PROPERTY TRANSACTIONS AND CORONAVIRUS (COVID-19)
With the government’s recommendation that people buying and selling properties put transactions on hold to help limit the spread of the virus, buyers and sellers are left in an unenviable state of limbo. We anticipate that the following questions may be on your mind if you are currently in the throes of a conveyancing transaction and we hope the following note will help you to understand how coronavirus might affect your transaction:
What will happen if I have already exchanged contracts?
The latest government advice (at time of writing on 31st March 2020) states clearly that “there is no need to pull out of transactions”, but that “the health of individuals and the public must be the priority.”
Exchanged contracts will not be void because of coronavirus or issues arising as a result of the lockdown unless a contract makes specific provision for the situation. Please note that, unsurprisingly, there is no such provision in the Standard Conditions of Sale which are incorporated in the vast majority of property contracts. Accordingly, if one or other of the parties to the transaction refuses to agree to any delay to completion or other changes to the contract, a party who fails to complete for any reason would still be in breach of contract and liable to pay interest and other penalties to the non-defaulting party in the normal way. If the defaulting party is the buyer, they risk losing their 10% deposit (subject to the 10 working day period of grace provided by most contracts).
Nevertheless, the government advice is to “amicably agree” a later date for completion to postpone it until stay-at-home measures are no longer in place. Emergency enforcement powers have been given to the police to enforce these stay-at-home measures, however the guidance contains “an exemption for critical home moves”. What makes a home move ‘critical’ is not defined, so a common-sense view of the circumstances will have to be taken.
If the parties agree to delay completion, what else should I consider?
- Mortgage offer
UK banks have been asked to give leeway to borrowers to extend mortgage offers for up to 3 months but you will need to check whether your lender will agree to this. It is important that a completion date is some days in advance of the expiry of the mortgage offer to ensure buyers are not at risk of being left without a mortgage offer on the revised completion date. An extension should be negotiated by your mortgage broker (if applicable) or with the bank (with help from your solicitor if necessary). It is our policy to request mortgage funds well in advance of completion and wherever possible to get confirmation from the lender that everything is in order for the release of funds prior to the completion date, though the banks are extremely busy at present and some have warned of delays to the issuing of mortgage funds in time for completion.
Please also be aware that if you are placed on furlough, laid off or lose your job or your income is otherwise reduced, the lender may revoke the mortgage offer so you should take this into account before agreeing to any postponement of the completion date.
- Contract amendments
If a change to completion arrangements is agreed between the parties in principle, we will need to amend the existing contract to reflect the new arrangements. Depending on what is agreed, this may include making completion conditional upon the parties being able to complete, taking into account potential stumbling blocks such as illness or self-isolation of one or more of the parties, difficulty with finding removals firms, mortgage lender delays or government guidance/instructions. We can advise on such clauses to ensure you are as protected as possible.
What is the current position if the parties have not exchanged contracts?
The parties will need to consider whether the transaction can proceed in all the circumstances. Whilst the legal work can continue, other practicalities such as arranging removals, obtaining a mortgage offer and getting a survey done may mean it is difficult to progress the transaction.
If the property for sale is unoccupied, the sale may go ahead without too much trouble, particularly if you do not need to move into the property on the day of completion.
However, while government guidance is that removal companies should honour their existing commitments where the move can be done safely and in accordance with social distancing measures, it seems inevitable that removal companies are going to be increasingly unwilling to take on any new instructions and you should think about the logistics of any move before you commit to exchanging contracts or agree an alternative completion date.
Banks and other lenders are becoming increasingly reluctant to issue new mortgage offers. As at 31st March some lenders were only considering new mortgage applications where the loan to value ratio was at least 60 – 75%. It is understood that this has arisen as a result of lenders having reduced capacity to deal with applications so they are limiting their lending to low risk mortgages. Other lenders are refusing to carry out valuations thereby effectively preventing applications from proceeding in those instances where attendance at the property is required for the valuation, which is the majority of cases. Any reduction in your income may affect lenders’ willingness to lend also. The current situation is constantly changing and you should contact a mortgage broker to stay abreast of the latest news.
Surveyors have been advised not to carry out surveys if they are not urgent, although again no specific guidance is given as to what would make it urgent. In addition it is advised that surveys should not take place if the occupier is showing virus symptoms or is self-isolating or is being shielded. If a survey is to be carried out the surveyor will need to ensure that they maintain a 2 metre distance.
How are estate agents operating?
Estate agents (along with prospective buyers) will ordinarily require access to your property to properly showcase the property and government advice is that viewings should not be undertaken at the present time. . Nevertheless, virtual viewings may suffice if the buyer can be persuaded to proceed without an actual viewing.
Can documents be signed electronically?
Many documents can be signed electronically.
Some documents will, however, require an original signature to be valid, including leases, transfer deeds and mortgage deeds. Signatures which require a witness to the signature will have to be signed in wet ink and the original sent to us to conclude the transaction in question. Whilst our offices are closed our post is still being collected and distributed to the relevant fee earners to ensure we keep transactions moving wherever possible.
Is there an increased risk of fraud?
The incidence of fraud may well increase during times of crisis and it is important that clients and their solicitors alike are particularly vigilant. Fraudsters may well use this time of change to try to redirect payments and as always we will telephone you to confirm the bank details we are sending money to and we strongly recommend that you call us to confirm account details before you make payments to us.
To discuss how we can help you, please call our office on 020 7034 4200 or email email@example.com