Last month, the French government proposed to introduce a new tax on non-residents who own a holiday home in France that they do not rent out as a long-term let. The government estimated that the total revenue from this tax would have been EURO 176 million a year, with the money used to fund proposed reform of the French wealth tax system.

However, after facing opposition from a group of senators representing French nationals living abroad, the government confirmed it was abandoning the proposal, as the new tax would have been incomprehensible to overseas French nationals.

Problems uncovered by the OFT’s investigation were specific to each business, as set out in the individual requirements.  However, across the sector the problems include:

• A failure to consider the customer’s circumstances or proportionality before asking the court to put a charging order in place;
• Not building adequate checks into the lender’s decision-making process; and
• Applying substantial charges for referring cases to a debt collection agency.

In a minority of cases, lenders sent oppressive and/or misleading correspondence.

The requirements imposed on some of the lenders included:

• providing a case file note seting out in reasonable detail why it was appropriate and reasonable to seek a charging order taking into account:
  • the extent to which a customer had responded to reasonable requests made by the lender;
  • such information about the personal and financial circumstances of the customer as the lender was able to obtain through its reasonable endeavours;
  • the amount of the sum owed;
  • the length of time that the sum has been owed;
  • whether it is reasonable for the lender to take steps other than those proposed.
• a requirement that the lender should consider whether the steps it proposed to take were proportionate having regard to the amount of the sum owed;
• a requirement that the lender should not state that it will seek a court order or judgment where the lender has no intention of seeking a court order or judgment;
• a requirement for new terms to be put in place where the lender wished to impose charges for default or impose charges to recover the costs of third parties and that any proposed new terms should be given to the OFT.

As part of the review of consumer credit and personal insolvency call for evidence, the Coalition is consulting on the impact of a £25,000 threshold before being able to enforce by means of a charging order and an order for sale.

It appeared that the whole transaction was a fraud.  The registered owners of the property had no knowledge of the transaction and the money disappeared. There was no allegation that the defendant was involved in the fraud. 

The claimant lender brought a claim for breach of trust.  Counsel for the lender argued that the solicitors did not have the authority to pay away the moneys except to achieve completion and completion was never achieved.  The solicitors’ counsel argued, however, that the authority was to pay away in connection with the purchase of the property and this is what the defendant did.

The court came down in the middle.  The authority entitled the defendant to pay away on receipt of the documents necessary to register title or if paying away before that stage, on receipt of a solicitor’s undertaking to provide such documents.  Here the solicitors paid away the money without receiving the requisite documents and without a solicitor’s undertaking to provide such documents.  As such, the solicitors were in breach of trust.

The solicitors then sought to rely on s61 of the Trustee Act 1925 which enables a trustee to claim relief for breach of trust if he has acted honestly and reasonably.  The solicitors submitted that the circumstances of the loan were unusual and the loan was approved by the lender in haste.  Even if that were the case, the court could not accept that the solicitors had acted reasonably having paid away the money to a firm of solicitors even though the necessary documentation had not been provided combined with the failure to investigate the firm of solicitors to whom they were sending the money.  

The solicitors also attempted to argue that any loss or damage suffered by the claimant was caused or contributed to by the lender because of its own fault. As the Trustee Act did not provide for this, the court were not prepared to extend the law in this way.

This case is a good example of when a claim for breach of trust can be brought.  By bringing such a claim, the lenders avoided having to show any negligence or fault by the solicitors and there was no issue of contributory negligence.

 Lloyds TSB v Markandan & Uddin [2010] EWHC 2517

The growth in the letting of property and the effects of the recession have resulted in an increase in the number of evictions of unauthorised tenants. As a consequence, the previous Labour Government introduced the MRPTA 2010, which came fully into force on 1 October 2010, in order to protect residential tenants by ensuring that they are entitled to a reasonable period of notice to leave a property if their landlord is repossessed

In short, the MRPTA 2010:

1. Gives courts the power to postpone a possession order for up to two months (thus allowing tenants the opportunity to find alternative accommodation); and

2. Requires lenders to give notice of the proposed execution of the possession order.

Further comment on the Act is available here.

The Guidance aims to inform lenders, landlords and tenants of their rights and responsibilities under the MRPTA 2010.

The Independent Commission on Banking will consider the structure of the UK banking sector, and look at structural and non-structural measures to reform the banking system and promote competition.

