solicitors. Moreover the penalty was payable, even though no tax was due on the transaction.

2. Acting in SDLT Mitigation Schemes Solicitors Regulation Authority v Ali, Chan & Abode Solicitors Limited [2015] EWHC 2659 (Admin) The individual respondents were solicitors who faced disciplinary proceedings before the Solicitors’ Disciplinary Tribunal and had been found to have acted in breach of

the Solicitors’ Code of Conduct and the Solicitors’ Accounts Rules. Each was fined 15,000. The third respondent was a limited liability company, controlled by the individual respondents, which provided legal services. Its recognition as a Recognised Body was revoked by the Tribunal. The third respondent (“Abode”), a company providing legal services, operated certain schemes designed to avoid or mitigate the impact of SDLT. Lord Justice Davis, with whom Ouseley J agreed, held that the two individual respondents had “introduced numerous clients to such schemes, which were of considerable potential risk and disadvantage to the clients but of considerable potential profit to Abode (primarily in the form of commissions and referral fees from the scheme providers) without informing clients of the aggressive and risky nature of the schemes or of their own personal opportunity to gain commissions: thereby subordinating the interests of their clients to their own personal profit.” The respondents routinely offered the availability of such SDLT schemes to significant numbers of their clients, not all of whom had elected to participate. Nevertheless, Abode completed 556 conveyancing transactions involving such schemes. The respondents received £994,693 in total by way of referral fees and commissions in consequence, in addition to the conveyancing fees charged. There were four kinds of SDLT schemes employed (the details of which are beyond the scope of this presentation). Moreover, where clients purchased the property with a mortgage, the lender was not on any occasion informed of the proposed SDLT scheme. The Court found that there had been a want of integrity and a failure to act with independence. The Court further held that the sanction of a fine of £15,000 was not appropriate and remitted the matter to the Tribunal for re-determination of the appropriate sanction. Note: The SDT subsequently decided on a three-year suspension, backdated to September 2015, and that the individual respondents should pay further costs of £5,500.

3. Error in SDLT Return Birchgrove UK Ltd v The Commissioners for Her Majesty’s Revenue and Customs [2016] UKFTT 0497 (TC), TC05247, TC/2016/00448 This was an appeal against the imposition of a flat rate penalty of £100 for the failure to submit a Land Transaction Return (SDLT 1) within the 30 day period allowed. The SDLT for the transaction was paid on time and a Land Transaction Return (LTR) was submitted online within 30 days of the effective date of the transaction. However, that return contained the reference for a different client and for a different property transaction. An accurate LTR was then sent to HMRC, but was received 39 days late. Khan J highlighted the following points – •

A purchaser can be liable to a penalty if they file an incorrect LTR.

•

In addition to a fixed rate penalty for failure to notify HMRC within 30 days

of the transaction, a fine will be imposed if the LTR is not filed within a period

of 12 months of the land transaction.

The First-tier Tribunal (Tax Chamber) concluded that the purchaser in this case had no reasonable excuse for the late submission. Accordingly, the appeal was dismissed and the penalties upheld. 4. Sub-Sale of Part Not Dated Contemporaneously Mansion Estates Ltd v Hayre & Co (A Firm) [2016] EWHC 96 (Ch) The Defendant Solicitors, Hayre & Co, acted for the Claimant, Mansion Estates Limited, in the purchase of land at 60 to 64 Toller Lane Bradford (the ‘whole site’) and the subsale of part of that land, namely 60 Toller Lane, to a Mr Narwar Khan (who curiously was also represented by the Defendant). Mansion Estates had purchased the whole site, with an HSBC mortgage, for £1.7million. 60 Toller Lane was sold for £450,000.

