House selling conundrums Part 2
Last week, Berry & Lamberts solicitor, Eleanor Lister took us through how to spot and the repercussions of a building regulation certificate not being signed off.
This week, we find out how to resolve this problem
How can this be resolved? How long approximately would this take?
This issue should be judged by the severity of the breach of building regulations. Using the examples of last week, the lack of a completion certificate for the construction of a 5 year old house is taken a lot more seriously than an 18 year old amendment to the electrics.
The cost and impact on the value of the property needs to be considered when deciding how to resolve this problem. Solicitors also have to take into account their client’s attitudes towards risk, which will impact how they choose to proceed.
There are three main options: –
- For older (10+ years, although this depends on the scale of the works) or minor works the solicitor can explain the risks to the client. They would then refer their clients to their survey report or other evidence of inspection of the works (for example, a recent boiler servicing certificate or electrical test report). If it appears that the works were done more than 2 years ago, and the works are generally safe, the solicitor and their client may be satisfied that no further action needs to be taken.
In terms of timescale this would require time for the solicitor to obtain the evidence that the works appear to be safe, then to discuss whether the buyer is happy to take a view and proceed.
- Where the works are a little younger, or more major, or for more cautious buyers with lenders, the most popular option tends to be obtaining an indemnity insurance policy covering the breach of building regulations.
This policy is a contract of insurance that, for a single premium payment, lasts in perpetuity. The policy would cover expenses that the property owner or their lender incurred as a direct result of enforcement action, and loss in market value to the property should the enforcement be successful.
The solicitor will need to consider the requirements of the lender in order to obtain a suitable policy and may charge a fee. The cost of the policy is, on average, about £40 although some policies for higher value properties may be considerably more. It is a point of negotiation who will pay for the policy however as a rule of thumb, it would be the seller that pays.
Sellers have to be able to meet certain criteria in relation to the indemnity policy (normally the works have to be at least 2 years old, and nobody has had any contact with the council in relation to the works).
In terms of timescale it would depend on whether the breach of building regulations needs to be reported to the lender – this means that the issue is raised with the lender and their consent is requested for the transaction to continue. There is an element of solicitor discretion as to what should be reported however most solicitors will report a breach where the market value of the property would be affected were an injunction issued requiring the removal of the works. For example – a lack of a gas safety certificate for the boiler, or Fensa certificate for the windows might not need reporting, but a lack of certificate for an extension almost certainly would.
If lender consent is required, the process can take around 1-2 weeks to resolve. The time taken for solicitors to agree the form of indemnity policy and who is going to pay for it should also be factored in although this does not tend to take a particularly long time.
- Where there are recent, or more major works, the buyers or their lender may insist that a regularisation certificate is obtained. A regularisation certificate is effectively a retrospective confirmation issued by Building Control that the works comply with the building regulations which were in force when the works were carried out at the property.
This can be a slow and costly process, meaning that sellers can be very reluctant to agree to obtaining such a certificate.
The seller must apply to the local authority for the certificate which incurs a fee. The work is then inspected in line with the building regulations that were in force when the works were carried out – the sellers can expect there to be a wait before a time slot for this inspection becomes available. The inspector may need to carry out fairly invasive investigations to check building regulations were complied with, and the seller would then be left to foot the bill for reinstatement.
If the inspection concludes that the works complied with building regulations, a certificate can be issued. If issues arise, a list of these will be presented to the seller to rectify. The seller will have the cost of rectifying these to deal with. Once the issues are rectified, a second inspection would need to be carried out (with more potential delays and costs as a result) before the certificate can be issued.
The timescale in this case depends greatly on the local authority’s ability to inspect the property promptly, however it is sensible to factor in a wait of around 8 weeks.
If a regularisation certificate is deemed the only way a buyer will proceed, it is not uncommon for either the buyer or seller to withdraw from the transaction due to the cost and delay this could cause.
How can agents spot this/troubleshoot at the point they are instructed?
Agents tend to be on the ball with common areas in which building regulations consents are required. The best question the agent can ask the seller is, of course, ‘do you have the building regulations completion certificate for that?’
Bear in mind sellers aren’t always aware that a building regulations self-certification certificate needs to be provided.
The list below is a non-exhaustive list of common works and the types of certificate that would have been issued: –
- Building works – Building Regulations Completion Certificate (this includes chimney breast removal – it is worth looking out for houses where there is a chimney breast upstairs but not downstairs (or vice versa) and asking a specific question in relation to these.