It will formulate policy recommendations with a view to:

• Reducing systemic risk in the banking sector, exploring the risk posed by banks of different size, scale and function;
• Mitigating moral hazard in the banking system;
• Reducing both the likelihood and impact of firm failure; and
• Promoting competition in both retail and investment banking with a view to ensuring that the needs of banks’ customers and clients are efficiently served, and in particular considering the extent to which large banks gain competitive advantage from being perceived as too big to fail.

It aims to produce a final report by the end of September.

There is a concern that the FSA’s latest proposals are not proportionate. Moreover, the Industry itself has already done much to put its house in order and to ensure responsible lending. Self certification and interest only facilities have assisted many customers onto the housing ladder or to keep their homes. The majority used self certification for speed and convenience, to assist them through temporary financial difficulty, to repair their credit rating and return to the ‘high street’ or through necessity but not as a means to inflate income.

Regulation should protect the vulnerable while allowing the majority informed freedom of choice and the right to make their own decisions. In a recovering market where there are already limited choices and products, we do not want to regulate the market to the point where lenders may leave, leaving consumers with limited or even no choices.

Mr Cowey and Ms Cowlam charged their property in favour of the claimant, Annulment Funding Company Ltd.  The claimant provided funds to bankrupts to obtain, as their name suggests, an annulment of their bankruptcy.  Following annulment, the intention was that the former bankrupt would obtain a mortgage from another lender to pay off any prior charges on the property.  The funds advanced by the claimant were short term at a level of interest to reflect the fact that the borrower was bankrupt and not in a position to borrow elsewhere. 

In August 2007, Mr Cowey and Ms Cowlam signed a mortgage deed in favour of the claimant over their house in order to obtain an annulment of Mr Cowey’s bankruptcy.  The annulment was obtained.  Efforts were made to find a mortgage lender to repay the claimant, but those efforts were unsuccessful.  As a result, the loan from claimant, which was meant to be short term was not repaid and claimant called in the loan.

At first instance, the court decided that Ms Cowlam entered into the charge as a result of the actual undue influence of Mr Cowey and the claimant was bound by that.   Mr Cowey had taken advantage of Ms Cowlam and caused her to enter into a transaction which was very much against her interests. They had both misunderstood the position and had not realised that they had agreed to enter into a charge over their house.

 The claimant appealed on the basis that the original defence had relied upon an inference of undue influence or presumed undue influence and it was not open to the judge to make a finding of actual undue influence.  Somewhat unsurprisingly this appeal did not succeed.  Secondly, the claimant argued that there was insufficient evidence to have made a finding of actual undue influence, but again the Court of Appeal rejected this ground of appeal. 

In addition, the claimant asserted that although the charge could be set aside, the loan should be allowed to stand as Ms Cowlam had understood that she was entering into a loan.  However, a finding that Ms Cowlam was liable to repay the loan and a judgment against her would mean that it would be open to the claimant to obtain a charging order. Although the claimant argued that it was possible to sever the part of the transaction which is not affected by the undue influence, the court held that both the loan and the charge were disadvantageous and both were affected by undue influence.  Accordingly no question arose of severing a part of this transaction. 

 Annulment Funding Company Limited v Cowey and Cowlam [2010] EWCA Civ 711

The investigation found that there were 25 High Court cases in 2009, compared to only one case in the previous five years. Claims were brought against valuers for many reasons, including:

• negligently overvaluing commercial premises that dropped in value because tenants became insolvent during the recession;
• negligently overvaluing residential property development sites which dropped in value because of falling house prices and a big increase in similar new build properties built during the housing boom;
• negligently underestimating the cost of putting a development project on hold; and
• negligently valuing a property that was subject to a fraud.

Banks and building societies have launched legal action against surveyors, claiming that they had overvalued properties that they had repossessed and been forced to sell for much lower sums. However, surveyors have hit back at these claims, stating that many of these properties had securitised loans against them and that lenders, rather than valuers, were to blame for the upward pressure on prices.

HIPs were introduced in England and Wales in 2007, with the aim of speeding up the home selling process by requiring sellers to provide a lot of the conveyancing information when their properties are first put up for sale.

We at Matthew Arnold and Baldwin believe that the suspension of HIPs will lead to a more efficient and less expensive property transaction experience for both buyers, sellers and developers, which is something we would always support. HIPs often duplicated expenses and led to a great deal of uncertainty. Although sellers will still be required to commission an Energy Performance Certificate, this will not delay the marketing process, as it will not need to be completed prior to marketing. This is likely to mean that more properties will be placed on the market, as there will be no cost or time barrier to prevent marketing. We will, of course, continue to assist both private sellers and developers in the area in all property matters.