The purchase was completed on 9 November 2007 and Narwar got the keys to 60 Toller Lane on the same day. However, the TP1 transfer to Narwar was actually dated on 9 April 2008 because it was only by then that HSBC released 60 Toller Lane from its security. The Defendant felt that he had no alternative but to defer dating the transfer until then because he was acting for both seller and buyer. He acknowledged however that if a separate solicitor had been acting in the sale of 60 Toller Lane he could have dated the transfer on the de facto date of completion because he would have obtained from the seller’s solicitors an undertaking to forward to HSBC sufficient monies to enable the mortgagee to release 60 Toller Lane from its security and then forward to him the formal evidence of the discharge when received. Saffman J explained the effect of the statutory provisions that were the forerunner to the current Schedule 2A Finance Act 2003 “19. The effect of s45 Finance Act 2003 is that in circumstances where completion or substantial performance of both the contract of purchase of the whole site by A and of subsale of part of the site by A to B occur at the same time then A is only responsible for Stamp Duty Land Tax on the consideration paid for the whole site less the proportion of that consideration which is referable to the land that is the subject matter of the subsale. B is responsible for the SDLT on the part he purchases. …” Saffman J concluded that – 1.

It falls within a solicitor’s retainer to calculate SDLT accurately.

If the two transactions had been completed simultaneously, the Claimant

would have been liable to pay SDLT payable in respect of a transaction worth

£1.25 million, namely £50,000. However, the Defendant paid SDLT in the

amount of £68,000 to HMRC in respect of a purchase of £1.7 million.

Therefore, the damages awarded to the Claimant included the

£18,000 overpayment.

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Section 14 SDLT Surcharge for ‘Second Homes’: How Does the Law Determine a Person’s Only or Main Residence?

In the 2015 Autumn Statement, the Government announced that from 1 April

2016, purchaser of additional residential properties, such as buy-to-let

dwellings and second homes, will be subject to a 3% surcharge on the rate of

SDLT that applies to the purchase of a first home. The surcharge will affect

purchases at £40,000 or more and will apply to the whole purchase price, not

just the amount that exceeds £40,000.

Subject to conditions and transitional provisions, a purchaser can escape

liability for the ‘surcharge’ if he can prove that the acquisition amounts to the

replacement of the purchaser’s only or main residence.

This note does not consider the detailed rules that are set out in the new Sch 4ZA Finance Act 2003, which was inserted by s 128 Finance Act 2016. Suffice to say for present purposes, the question of whether a chargeable transaction is a replacement of the purchaser’s only or main residence contemplates two key scenarios (i)

Where the replaced only or main residence was sold on or before the

purchased dwelling; and

(ii)

Where it was sold after the purchase.

When an individual has more than one residence, paragraph 3.34 of HMRC’s

guidance note, “Stamp Duty Land Tax: higher rates for purchases of

additional residential properties” March 2016, provides a non-exhaustive

of points to consider that “may be useful in establishing which residence is an

individual’s main residence”.

The Finance Act 2016 does not permit individuals to elect which of their

residences is their main residence for the purposes of the higher rates of SDLT.

HMRC’s guidance note of 16 March 2016 ‘Stamp Duty Land Tax: higher rates

for purchases of additional residential properties’ explains -

“3.17 There are two parts to a replacement of a purchaser’s main residence: •

there must be a disposal of the purchaser’s or their spouse or civil partner’s

previous main residence, and

•

the dwelling acquired must be intended to be occupied as the individual’s

only or main residence.”

Case Law

There are presently no cases involving determinations of disputes between HMRC and a taxpayer over the question of whether a purchaser was liable to the SDLT surcharge in circumstances where the purchaser claims the acquisition amounted to the replacement of the purchaser’s only or main residence. However, there is case law in the context of a person claiming principal private residence relief from Capital Gains Tax (CGT) on the disposal of a property. F1.

For instance, in Goodwin v Francis [1998] STC 475, Schiemann LJ said:

“I accept, as did the commissioners, the Crown’s contention that in order to qualify for the relief a taxpayer must provide some evidence that his residence in the property showed some degree of permanence, some degree of continuity or some expectation of continuity.” In his leading judgment in this case, Millett LJ further commented: “Temporary occupation at an address does not make a man resident there. The question whether the occupation is sufficient to make him resident is one of fact and degree for the commissioners [ie, since April 2009, the Tribunal] to decide.”

However, the question of permanence or continuity should not be overstated.

It is simply one of the factors to be taken into account in weighing up whether

the property in question is a “residence”: Dutton-Forshaw v The Commissioners

for Her Majesty’s Revenue & Customs [2015] UKFTT 478 (TC), TC04644,

TC/2014/05226, para 61; the First Tier Tribunal in John Regan and Sylvia Regan

v HMRC [2012] UK FTT 569 at 58, both cases applying comments by Millet J

(as he then was) in Moore v Thompson [1986] STC 170 at 176.

Kothari v The Commissioners for Her Majesty’s Revenue & Customs [2016] UKFTT

127 (TC), First-Tier Tribunal (Tax Chamber)

The Tribunal decided the property had never at any time been the residence of the Appellant for the purposes of s 222(1)(a). For instance, (i)

He presented a Council Tax bill for the property, which was addressed to him,

but at another address.

(ii)

Some time after purchase, the property had been remortgaged on a

buy to let mortgage.

(iii)

The Appellant had a wife and three young children, but the flat had a floor

area of approximately 1,300 sq ft.

(iv)

The Appellant had not moved his furniture to the property, other

than children’s cots.

(v)

His income tax return for 2009-10 indicated that the Appellant had rental

losses of £210,312 and therefore suggested that he could not afford to give up

£96,000 rental income per annum from the flat.

(vi)

He had not his informed his bank or the DVLA of any change of residence

from Mill Hill.

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Section 15 Bogus Vendor & Conveyancers’ liability

Purrunsing v A’Court & Co (A Firm) and another [2016] EWHC 789 (Ch) A fraudster impersonated Mr Dawson, who was the registered proprietor of an unmortgaged high-value property in Wimbledon. The whole of the purchase price (£470,000) was paid by the ‘seller’s’ conveyancers to an account at a bank in Dubai on the instructions of the fraudster. None of the money was recovered. It was common ground that – •

There was never a genuine completion of the transaction, notwithstanding

the provision of a TR1 signed by the fraudster; and

•

The monies paid away by HOC (the buyer’s conveyancers) to ACC (the

solicitors who unwittingly acted for the fraudster) and then by ACC to the

fraudster’s order, were payments made in breach of trust and thus both

defendant solicitors were liable to the claimant buyer for breach of trust.

The Aborted Purchase On or about 20 September 2012, the fraudster instructed ACC (Mr A’Court’s firm) to act on his behalf in relation to the sale of the property to a buyer represented by Peacocks. The former informed ACC that •

he was not living at the property;

•

the property was vacant;

•

the house had been given to him by his father in 2008; and

•

that a speedy exchange and completion would be required because

he needed the money. 54

[The Office copy entries recorded that, as at the date Mr Dawson was registered as proprietor, the value of the property was stated to be between £200,001 and £500,000”.] The fraudster produced to ACC a false British passport, as well as utility bills and bank statements for an address in Maidenhead (not the property in Wimbledon). The Office Copy Entries recorded the addresses for service as being the property and another house in Cambridge (not the Maidenhead address). The High Court found that had ACC attempted to contact Mr Dawson at the Cambridge address, they would have made contact with the real owner and the fraud would have failed. ACC could have asked for utility bills or council tax documentation for the property.

Enquiries Raised on Aborted Purchase Peacocks emailed ACC on 3 October to ask “…Can you please confirm that you have verified your client’s identity to meet with Money Laundering Regulations? Further, our client has asked for confirmation of the Hospital that your client works at in Abu Dhabi?” On the same day, ACC asked their ‘client’ to provide evidence of his employment. The fraudster forthwith emailed instructions to ACC that he no longer wished to proceed with the transaction to Peacocks’ client.

The subsequent sale to the Claimant In mid-October 2012, the claimant instructed HOC to act on the purchase of the property. The fraudster instructed ACC that there was to be a simultaneous exchange and completion by no later than 29 October.

On 16 October 2012, HOC sent ACC additional enquiries, which included at 6(2), the request that ACC “confirm you are familiar with the sellers and … verify they are the sellers and check ID to support same”. ACC responded by email dated 17 October 2012, saying – •

In response to the first part of the question, that “prior to being approached to

act on the sale we have no personal knowledge of Mr Dawson”, and

•

In response to the second part, “we confirm that we have met him in person

and have seen his passport (and retain a copy of the photo page) together

with utility bills etc showing his UK address as notified to us.”

His Honour Judge Pelling QC observed, with regards to the second limb of the additional enquiries, that “Although this Enquiry is not clearly expressed, in context it could only be a request for confirmation that Mr A’Court would verify that his client was the registered proprietor of the property and thus entitled to sell it.” However, the answer given, by referring to “… his UK address as notified to us …”, was a highly ambiguous answer because it did not clearly state that the address given was either that of the property or the Cambridge address that appeared on the Register. ACC accepted that they had not supplied HOC with the Maidenhead address given to them by the fraudster and they had not told HOC that the address their ‘client’ provided did not connect him to the property.

Section 61 Trustee Act 1925 The Court held that ACC made the payment of the net sale proceeds to the fraudster in breach of trust and were thus liable to the purchaser. Moreover, the vendor’s solicitor was as much a trustee of the purchase money while it was in his possession pending completion as was the purchaser’s solicitor.

The Claim against HOC HOC was in breach of contract and/or duty to the claimant in failing to inform him of the nature and purpose of additional enquiry 6(2), of the ambiguous replies given in response, and that in consequence there was a risk in proceeding with the purchase.

Allocation of Liability Neither ACC nor HOC were entitled to rely on s 61 Trustee Act 1925 because neither had acted reasonably. The Court held that, pursuant to s.1 Civil Liability (Contribution) Act 1978, HOC and ACC each had to bear equal liability for the claimant’s loss. There was a further hearing to determine costs liability: see Purrunsing v A’Court & Co (A Firm) [2016] EWHC 1528 (Ch). Note: 1.

In October 2010, the Law Society issued a practice note on ‘Property and

registration fraud’.

The note includes a section on ‘Vulnerable registered owners’, in which the

Society cautioned that –

Some clients may be particularly at risk from fraudulent activity because, for example … they let the property or it is empty …” 3.

The note also focuses on “properties which may be particularly vulnerable to

registration frauds, such as:

“unoccupied properties, whether residential or commercial tenanted properties high value properties without a legal charge high value properties with a legal charge in favour of an individual living overseas properties undergoing redevelopment.”

Section 16 Mortgage Credit Directive & Lenders’ Handbook

Mortgage Credit Directive Order 2015 (‘the Order’) 1.

Most of the provisions of this Order came into force on 21 March 2016: see

further Art 1(5), (6). [See also the Mortgage Credit Directive (Amendment)

Order 2015, SI 2015/1557 in respect of contracts entered before this date.]

Consumer Buy-to-let Mortgages

2.1

Part 3 of the Order sets out provisions for consumer buy-to-let mortgages.

2.2

Art 4(1) sets out a number of definitions for the purpose of Part 3, including the

term ‘“buy-to-let mortgage contract”.

2.3

The terms “consumer buy-to-let mortgage contract” means a buy-to-

let mortgage contract which is not entered into by the borrower wholly or

predominantly for the purposes of a business carried on, or intended to be

carried on, by the borrower.

Purposes of the Buy-to-Let Mortgage Contract

3.1

A borrower who enters into a buy-to-let mortgage contract for the purposes

of a business would not have the benefit of the protection and remedies

under the Order.

3.2

The definition of “consumer buy-to-let mortgage contract” means that

the Order will primarily protect ‘accidental landlords’ who taking out a buy-to-

let mortgage over a property that they originally purchased to be their home.

3.3

If the property to be mortgaged was purchased for renting out and the

borrower has never lived there, then by virtue of Art 4(4)(a), the mortgage will

fall outside the scope of the Order.

3.4

If the owner of the property to be mortgaged owns another buy-to-let

property, then by virtue of Art 4(4)(b), the mortgage will fall outside the scope

of the Order.

3.5

It appears to be implicit from the MCD Order 2015 that it could include a

mortgage taken out by an ‘accidental landlord’ who inherits a home that it is

subject to an existing tenancy.

The EU’s Mortgage Credit Directive (‘the MCD’)

4.1

Recital 23 of the MCD outlines the purpose of the reflection period.

4.2

Article 14(6) of the MCD, ‘Pre contractual information’ stipulates that -

“Member States shall specify a time period of at least seven days during which the consumer will have sufficient time to compare offers, assess their implications and make an informed decision. Member States shall specify that the time period referred to in the first subparagraph shall be either a reflection period before the conclusion of the credit agreement or a period for exercising a right of withdrawal after the conclusion of the credit agreement or a combination of the two. Where a Member State specifies a reflection period before the conclusion of a credit agreement: (a)

the offer shall be binding on the creditor for the duration of the reflection

period; and

(b)

the consumer may accept the offer at any time during the reflection period.

Member States may provide that consumers cannot accept the offer for a period not exceeding the first 10 days of the reflection period. …“

Resulting Changes to the CML Lenders’ Handbook

5.1

The Lenders Handbook will be amended on 1 February 2016, with the insertion

of additional wording (shown in bold) into clause 10.2.

“10.2 We shall treat the submission by you of the certificate of title as confirmation that the borrower has chosen to proceed with our mortgage offer and as a request for us to release the mortgage advance to you. Check part 2 to see if the mortgage advance will be paid electronically or by cheque and the minimum number of days notice we require.” 5.2

The CML explains that the wording of the amendment -

“… intends to clarify that, in cases where the mortgage lender does not already require a formal acceptance from the borrower, that the current practice of the conduct of borrower in drawing down the loan, acts as acceptance of the mortgage offer, and creates the contract; this in turn, in cases where the draw-down happens before the end of the reflection period, confirms that the customer has brought the reflection period to an end by their conduct, which Recital 23 expressly allows for. Lenders will explain the concept of the reflection period in information provided to prospective borrowers …”

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Section 17 Was the Trust Deed a Sham?

Background Note; Property Bought in Sole Name – Has Third Party Become a Beneficiary in the Equity

1 Constructive & Resulting Trusts 1.1

Constructive trusts and resulting trusts are exempt from the provisions of s 2

Law of Property (Miscellaneous Provisions) Act 1989, which regulates the form

of contracts for the sale or other disposition of an interest in land.

1.2

A resulting trust typically arises where land is conveyed to one person, but

was funded in whole or in part by another person. However, it is also possible

(but less likely) for such a trust to arise where the co-owners are legal trustees

on behalf of themselves.

Under such a trust arose, the parties’ beneficial interests reflect the proportion in which each of them has contributed to the purchase price and to any mortgage repayments. For instance, if A contributed 70% and B 30%, then their beneficial interests would be split accordingly. 1.3

Traditionally, a constructive trust arose if (i) there was an agreement,

arrangement or understanding reached between the parties prior to

acquisition (or exceptionally thereafter) that the property was to be shared

beneficially; and (ii) the party claiming a beneficial interest acted to their

detriment in reliance on the agreement, arrangement or understanding

(Lloyds Bank v Rosset [1991] 1 AC 107 HL).

Further reference should be made to Stack v Dowden [2007] UKHL 17 in relation to the law which applies where the legal trustees are also the persons entitled to the beneficial interest under a constructive trust (which is sometimes known as a ‘common interest trust’). 62

Erlam v Rahman (A Bankrupt) [2016] EWHC 111 (Ch) A declaration of trust dated 16th May 2006 stated that the Trustee (Mr Rahman) as owner of the property (3 Grace Street) held the property in trust as to 74% for the Beneficiary (Mrs Farid) and 26% for himself [sic]. The High Court held that – (i)

The declaration was not evidence of a gift of a 74% interest in the property by

Mr Rahman to Mrs Farid; and

(ii)

Instead, its intended effect was to declare and evidence the legal position

which had already arisen by virtue of Mrs Farid’s contribution of 74% of the

purchase price (ignoring the mortgage), assuming that such a contribution

had been made.

