Gazumping and other pitfalls

Amira Hughes, senior solicitor at Moore Blatch, discusses some of the obstacles that can occur when buying a property and warns that as the housing market picks up, so does gazumping and gazundering

No two properties are the same, even if they are next door to each other, but the good news is that the process of buying and selling in England and Wales is largely the same no matter the size, type or location of the property. What is different is the type of issue the process may reveal.

Here we address some of the common and less common things that you should look out for when buying a property. Firstly, it’s worth very briefly understanding the legal process. At the beginning both buyer and seller instruct solicitors, and the seller’s solicitor will prepare contract papers. These include any relevant deeds proving ownership; planning documentation for any structural works that have been carried out at the property; and guarantees, as well as any other documents that tell the story of the property.

The contract papers are then sent to the buyer’s solicitor, who will apply for ‘searches’. These provide useful information from the council, water board and other bodies. Some of this information will include, for example, details of the planning history of the property (as known to the local authority), whether the nearest road is publicly adopted and whether the property is connected to the mains sewer. The solicitor will also request specific searches depending on the location, such as risk of flooding, or risk of radon gas. The buyer’s solicitor reports any issues and actions required to their client and where relevant, to their mortgage lender.

The buyer’s solicitor will request the buyer’s deposit (typically 10 per cent of the purchase price) and, all things satisfied, and the mortgage offer being in, the two parties are then ready to exchange. This is the point at which both buyer and seller are legally bound into the transaction and the completion date is ‘set in stone’. The buyer’s deposit is then released to the seller’s solicitor and the buyer’s solicitor requests the mortgage advance and any balance from the buyer to complete. On completion, the buyer can pick up the keys and move in.

However, sometimes it’s not quite so simple; the following are some of the issues to be aware of and legal tips of what to do to minimise risks.

Gazumping

Two of the most frustrating issues are termed ‘gazumping’ and ‘gazundering’. Gazumping has been returning to certain parts of the UK and is both a financial and emotional pain for buyers. In short, it is when, before exchanging, the seller accepts a higher offer from another buyer by which time a buyer may have spent money on searches and stopped looking for property elsewhere.

While it is impossible to prevent gazumping under English law (Scottish rules being slightly different), there are some strategies that can be taken to avoid it.

• The first is to offer the asking price or your very best offer in the first place. The seller is more likely to be satisfied to have achieved the price they wanted, and it shows the seriousness of the buyer’s intent. It creates goodwill and the seller is more likely to instruct the estate agent to remove the property from the market.
• Get all the paperwork required by your mortgage lender in place as quickly as possible, as the faster the process, the less time the seller has to pull out.
• Keep in regular contact with the seller letting them know when the survey has been completed and a mortgage offer has been issued.
• You may also wish to deposit a sum of money with the seller’s solicitor to show willing. This money will be held by the seller’s solicitor pending completion.
• To help prevent gazumping you can also enter into a ‘Lock-Out Agreement’ after your offer has been accepted. This enables you to sue the seller for breach of contract, should Gazumping take place during an agreed period of exclusivity. Your lawyer can set one up costing from £200 depending on complexity.

If you are a buyer that has lost out due to a higher offer, we would recommend you emphasise to the estate agent or seller directly how interested you still are in the property and keep in touch with them until they have exchanged contracts, as sometimes these gazumped bids don’t complete.

Gazundering

Gazundering is the opposite to gazumping and is where the buyer asks for a reduction in price to secure the sale of a property, typically just before exchanging contracts. The timing of this demand is usually intended to prevent the seller from rejecting the lower price as the sale could collapse if they did. In a rising market such as the current one, it can be a risky gamble on behalf of the buyer as the seller could just walk away and the buyer may have spent sizeable sums of money, but end up without a property.

Leasehold

Buyers should also be aware of a number of other issues when considering a property. Firstly, taking a look at tenure, properties will be either freehold or leasehold. If the seller owns a leasehold property then enquiries need to be raised with a managing agent or landlord, which can unfortunately take some time to be replied to. Information from them will include details on how the building is maintained, or information on service charges, ground rent and insurance.

It’s extremely important to check how many years remain in the lease as mortgage lenders will have specific requirements as to the minimum term they will accept. Lease extensions may be possible, but are often time consuming and costly. Solicitors often advise an extension the nearer the remaining term is to 80 years.

Difficulties arise when there is an absent landlord (for example, if they cannot be located). Who would be responsible for the landlord’s duties as per the lease? This often concerns mortgage lenders, but it may be possible to take out a form of insurance cover. You solicitor will advise on this and also if it might be possible for leaseholders to buy the freehold.

New build properties

Next, if we take a look at new build properties, we find that they can come with their own issues. First you need to check that all the necessary local authority consents are in place for the development and that there are proper connections to mains and other services. It is also not always the case that the local authority will adopt any new roads that service a development and therefore, if they are private, the buyer’s solicitors should check appropriate rights of way are granted over these areas. Equally, the buyer’s solicitor, as well as the lender, will want to see proper structural warranties in place.

The buyer’s solicitor will also check any agreement between the property developer and the local authority, as there may be provisions which state that some of the obligations on the part of the developer would pass to the residents should the developer fail to meet them or fall into financial difficulties.

Parking rights

If you own a car, you should check your parking rights with new build properties as it is common to find that you cannot park on site or even on the roads near to your property if they are in an area that requires residents’ permits. The reason being is that in densely populated areas a developer’s planning permission might include a condition that residents cannot apply for parking permits from the local authority – this can be brought forward into your lease by the developer. Unsurprisingly, developers and agents don’t always mention this as it can dissuade buyers, so always ask.

Listed buildings

If you are looking at buying a listed building you will need to check whether any existing alterations have been carried out with proper listed building consent and also understand whether your own plans for a building would conform. The level of protection afforded to listed buildings is through gradings – from grade one, being buildings of exceptional interest, through to grade two.

If development is allowed, it may be a required condition that like-for-like materials are used which can be difficult to find and may require specialists to carry out the work, both being expensive. Unlike planning permission, failure to comply with listed building regulations can result in a hefty fine and is a criminal offence.

If the property is in a conservation area, it may be more difficult to obtain local authority consent to develop buildings.

Location

Location is also particularly relevant if it is, say, in an area near bodies of water where the flood risk is heightened, or for example, in historic mining areas (Cornwall is a good illustration of this), Or, if the property lies close to the proposed high speed train line from London to Birmingham, the buyer and his / her solicitor may need to consider this quite carefully. The value of property could be affected in such areas and the buyer’s solicitor may need to inform the lender if there are any heightened risks that may affect valuation or re-sale.

Japanese knotweed

Finally, Japanese knotweed should also be considered. First introduced into Britain in the 19^th century as an ornamental plant, it has rapid growth and, in extreme situations, may affect the structure of buildings. It can come up through concrete and can damage buildings and roads. Buyers and their solicitors need to be aware that many mortgage lenders won’t lend where Japanese knotweed is on site or within a certain parameter of the property. Knotweed is extremely difficult to eradicate and can be costly.

The buying process can throw up issues that create a headache to all those involved. However, by asking the right questions and with some good legal advice, both buyer and seller can have a smooth property sale.