To read further comment by Richard on the suspension of HIPs, please click here (taken from the Watford Observer website).

14,373 mortgage possession claims led to orders being made, which was 15% lower than in the first quarter of 2009. 

46% of mortgage possession claims led to suspension orders being made, which was a similar figure to the first quarter of 2009.

I met the news of the introduction of HIPs like most conveyancers, with some concern, but I now concede that in most instances, they have assisted the conveyancing process.

My main concern was and still is the reliability of the local search contained within the pack.  Due to time and cost, most HIPs contain a personal search which is obviously not as reliable as a search conducted by the local authority.

There is also a concern that one cannot market a property until he has a market ready HIP.  This can cause delay but some HIP providers can now produce a market ready HIP within 24 hours so this is not as problematic as it may have been to begin with.

The final concern is that due to the fact that a proposed seller must pay for a HIP, there are less sellers placing their properties on the market speculatively in the hope of achieving a price that they simply cannot resist.  On the other hand, this does weed out sellers who are not serious about selling their property.

Having said all of this, I would not like to see HIPs abolished.  The plain fact is, like them or loathe them, they do speed up the conveyancing process and when acting for a mortgage lender in the sale of a property, speed is very important.

Some providers are actually using “exchange ready HIPs” with legal documentation such as the agreement for sale included.  I am not convinced this is necessary or wise as what is the next step?  Will the HIP provider be exchanging contracts soon as well? 

If anything needs to change, I would like to see local authority searches becoming a mandatory part of the HIPs rather than allowing personal searches.  This would improve the quality of the HIPs at least.

Without HIPs, we would basically see a return to the times when many sales fell through before they even reached the halfway stage.

Should they win the next election, the Conservatives should concentrate on improving the HIPs rather than abolishing them.

Fast-forward to the end of 2009 when I visited my previous place of employment and I was informed that 95% of the lender’s mortgage underwriters had been made redundant.  I was also informed that the lender would now be content to complete one remortgage per day out of choice.

Mortgage brokers were in abundance and making vast sums of money by way of commission.  Now, many of those same brokers have ceased trading.

Will 2010 be any different for the industry?  Of course, I hope so and there have been some signs in the first four months that it may be different.

There are currently reports that Virgin Money is purchasing certain assets from Northern Rock.  Tesco have moved into financial services, Sainsbury’s bank is considering doing the same.  I understand that Bank of China and Bank of East Asia have dipped its toes into the UK Market and O2 is also considering doing so according to reports.  Aldermore are currently investigating suitable opportunities to enter the UK residential mortgage market and Metro Bank are opening soon advertising that it will be the first bank to open seven days a week.

Rumours in certain publications suggest that as many as thirty new lenders could be joining the market in 2010.  I personally think that this is optimism rather than realism but if half as many do join, then this can only be a positive sign for the lending industry at the moment.

Let us hope these rumours turn out to be true as once mortgage lending returns to anywhere near where it used to be, the housing market can start to recover properly.

As a purchaser, you will of course expect to see such a Special Condition and as a vendor, you will usually be happy to provide it.

The situation does change slightly when the seller is a mortgagee in possession.  Most mortgagees we act for do agree to provide vacant possession but I have some concerns about this.

I have previously, with consent of my client, refused to guarantee that vacant possession will be provided on completion.  On occasion, I have also seen contracts that state the seller will give vacant possession but can make no guarantees that the property will be vacant or words to that effect.

There is a reason for this.  The property remains unoccupied whilst it is in possession of the mortgagee and although the selling agents are required to make regular inspections, once contracts are exchanged, the agents may lose interest as they know it is a “done deal” and they will be paid their commission. 

My concern is the fact that between exchange and completion, anyone could break into the property, be it squatters or the mortgagors and whilst my expertise in litigation is limited, I know it takes time to evict said squatters/mortgagors.  The client will then be in breach of contract if unable to evict them before the completion date.

Thankfully, I have yet to face this problem personally and it is only a small risk but it only takes one such occurrence for a mortgagee to change its policy.

Failure to provide a guarantee of vacant possession is not something most purchasers would readily accept but there is a way around this.  The best solution is to exchange and complete on the same day and the buyer can of course inspect the property immediately before exchange and completion take place to ensure it is vacant.