Chief Master Marsh opined that if there was a significant discrepancy between the parties’ stated contributions to the purchase price and their actual contributions, “the declaration of trust would have no effect because the premise of the declaration is the factual position asserted in the definition of consideration”, though he acknowledged it may not have been necessary to decide this point. The Court then considered the approach to be taken when the legal interest in a property is held by one person. The High Court then held that the property had been bought for letting, not as a home for Trustee and Beneficiary. The following factors were relevant •

At the material time, Mr Rahman told Mortgage Express (the mortgagee) that

3 Grace Street was an investment property and it was acquired on a

buy-to-let basis.

•

On the other hand Mr Rahman told another mortgagee (Amber Home Loans)

that 30 Deal Street (another property he bought in his sole name) was to be

his home as a person who had separated from his wife.

•

5 Grace Street (a property registered in Mrs Farid’s sole name) was let

throughout this period.

The Court then â&#x20AC;&#x201C; (i)

Accepted that the proper approach was to follow the â&#x20AC;&#x153;classic resulting trust

doctrineâ&#x20AC;? by looking at the actual contributions to the purchase.

(ii)

Found that Mrs Farid had failed to demonstrate she had made any

contribution to the purchase of 3 Grace Street. It followed that she could not

establish a resulting trust.

(iii)

The declaration of trust was based on the premise that she made a

contribution of 74% to the purchase price; however, that did not reflect

the reality.

The Court added that, if the circumstances made it necessary to do so, there was ample basis for concluding that the declaration was a sham. The parties acted at all times as if the property was beneficially owned by Mr Rahman as to 100% and represented to the outside that the property was his. The declaration was prepared in order to be available, if needed, to preserve an interest for Mrs Farid in 3 Grace Street. Therefore the Court declared that Mr Rahman held a 100% beneficial interest in 3 Grace Street.

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Section 18 Can Land Become Common Land After 31 July 1970?

Littlejohns v Devon County Council [2016] EWCA Civ 446 Section 1(1), (2) of the Commons Registration Act 1965 provided: “(1) There shall be registered, in accordance with the provisions of this Act and

subject to the exceptions mentioned therein, -

(a) land in England or Wales which is common land or a town or village green; (b) rights of common over such land; and (c)

persons claiming to be or found to be owners of such land or becoming the owners thereof by virtue of this Act;

and no rights of common over land which is capable of being registered under this Act shall be registered in the register of title. (2) After [31 July 1970] – (a)

no land capable of being registered under this Act shall be deemed to be

common land or a town or village green unless it is so registered; and

(b)

no rights of common shall be exercisable over any such land unless they are

registered either under this Act or under the Land Registration Acts 1925

and 1936.”

The Court of Appeal, by a majority of 2 to 1 ruled as follows – 1.

The effect of s 1(2)(a) is that if land was capable of being registered under

the 1965 Act but was not, then after 31 July 1970 it ceased to be common

land, or a town or village green as the case may be. 66

The reference in section 1 (2) (b) to “such land” means land actually

registered under the Act on or before 31 July 1970, not land capable of being

registered under the Act. Accordingly, after 31 July 1970 no unregistered rights

of common can be exercised over land which is registered as common land.

There was recognition in section 13 that land could become common land

(i.e. after 31 July 1970).

Background Note 1.

Common land generally has an owner (such as individuals, local councils

of the National Trust) but is subject to ‘rights of common’. The rights are

enjoyed by specific commoners, (i.e. those with the benefit of a right in

common). Many, but not all, common rights are attached rights (i.e. attached

to a freehold or leasehold ‘dominant tenement’); in which case the common

is the ‘servient tenement’. A right of common can alternatively be a right in

gross; i.e. personal right which is not attached to land.

“Village greens are usually areas of land within defined settlements or geographical areas which local inhabitants can go onto for the exercise of lawful sports and pastimes. Typically, these might include organised or ad-hoc games, picnics, fetes and other similar activities. 2.

Whilst land forming town or village greens may be privately owned, many

greens are owned and maintained by local parish or community councils.

Some greens may also have rights of common (ie grazing of livestock) over

them” (source www.direct.gov.uk).