- Window replacement – FENSA or equivalent
- Electrics – NICEIC or equivalent
- Boiler replacement – GASSAFE or equivalent
- Wood burning stove – Hetas
- Cavity wall insulation – CIGA
- Oil fired appliances – Oftec
- Roof Replacement/Refurbishment – Competent Roofer Certificate
A full list of competent persons schemes can be found here.
If the seller cannot confirm whether or not they have the completion certificate, or if they are unable to find the certificate an agent should make it clear that the seller should not contact the council. This can prevent an indemnity policy from being easily available.
Some examples of traps and how they could be dealt with
I have a vast back catalogue of files where we have discovered a breach of building regulations. The majority of cases are easily resolved and tend to relate to windows, electrics or the boiler. Most of the time the buyer can be satisfied by taking a common sense approach and an indemnity insurance policy. There are, however, the occasional horror stories.
Talking to the Council
Approximately a year ago I acted for a seller who had spoken with their estate agent about his extension – the agent had (correctly) asked him to confirm that he held the building regulations completion certificate for the works, and he confirmed this.
The extension itself was constructed approximately 15 years previously under the permitted development scheme. The seller was under the incorrect impression that a building regulations consent and completion certificate had been issued by the local authority at the time of the works. He therefore contacted the council before instructing me, and asked them to locate and send a copy of the building regulations completion certificate. The local authority responded to tell him they had no record of the works.
As a result, we had to disclose this correspondence to the buyer and their solicitor. The seller had effectively put the local authority “on notice” of a breach of building regulations. The local authority could have chosen to use their statutory powers to inspect the building and if they deemed it necessary, they could have sought injunctive action.
As a result of this, the buyer’s solicitor wanted a regularisation certificate. This would have prevented the ongoing threat of the local authority seeking enforcement action in the future. The seller was not willing to obtain this given the costs and delays and wished to offer an indemnity insurance policy instead.
Unfortunately, “off the peg” policies are only available where the insurance companies deem the local authority to be blissfully unaware of any potential breach. As the seller had contacted the local authority this was not the case. Instead we were left finding the seller a bespoke policy. Whilst this worked, and was accepted by the buyer, their solicitor and their lender, the bespoke policy was considerably more expensive for the seller than an off the peg policy.
If you cannot find the paperwork for the building regulations completion certificate, do not speak to the local authority. Instead they should speak to their solicitor in the first instance and we can guide them as to how to proceed.
The headache of lack of building regulations for loft conversions
I have an ongoing matter where the sellers of a property had owned the property for approximately 15 years. When they purchased the property, a loft conversion was already in situ. The sellers had no idea when this was installed.
When the agents asked them whether they had a building regulations completion certificate for the loft conversion, they confirmed that this was all sorted by their previous solicitor. The property was priced and marketed on the basis that the loft had been legally converted, and could therefore be counted as a bedroom.
It was only when the legal process started that it became apparent the seller was incorrect in their recollection that this had been dealt with by their previous solicitor. Unfortunately, the previous solicitor has long since gone out of business.
Whilst the sellers offered a belt and braces indemnity insurance policy, the buyer was advised by their solicitor that the lack of building regulations completion certificate meant the “third bedroom” could not be classed or advertised as such.
Not only would that affect the marketability of the property in the future, it placed the buyer’s mortgage application in jeopardy – the valuation of the property was questioned by the purchaser and their solicitor.
The buyer insisted that the seller obtained a regularisation certificate. Whilst the seller was very reluctant to agree to this, they eventually capitulated – they did not want to risk re-marketing the property as a 2 bedroom in a sticky market. The process has taken around 6 weeks so far, the property has been inspected and some works are required. The seller has had to pay for the works to be undertaken to bring the conversion back in line with building regulations and is now waiting for the second inspection by the local authority.
The agent in this situation did everything correctly and unfortunately, we were faced with a buyer and their solicitor who were unwilling to accept anything other than a regularisation certificate. Whilst this level of caution is uncommon, it is not unheard of.
It is unfortunate that this was not dealt with correctly by the solicitor who dealt with the purchase 15 years previously but it demonstrates exactly why solicitors must be vigilant – to avoid situations like this arising in the future.
To discuss your residential or commercial property email Eleanor Lister Property Solicitor, or call on 01892 833 456.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances