Please note: The advice given in this blog is correct as of 09/04/2020. Due to the ongoing nature of the current coronavirus situation, advice is subject to change so we would always advice you speak with a solicitor for information on your specific circumstances.
Update: The most recent coronavirus and conveyancing update can be found here.
On 29th March, the Law Society has recently provided conveyancers with some additional guidance on how to deal with residential property transactions at this present time. We are reminded that “prioritising the health of individuals and the public must be the priority” and that nothing in their guidance should be interpreted as contradicting this.
As per our previous blog on this subject, the Law Society, in line with government guidance, have advised that home moves into occupied properties should only take place where contracts have already been exchanged and it has proved impossible for the parties involved to agree a deferral. To this end, the police emergency powers are disapplied for critical home moves.
Moves into unoccupied properties may, however, continue. Just as with chain completions that have proved impossible to defer though, such moves must be done in a way that takes account of the guidance currently in force from Public Health England and Public Health Wales.
Advice for transactions on which contracts have not yet exchanged
The Law Society has confirmed that transactions can still continue to the point of being ready to exchange contracts. They advise parties to such transactions think very carefully before instructing their conveyancers to exchange contracts, even where completion is a date likely not to be affected by the Coronavirus restrictions. Once exchanged, all parties will be legally bound to complete on the agreed date, even if a party’s financial position had changed in the meantime. Whilst this is always true, the risk to the economy that the virus poses, consequently increases the risk to people’s financial positions.
When instructing their conveyancer to exchange contracts, buyer and sellers are advised by the Law Society to also instruct their conveyancer incorporate a suitable clause in the contract to deal with any ongoing risks caused by the virus.
Amending contracts that have already exchanged
Since the government starting publishing advice on the effect of COVID-19 on conveyancing transactions, the Law Society, Society of Licensed Conveyancers, Conveyancing Association, CILEx and Bold Legal Group have worked together to agree the outline of a process for deferring a completion date.
Whilst each transaction will require any clauses or processes that require amendment to be tailored to its individual needs, once all parties have agreed to defer the completion date, the conveyancers must exchange a written agreement to vary the contract in order to comply with Section.2 of the Law of Property (Miscellaneous Provisions) Act 1989, expressly stating that it is a variation of the existing contract and not intended to create a new contract.
Avoiding Contamination when Varying Contracts
Whilst the exchange of agreements varying the completion date in existing exchanged contracts (and any other relevant conditions) will follow the same process as when contracts were exchanged, the Law Society advise that in order to avoid contamination through a physical document, the parties should e-sign the agreement to vary the existing contract. In addition, the conveyancers will need to vary the implied undertakings to allow for the original documents to be sent to each other after the Coronavirus restrictions are lifted.
While generally lenders have agreed to extend the mortgage offers for three months, buyers should establish with their lender whether any formal confirmation is necessary and if so, request the lender provide this to their conveyancer.
Searches and Legal Costs
It is important to remember that the normal obligations apply in respect of search results and their age at the point of eventual completion. As such, it may be necessary to refresh searches or obtain (where lenders allow it in the case of properties to be mortgaged) suitable search validation indemnity insurance, which (in very general terms) protects buyers and their lenders against the financial impact any changes to the local authority registers between the date of the search result and completion, may have on the buyer. Unfortunately, there will be a cost involved in complying with such requirements and it will fall to buyers to bear these costs.
There may also be additional legal costs charged by conveyancers for preparing, negotiating, executing and exchanging agreements to vary completion dates, as well as for other unexpected work arising from the impact of COVID-19 on transactions.
Advice for Varying Completion Date
The Law Society suggest that parties seek to agree the deferral of the completion date either directly or through their estate agent that your transaction can be deferred.
The difficulty we currently have in agreeing a deferred completion dated is not knowing when the current stay-at-home period and requirements about physical distancing will come to an end. To take this into account, the Law Society advises that the agreement varying the completion date “should state that once the restrictions end there will be a period of time agreed before you move to enable everyone to get ready for the move.” This should be sufficiently long enough to allow time to find removals and arrange the move “especially in circumstances where there is likely to be an increased demand for these services.”
Other Considerations for Buyers
As ever, buyers should consider the impact on their mortgage offer if their circumstances change between exchange and completion; especially as the risk of this increases the longer the completion date is deferred.
The Law Society advises that buyers “should also consider that property values will fluctuate during the period of deferral”, which may impact on lenders’ abilities to lend. They anticipate this will affect transactions involving mortgages of “perhaps 60% or over” of the purchase price.
It is also worth bearing in mind on chain transactions that the circumstances of others parties in the chain may also change during the completion date deferral period, which could result in them not being able to proceed to completion when the restrictions are lifted. This could be a result of mortgages being withdrawn / reduced or if someone in the chain passes away and their estate needs to be settled before the move can be completed. In such cases your conveyancer will advise you as to both your legal rights, remedies available to you and how these issues can possibly be overcome by agreeing a further variation of the contract.
Advice on moves during the stay-at-home period
The Law Society’s advice is that moves should only take place while the restrictions are in place if the move is critical and it is safe to do so, for example, where the property is empty. If the empty property is in a chain, it may not be possible to complete without breaking the chain.
The Law Society also advise that properties should be given a deep clean if moving to a new home and buyers must follow the government advice if it is known, or there is reason to believe, that the previous occupants, or someone which they had been in contact with, has Coronavirus.
If you have any concerns regarding the effect COVID-19 may have on your transaction whether or not you have exchanged contracts, you should discuss this with your conveyancer. Contact Farleys’ residential conveyancing team on 0845 287 0939 or submit your enquiry online.