“Restriction:  No disposition of the registered estate is to be registered without a certificate signed by the applicant for registration or his conveyancer that written notice of the disposition was given to ABC Limited being the person with the benefit of an interim charging order on the beneficial interest of Mr Joe Bloggs made by the Newport County Court on 13^th January 2010 (Court ref 7XY1234)”.

The wording of the Restriction seems to suggest that by serving notice, a seller will satisfy the terms of the Restriction and a purchaser will be registered as the new owner.

However, there is more to it that this. ABC Limited obtained an interim charging order against Mr Bloggs.

Therefore, even though they do not have a legal interest in the land, they do have an equitable or beneficial interes, i.e. an interest in the proceeds of sale and they must be repaid when the property is sold by the owners.  This is on the assumption that ABC obtained a final charging order of course.

The seller and his solicitors will be hold the sale funds as Trustees and will be responsible for repaying the charging order in full.

Simply serving notice and thinking that the solicitor’s job is done may well lead to a negligence claim.

I know some mortgagees are willing to sell with Limited title guarantee but had I ever been instructed by a lender who wanted to do so, I would advise firmly against it.

The main reason for this is that one of the implied covenants by a seller when transferring a property with Limited title guarantee is that the seller covenants that with the buyer as follows :  “the transferor has not charged or incumbered the property by a charge or incumbrance which still exists, that he has not granted any third party rights which still subsist and that he is not aware that anyone else has done so since the last disposition for value”.

The words I  have highlighted provide the fundamental difficulty.  Most of the mortgagees we act for have hundreds if not thousands of employees.  It is not possible or practical for a mortgagee to give this categorical assurance. For example, had the borrower written to the lender to inform them that he had granted a right of way to his neighbour to cross his land for some reason, this would constitute notice.

It is not unheard of for mortgagees to even agree to such a right and then lose the correspondence confirming this agreement.  If for some reason the neighbour had yet to register the right, the mortgagee would breach the above covenant by not disclosing this fact.  It is also not unheard of that one department within a bank may have notice of something and not disclose it to another department.

This is just a basic example and there are also other implied covenants when transferring with Limited title guarantee that I would not feel comfortable for a lender client to give.  However, this implied covenant is the most obvious reason why I believe that a mortgagee should sell  with “no title guarantee” which is quite standard.

Most solicitors acting for a buyer may not be happy to accept this but when meeting resistance they should be asked to consider the following:-

(a)      the CML handbook does not make it a condition that Full or Limited title guarantee must be provided by a seller. It only requires that the borrower charges the property to them with Full title guarantee; and

(b)      the statutory protection of purchasers from mortgagees afforded by the Law of Property Act 1925.  The implied covenants of Limited title guarantee do not offer substantially more protection than the statutory provisions.

Accordingly I can see no reason why a mortgagee should sell with anything other than “no title guarantee”.

Charges Register:

1.  Equitable charge in favour of Random Name Limited.

2.  Legal charge in favour of our client.

The question is which one has priority and will be entitled to take the funds due to it first when the property is sold? Many conveyancers do not know the answer to this and the position is not as simple as it may seem.

In the above scenario, the answer is:  it depends.  It depends on the date each charge was created and the type of charge, i.e. whether the charges are legal or equitable.  Notice that I said “created”, not “registered”.  Unlike Registered Legal Charges, an equitable charge is not afforded any priority against competing financial charges on the basis of when it was registered against the title alone. 

Had the position above been reversed, the legal charge would always have priority regardless of when it was created.

The date of creation is the important date when considering an equitable charge.  If the equitable charge was created on 10^th January 2010 but the legal charge was created on 9^th January 2010, the legal charge has priority despite the fact that the former was registered first.  The relevant statutory provisions for this are sections 28 and 32 Land Registration Act 2002 (“LRA”).

If the equitable charge was created and registered before the legal charge, it would have priority as registering it against the title preserves any priority it may have.

When dealing with competing legal charges, the position is much simpler in accordance with section 48 LRA in that the first registered charge has priority.

By comparison, usually with a buy-to-let mortgage, the tenancy will be binding on the lender.  If the lender wants vacant possession, it has to comply with the provisions for termination under the tenancy agreement and usually the tenant will have two months’ notice.

 The Act is intended to make sure that unauthorised tenants are not given very limited notice that their home is about to be repossessed.  The Act provides that: 

• The unauthorised tenant will have a right of audience at the possession hearing.  In practice, if the tenant attended the possession hearing, a district judge would usually let them be heard, but this now ensures that they have a formal right to do so.   
• On application by the unauthorised tenant, the court has the ability to postpone the date for delivery of possession for a period not exceeding two months.
• Once a possession order is made, the court has the power to stay or suspend the enforcement of the possession, for a period not exceeding two months, if the court did not make an order at the initial possession hearing.  The unauthorised tenant can only do so if they have asked the lender to give an undertaking in writing not to enforce the order for two months and the lender has not given this undertaking. 
• Once the lender obtains a possession order, the order may only be enforced if the lender has given notice of any prescribed step and only after the end of a prescribed period.  At present this prescribed step and prescribed period has not yet been defined, but it is likely to consist of the service of a notice and it is believed that the prescribed period will be 14 days, which will run concurrently with the possession order.

 When deciding whether to exercise its powers, the court must have regard to the circumstances of the unauthorised tenant and whether the tenant has breached any of the terms of the unauthorised tenancy, the nature of the breach and whether the tenant might reasonably be expected to have avoided breaching that term or remedied the breach.

 In addition, the court may make any postponement or stay conditional on the payment to the lender in respect of the occupation of the property during that period of the postponement or stay.  The Act states that any such payment will not be regarded as creating or providing evidence of any tenancy or right to occupy the property.

 As yet, there is no date for when this Act will come into force.  Overall the impact of this Act will give unauthorised tenants more time if faced with eviction, but equally it is likely to lead to further delay for lenders.  In order to avoid any delay, it may be sensible for a lender to check whether anyone is living at the property prior to seeking enforcement.

Land Registry Direct (“LRD”) is a wonderful website.  In the bad old days before it was available, one had to order official copies by telephone and wait for them to arrive in the post.  Thanks to LRD, the whole conveyancing process became much swifter. 

Ordering official copies, bankruptcy searches and copy documents such as leases became a matter of clicking a few buttons and most of the time, the results were obtained instantaneously.

This wonderful service is now going to be discontinued from 30th April 2010 and replaced by the new Land Registry Portal. 

The new Portal is now live and I have been using it for a few weeks.  I must say, my initial concerns were correct in that it is slower than LRD.  We seem to be pressing more buttons to obtain the same results and whilst that sounds complacent, in the current environment, speed is everything.

I am hopeful however that this is down to teething problems as on the whole, the system is very similar to LRD.  Only time will tell.

When a lender uses this word, it means that they do not want to hold any “unnecessary” documentation following their charge being registered at the Land Registry.  The solicitor acting for the purchaser/borrower/lender therefore usually sends any such documents to the borrower/purchaser.

Such documents  can include, but are not limited to, leases, NHBC or equivalent guarantees, planning permissions and building regulation certificates.

Whilst one can understand that lenders do not wish to pay for the storage space for these documents, these documents may well be required if the lender takes possession of the property and wishes to sell it.

Although most planning documents can be obtained from the local authority and duplicate NHBC certificates can also be obtained, this is at a cost and had the lender kept the documentation in the first place, that cost could have been avoided.  It also takes time to obtain copies and for every day a sale is delayed, further interest accrues and  the lender’s potential loss increases.

There is also the added problem that if the property was registered with NHBC or Zurich, it may have been registered or described by way of the plot address which the solicitor may not know.  The solicitor will usually only have the postal address of the property.

Furthermore, in some cases of new build properties, lenders rely on a professional consultant’s certificate as opposed to a conventional guarantee. In that case there is no central organisation where copies can be obtained, nor will it be easy to track down and identify the professional that gave the certificate.

As a solicitor acting for a lender, I often find myself writing to the solicitor who completed the mortgage advance for my client, asking them for copies of such certificates.  This takes time and again costs my client money, thereby increasing the amount of the potential loss

Leases may also be difficult to obtain in certain cases.  In a number of cases I have had, the Land Registry has failed to retain a copy of the lease.  I have had to obtain a copy from the landlord if he is traceable and contactable. 

These problems can be avoided if the lender insists on receiving some basic, but important documentation on completion of the mortgage advance.

In my view dematerialisation is a false economy.

STAMP DUTY LAND TAX: expensive properties
To pay for the SDLT “holiday” for first time buyers, there will be a new SDLT rate of 5% for purchasers of residential property where the consideration is over £1m. This will take effect for transactions after 6 April 2011.

STAMP DUTY LAND TAX: first time buyers
There will be a “holiday” for first time purchasers of major interests in land if the consideration is less than £250,000. This includes a freehold or leasehold interest in residential property in the UK (except a lease with less than 21 years to run when granted or purchased).

It will not affect tax charged on the rent under leases, but will benefit any premium paid under a lease.

The effective date of the purchase must be on or after 25 March 2010 and before 25 March 2012. The effective date of a transaction is normally completion but can also be when the purchaser pays more than 90% of the purchase price or takes occupation of the property.

This measure will only benefit purchasers of properties who intend to occupy the property as their only or main residence. It does not include non-residential or mixed use properties. Where there are multiple purchasers, then they must all be first time buyers. Someone who has inherited property will not be a first time buyer. It is unclear whether a beneficiary under a trust with a proprietary interest in land would be considered a first time purchaser.

If a financial institution under a shariah compliant finance transaction (known as alternative finance) purchases a property as part of an arrangement then the purchaser will also not be considered a first time buyer. Conversely, purchasers who would otherwise be first time buyers will not lose the relief by virtue of entering into a shariah compliant transaction.

The purchase must not be a linked transaction (i.e. where more than one interest in land is acquired by the same purchaser from the same vendor – or by persons connected to them). This would not catch the purchase of a separate interest associated with the main property – e.g. a garage lease. It is slightly unclear as to what the position would be if the total price paid for all linked transactions is under £250,000.

Purchasers of shared ownership properties will need to ensure that the market value election has been made. The relief is not available if taxed as a lease. Normal shared ownership rules apply on staircasing.

There are lots of opportunities for confusion here so if in doubt, speak to our residential property team.

STAMP DUTY LAND TAX: anti-avoidance
There will be new anti-avoidance measures introduced from budget day to counter SDLT tax mitigation schemes exploiting the partnership rules in schedule 15 Finance Act 2003.

There will be transitional rules which protect existing arrangements where one of the “scheme transactions” has taken place prior to the budget.

Other matters
• Banking – Lloyds and RBS have agreed that they will lend £105 billion to homebuyers and business over the next 12 months.
• Capital gains tax – Entrepreneurs’ relief is to be extended so that from 6 April 2010 the lifetime limit is increased from £1m to £2m.
• Capital allowances – the annual investment allowance provides businesses with an amount of capital expenditure which benefits from 100% allowances in the first year of investment (rather than writing down allowances over time). This has been increased to £100,000 for the next tax year.
• Small businesses occupying properties with rateable values up to £12,000 will pay no business rates for one year from October 2010.

The BBC have reported that Chancellor Alistair Darling is to announce in the Budget that stamp duty will be scrapped on house purchases up to £250,000 for first-time buyers.

Why the Treasury would drip feed info like this when there is going to be a Budget in a couple of hours, I don’t know.

Update

The Chancellor has confirmed that this measure will be implemented plus stamp duty is incresing to 5% on properties over £1m.

S20 of the Limitation Act 1980 provides a time limit of 12 years on actions to recover mortgage loans. This starts from the date on which the right to receive the money accrues. 

The issue the Court of Appeal had to decide, however, was not when the starting date accrued because by whatever calculation Bradford & Bingley were out of time, but the meaning of s29(5), which provides that time starts running again from the date, if any, on which the debtor “acknowledges the claim or makes any payment in respect of it”.  By s30 an effective acknowledgment is required to be in writing and signed by the debtor.

In a short judgment, the Court of Appeal held the there had been both acknowledgment and part payment The defendant had in the previous 12 years been paying £10 per month albeit it would have taken until 2402 to discharge the debt in full. Proof of part payment would have been sufficient within the previous 12 years to start time running again for limitation purposes. Accordingly the proceedings were not statute barred.

The new leases must be used for all shared ownership leases granted on or after 6 April 2010 for homes built with funding from the HCA (unless an earlier contract requires the use of a different form of lease). The new leases replace the model leases published in September 2009, which should be used until 5 April 2010.

The HCA believes the lease will not only simplify and speed up the home buying process but, at a time of financial caution, will assure existing lenders of shared ownership mortgages. As economic conditions improve, the revised lease should help to encourage new lenders into the shared ownership market.

The lease has been developed in conjunction with the Departrment for Communities and Local Government, the Council for Mortgage Lenders, the National Housing Federation and a number of leading mortgage lenders and providers of affordable housing. The new leases have been amended to:

• Extend the level of protection given to mortgagees of shared ownership properties;
• Update the layout and language of the leases;
• Clarify the provisions relating to alienation, rent review, making good damage to common parts and frustration in the event of damage or destruction.

The lease can be adapted by housing providers and lenders to suit individual situations, but there are fundamental clauses that must be included in any new lease. The fundamental clauses cover alienation, mortgagee protection, ‘staircasing’ provisions, protected area ‘staircasing’ provisions (where appropriate), rent review, service charge provisions (where appropriate) and right of first refusal. The landlord must also give the leaseholder a document entitled “Key Information for Shared Owners”, which sets out the main terms of the lease.

One of the key proposals is to consider the “linked transactions” rules for residential property. These are the rules which say that if you buy 10 properties for, say, £120k each, you’ll pay the rate of tax based on £1.2m (i.e. 4%). Without this rule, this example would result in zero tax. The worry is that it would, in theory, be easy to split up a property in lots of little bits all under the tax threshold. It seems to me that they are going to struggle to introduce changes without opening up the rules for abuse. As it is, the rules are vague and poorly drafted, any changes will no doubt give rise to additional confusion.  That said, investors will welcome the changes.

The idea in the consultation is that institutional investors, who buy portfolios should not suffer as a result, and for them the linked transactions rule would be disapplied.  This would, of course, be a welcome development, although I doubt it will impact too much on the UK property market as a whole.

The consultation also touches on the role of REITs in the residential property investment market. So far pretty little, other than for the largest commerical property investment companies. The impact on residential property is negligible, and this consulation is looking at whether this can or should be addressed.

The consultation is open until 28 April, and if you would like to have a look at it, it is available on the HM Treasury website.

In addition to the developers own schemes, developers have joined forces with local housing associations by participating in schemes backed by the Government. Indeed, properties on residential developments participating in such schemes have been quick to sell.

Homebuy Direct is one such scheme that developers have been participating in and is open to households earning less than £60,000 who would otherwise be unable to purchase their own home. First time buyers, key workers and housing association or council tenants are examples of those eligible to take part in the scheme.

Under this Scheme, an equity loan is given to the buyer by a Homebuy agent (through public funding) and the developer. These loans represent a percentage of the value of the property and are secured as second and third legal charges against the property. The Buyer then obtains the balance of the purchase price from a conventional mortgage lender.

No fees or charges are payable during the first five years of the equity loan, so what is the catch?

When the property is sold, the owner will be liable to repay both equity loans and also the conventional mortgage. The amount to be repaid will depend on the percentage borrowed. Therefore, if the property has increased in value then the owner has to share that profit with the Homebuy agent and the developer. However, there is also a risk to the developer and Homebuy agent if the property has fallen in value, as they may make a loss on the amount loaned.

We have seen a number of developers keen to participate in this scheme. This would suggest to me that they have confidence in a recovery of house prices in the near future!

• The consultation is on a proposal to require mortgage lenders to obtain a court order or the consent of the borrower before repossessing and selling residential owner-occupied homes.
• The proposed changes would put current lending practice into law, and ensure that borrowers can access the protections offered by the court.
• The proposals relate to residential owner-occupied properties and would not affect buy-to-let mortgages or other commercial loans, nor affect other remedies available to mortgage lenders where a borrower defaults on a mortgage.

http://www.justice.gov.uk/latest-updates/mortgages-power-sale.htm

The Office of Fair Trading wanted to bring a test case to see if banks’ current account charges were fair. In particular, it was concerned on behalf of consumer bodies that overdraft charges were excessive. Several banks co-operated and they fought a test case that eventually went to the Supreme Court (previously known as the House of Lords). Rather than fight the entire battle as to the issue of fairness of the actual terms, the initial skirmish looked to resolve whether the overdraft charges were excluded from an assessment of fairness. The issue was whether the charges were part of the price or remuneration and so should not be considered.

The High Court and Court of Appeal ruled that the terms were in plain, intelligible English, but  sided with the OFT on the fairness point. Now, in one of its first judgments since being formed, the Supreme Court has given its landmark judgment that affects millions of people. It has gone the other way and sided totally with the banks on this issue.

The Supreme Court said that the banks were correct in saying that the charges were part of the payment in exchange for a global package of services. The Court of Appeal had no basis for having said that some bits of the goods or services or price were ‘essential’ items and more important than others. Any monetary price or remuneration or goods or services provided would fall within the exemption. Banking services were part of a package of services and the price paid by consumers included the charges for going overdrawn. It is irrelevant that the charges are contingent or not incurred by the majority of customers. Even if some goods or services are ancillary to the overall banking service, if the charges for them are under the same contract then they are all part of the price for the purposes of the exemption.

The Supreme Court added that the OFT was wrong to argue that the admin charges were default charges – consumers were not in breach of contract by going overdrawn, but it was expected that they may go into overdraft from time to time and they would have to pay a charge for using that part of the service. Those charges were an important part of the banks’ revenue streams and were not intended to be seen as consumers defaulting on the contract.

As Lady Hale from the Supreme Court said, consumer law aims to give consumers informed choices rather than to protect them from making choices that may be unwise for them. Paul Gershlick, editor of www.Upload-IT.com and a Partner at Matthew Arnold & Baldwin LLP, says: ‘This is a great result for the banking sector and most banking customers – banks would otherwise have had to charge for their other services in other ways and a different result could have spelt the end of free retail banking. The judgment is also good, because there has been a lot of uncertainty in the business world about charging extra ‘admin’ costs. This ruling shows that as long as the charges are presented in a clear way with the contract terms, if they form part of the same overall contract for the goods or services, their amount cannot be challenged. The aim of the 1999 Regulations is to protect consumers from terms which they may not be aware of in the small print, but consumers should be taken to have given enough attention to what they have bought and what they are paying for that.’

There was a disagreement between the parties and indeed between academics about the meaning of this section.  The case involved a possession order on a residential property. The defendant had been lent approximately £29,000 to be secured on a first legal mortgage of the house. It was a term of the offer that the first legal mortgage be redeemed and that the remainder could be released to the defendant.

The defendant argued that for the purposes of the Act, the agreement had to be treated as two separate agreements: one relating to the amount required to repay the first mortgage (restricted use) and the other relating to the amount released to her (unrestricted use). At the time of the transaction, that is before 6 April 2007, the Act did not apply to transactions for more than £25,000. If the agreement was treated as two separate agreements pursuant to section 18(1)(a), then the Act would have applied to each agreement because each agreement was for less than £25,000. If the Court of Appeal agreed with the defendant’s submissions, the agreements would be regulated and, as the lender had not complied with the provisions of the Act, the agreements would be unenforceable.

The Court of Appeal held that this case was a single agreement with different categories. There were not two or more separate agreements. The whole credit facility had to be drawn together. Although a single agreement, the terms fell into different categories within the Act and section 18(1)(b) would apply. The agreement should not be treated as separate agreements and, since the credit was for more than £25,000, it was not a regulated agreement.

This is positive news for lenders if faced with the argument that a transaction is unenforceable because it consists of multiple regulated agreements, when in fact there is only one agreement, but with terms which fall into different categories. Close scrutiny will still need to be applied to each transaction, however, to determine whether it consists of one agreement or not.

Southern Pacific Mortgages Ltd v Jayne Elizabeth Heath [2009] EWCA Civ 1135

In this case, an order for possession of a property had been made in the absence of the defendant and the court had to decide whether a possession proceeding hearing is, by its nature, a trial or a hearing. Depending on the answer to this question, it would determine on what basis the defendant could then apply for relief from forfeiture.

As the Judge pointed out, the usual sort of case, in a busy possession list with perhaps 5 to 10 minutes allowed for each case, will be an undefended case where the defendant, if he attends, has nothing to say. The Judge will look at all the evidence from the claimant – probably all the evidence there is – and make a determination and decision:  he will satisfy himself that the case is made out on the claimant’s evidence and satisfy himself that any necessary statutory requirements are fulfilled; he will make a possession order (suspended or not as the case may be).

Such a process of determination and decision cannot sensibly be called a trial.  Rather it is more of a summary procedure in the sense of a procedure carried out rapidly with the omission of most of the steps which in an ordinary case lead to trial.

Forcelux Limited v Mr Martyn Ewan Binnie [2009] EWCA Civ 854

The proposals, published in the mortgage market review discussion paper, reflect the FSA’s changed approach to a more intrusive and interventionist style of regulation.

The review’s key features are:

• Imposing affordability tests for all mortgages and making lenders ultimately responsible for assessing a consumer’s ability to pay;
• Banning ‘self-cert’ mortgages through required verification of borrowers’ income;
• Banning the sale of products which contain certain ‘toxic combinations’ of characteristics that put borrowers at risk;
• Banning arrears charges when a borrower is already repaying and ensuring firms do not profit from people in arrears;
• Requiring all mortgage advisers to be personally accountable to the FSA; and
• Calling for the FSA’s scope to cover buy-to-let and all lending secured on a home.