Conveyancing update

Conveyancing practice update: ‘Overhaul leasehold transaction process’ , says Conveyancing Association

Beth Rudolf outlines a number of recommendations to end delays and overcharging within the leasehold transaction process.

About the author
Beth Rudolf FCILEx is director of delivery at the Conveyancing Association.

Those involved in the conveyancing sector will have seen a steady increase in the number of leasehold transfers they have dealt with over the past five years. Back in 2011, 22% of all transfers for value were leasehold whereas, by 2015, this had risen to 26%, totalling 260,000 transactions during last year. In one area of the country, Greater London, leasehold transactions are in the majority of all cases (57%) while in the North West they account for 40% of transactions. Indeed, in every single region of the UK the trend is upwards, and this brings with it some considerable and (for the client) potentially costly implications.

Time to examine leasehold transaction practice

At a time when the Department for Business, Energy and Industrial Strategy has been tasked with issuing a ‘call for evidence’ ,¹ which is expected later this year, regarding the way it can improve the home-buying process, we at the Conveyancing Association (CA) believe that it would do well to look at the leasehold transaction process. The reasons for this are many, but the following survey results should provide an idea:

• 62% of estate agents said recently that leasehold sale information causes real issues in the home-moving process, with 34% branding it ‘an absolute nightmare’ .
• 94% of respondents to a CILEx survey indicated that the costing problems associated with leasehold were sufficiently endemic to the industry and detrimental to home-moving transactions to warrant set fees.² 

In essence, far too many leasehold transactions are getting bogged down in long delays caused by a number of issues, including time spent finding the right lease administrator and then securing the required information while, at the same time, we have overly excessive fees charged by some lease administrators which bear no relation to the level of work required or taken.

To say that this leaves many stakeholders within the leasehold conveyancing process with headaches would be a gross understatement. It is the reason why we, at the CA, have been working on a leasehold work stream over the past year in order to try and develop a much more rigorous and transparent process, and ensure that certain lease administrators cannot charge obscene fees, and why there must be an avenue of redress for those leasehold purchasers who currently have no such schemes to fall back on.

Our research into this area has been eyeopening to say the least and, for much of this, we have to thank not only CA and CILEx members, but also a number of credible and fair lease administrators, who have been able to share what ‘good’ should look like in order for us to determine what might be deemed best practice.

So, what is the scale of the problem?

To get an idea of what our members felt about the leasehold transaction process and their own dealings with lease administrators, we conducted a survey on the topic. We found that 56% of those surveyed felt that lease administrators ‘often’ (judged to be in over 30% of transactions) charge unreasonable fees; and a further 32% felt that they ‘regularly’ (judged to be between 16% and 30% of transactions) charge unreasonable fees. It was clear that this was not a one-off situation and that conveyancers were finding this with a significant number of lease administrators.

However, by using data from one of our biggest members, we actually found that the situation is, in reality, much worse. Coupling up this information with data from lease administrators on the time it takes to undertake the necessary administrative work required, we have been able to create a table of reasonable fees based on an hourly rate of £100 and using the top end of the administrative activities. From this, we calculated the percentage of transactions over the reasonable fee, and concluded that up to 90% of fees charged could be deemed ‘excessive’ .

Examples of the charging structure, using a lease administrator’s model estimate of the time taken for each activity, include the following:

• A notice of assignment can take 15–20 minutes and a reasonable charge would be £25; however, in some cases the charge was up to £945.
• A notice of charge should, again, take 15–20 minutes and a reasonable charge would be £25; however, some clients were charged over £400.
• A combined notice of assignment and charge was again thought to be in the same ballpark figure of £40 for reasonableness based on 20–25 minutes; however, some lease administrators have charged £945.
• Finally, a deed of covenant, which should take up to 60 minutes of work to draft from scratch and, thus, should come with a charge of around £100 has been charged at over £800. The First-tier Tribunal decision in Spencer Wade v Orchidbase Ltd [2014] CAM/ 42UD/LAC/2014/0003 indicated that £80 was a reasonable fee for a standard deed of covenant.

Drilling a little deeper into our findings, we have come to the conclusion that at least 75% of leaseholders are being charged excessive fees; so based on those 260,000 transactions per year almost 200,000 buyers are affected. Add in those sellers that have to pay for the LPE1, and you have a figure of 400,000 consumers affected.

However, as we have noted above, cost is not the only issue; indeed, you might go so far as to say that the cost (although incredibly excessive) might be ‘sucked up’ by the client if they were getting a prompt and reliable service. However, this appears to be far from the case. Again, using data from one of our largest CA members, we have found that, in 37% of cases, it takes over 30 days for the leasehold information to be provided by the lease administrator after a request is made.

One of the major issues is finding the right individual or company in the first place given there is no register of all lease administrators. This 30-day response time cannot be split out in terms of whether the delay is around finding the right individual or whether it is just a case of the tardiness of the administrator; however, what we can be clear on is that waiting this long has a significant impact both on transaction times and on the number of cases which fall through. On conducting this research, it has become quite clear to us that action needs to be taken in order to cut down both on the seemingly arbitrary costs that can be charged by some lease administrators and on the length of time they can dwell over the provision of the requested information. At a time when we have a government department already in the throes of a hugely significant programme to review how to get costs and transaction delays down, it seems obvious to us that the focus should be on the leasehold area.

So, what are our recommendations?

Well, first, it would make sense to outline our overall aims, which are as follows:

• to reduce delays in the provision of information required in the conveyancing process;
• to enable the delivery of reasonable and proportionate administrative charges and, in particular, in respect of those charges not covered by the Commonhold and Leasehold Reform Act (CLRA) 2002;
• to create a level playing field across managing agents, management companies and landlords; and finally,
• to provide information in a timely fashion to reduce those home-moving process delays.

Specifically, when it comes to leasehold transactions and the activities of lease administrators, we would like to update the CLRA, particularly Schedule 11 paragraph 1, to ensure that all administrative payments to lease administrators by any party have to be a ‘reasonable fee’ , and there should be no duplication of fees if there are multiple lease administrators.

Ideally, because the last thing a selling leaseholder wants to do is upset a lease administrator by taking them to court while expecting their co-operation in the sale of the property, or indeed a buyer just about to start a long-term relationship with the lease administrator during their ownership, having fees set by the secretary of state would, at a stroke, solve many of the issues and save significant court time.

The CLRA could also be updated to include an obligation to provide the data within 20 days of receipt of payment, and to require any lease administrator providing this service to be a member of one of the three existing Property Ombudsman schemes to offer this redress option for consumers. We also believe that the CLRA should be able to grant jurisdiction to the First-tier Tribunal to hear all cases not resolved by the Ombudsman, again, providing that second safety net.

In terms of making the first step towards identifying the lease administrator, which can take a significant amount of time, we believe that the lack of an official register, with no registration requirements for administrators is the major stumbling block. You can also add in the fact that there can be multiple parties involved, and tracking down the party responsible for providing the necessary information for the sale of the property can be both difficult and timeconsuming . This coupled with reticence, on the part of conveyancers, to pay the fees on behalf of their clients before a buyer is found as data may go out of date before a sale, and potentially you are adding four weeks’ delay to the transaction.

Land Registry currently registers the interests of right to manage companies as well as freeholders and, by extending this through existing secondary legislation, it could enable Land Registry to create a new register for lease administrators. This would further the digitisation of the data (a key commitment for Land Registry) while at the same time improving the ease of doing business and giving all stakeholders a register to check quickly and easily.

These relatively simple changes would, we believe, go a long way to ensuring that the skewed costings and time delays which are currently attached to far too many leasehold transactions could be removed. There is much else to be done within the process; however, by taking these steps we would be creating a far simpler and cost-effective service for consumers.