Introduction
The purpose of this paper is to consider the background to and lessons to be learned since the introduction of the Home Report in Scotland in December 2008. In particular, the paper contains a consideration of what is now referred to as Up Front Information (“UFI”) and whether or not it has had an impact on liability and claims against conveyancers and surveyors. In a recent survey by the HMLR Steering Group to identify the barriers to delivery of UFI, the issue of liability came up as one of the “other barriers” identified by respondents.
Background
The Housing Improvement Task Force (HITF) was established by the then Scottish Executive in 2001. It was charged with carrying out a thorough review of housing policy in relation to the condition of the private sector in Scotland. Its first stage report published in March 2002 set out the key issues and challenges in improving the condition of Scotland’s private sector houses and modernising the buying and selling process. The proposals for a single survey arose from an evaluation of previous calls for the establishment of seller surveys whereby the seller would commission the survey for the property being sold and make this available to prospective buyers. The HITF preferred the term “single survey”.
The proposals for a single survey were designed to tackle three weaknesses in the Scottish house buying and selling system:
- the current reliance of most house purchasers on Scheme 1 (mortgage) valuations which provided only limited information on the condition of a property;
- the encouragement which the existing system gave to multiple surveys and valuations; and
- the setting of the ‘offers over’ prices at an artificially low level by sellers in order to stimulate interest in the property.
The single survey provides a comprehensive guide to the condition of the property, together with a valuation. In principle, therefore, it provides much more detailed information to both
house buyers and sellers than is usually the case at present and avoid the need for competing house purchasers to commission separate surveys and valuations. It also ensures that there is an independent valuation of the property available so that potential buyers do not have to rely on the upset price or ‘offers over’ price to decide if it is likely to be affordable. In practice, this has resulted in properties being marketed at or around 95% of the valuation in the single survey. The main point of negotiation with surveyors was the issue of liability. It was agreed that the surveyor’s duty of care would pass to the ultimate buyer.
Anyone who puts their property on the market for sale in Scotland must obtain a Home Report which is available for prospective buyers and their agents for the duration that the property is for sale (subject to refresh). There are some exceptions to the rule: new-build properties and any properties where the sale is off-market (no advertising of the property takes place at all). However, these are generally minority cases and most sellers must have the Home Report carried out and available to potential buyers prior to the property going on the market.
In essence, a Home Report is a pack which provides information about the condition and value of a property. The Housing (Scotland) Act 2006 set out the requirements for the Home Report. It consists of three parts:
- Single Survey containing a valuation;
- Energy Performance Certificate; and
- Property Questionnaire signed by seller (“prescribed documents”).
Despite initial reservations from solicitors and surveyors, the requirement for the provision of a Home Report in the majority of residential property transactions in Scotland, and its cost (£450-£800) has not impacted the number of properties going on the market.
Mortgage Valuation Reports should not be confused with Home Reports. In addition to the Home Report, surveyors may provide a generic Mortgage Valuation Report that answers many of the questions that lenders will have about a property. This is not a prescribed document however. Not all surveyors are on every lender’s panel, so a lender may not accept the valuation. The buyer normally pays for the Mortgage Valuation as their part of the purchase process. The seller is not obliged to provide a valuation as this is predominantly for the benefit of the buyer.
Impact of UFI on liability and claims
As far as conveyancers are concerned, The Law Society of Scotland’s Master Policy Insurers advise that they do not have the data to be able to say whether claims have come down as a result of the introduction of the Home Report as claims are not recorded in such a way that they could find this information out. They do not recall seeing any claims in recent years which have arisen from the Home Report itself. It was noted that it is likely that it will be a particular matter addressed in the Home Report which will be identified as the cause of the claim rather than the Home Report itself. This is backed up by potential claims for professional negligence which have tended to involve cases where the conveyancer acting for the buyer has either (a) not reviewed the Home Report during the transaction and therefore failed to recognise a point highlighted by the surveyor as requiring investigation by the conveyancer or (b) failed to advise the buyer about the nature of the Single Survey in cases where a more detailed survey commissioned by the buyer might be appropriate.
Similarly in the case of surveyors there is no data available to analyse. However the view of a major supplier of Home Reports is that there is not a noticeable difference as far as claims against surveyors before and after the introduction of the Home Report. Surveyors questioned were of the opinion that the process of home purchase in Scotland with upfront information and valuation has worked really well although a review is overdue.
In the absence of more detailed data it is difficult to draw any firm conclusions on the issue of the impact of UFI on liability and claims however it is likely that liability will diminish rather than increase. This is because:
- if the Seller’s Conveyancer prepares the UFI and creates the Material Information for the estate agent property advert, they have no duty of care to the buyer;
- the buyer’s conveyancer is under a duty to undertake due diligence on behalf of her/his client; and
- there are less likely to be claims because the buyer has the information up front and it can be evidenced what they knew at the point they made their offer.
All in all, it is felt that the claims that are resulting in increased PII premiums are not the provision of information, or lack of it, but are as a result of fraud and cyber attacks.
Under the proposals for UFI however, it is anticipated that by ensuring that the valuer has the correct information to base her/his valuation on rather than it being based on assumptions will also help reduce claims by lenders against conveyancers for breaches arising under the contractual terms of the UK Finance Mortgage Lenders Handbook as they, and the conveyancer acting on their behalf, will have more information available to them earlier in the process.
While it is understood why the issue of liability came up as one of the “other barriers” identified by respondents, it is suggested that this will not, in fact, be the case.
Conclusion
Despite initial reservations, the Home Report has worked well in Scotland and it is felt that lessons can be learned from it when the UFI proposals are advanced. The Home Report is not perfect and a review is planned. This is unlikely to be wholesale review but there are a few tweaks that would improve the document.
