Do we need HIPs?

It is undoubtedly the case that the Home Information Pack legislation and the resulting cost of HIPs will find its way into the annuls of history as one of the most ill conceived, poorly researched and implemented legislation for some time. We should remember that HIPs were originally intended to speed up the conveyancing process. The positive effect of the HIP legislation is that in the majority of cases, conveyancers are instructed earlier. At the Convey Group, we have been preparing Legal Sellers Packs for the last ten years. The Legal Sellers Pack contains the usual sellers property information forms and fixtures, fittings and contents lists as well as important documentation such as planning and building regulation consents and guarantees that will be required once the sale of the property has been negotiated. Our data shows that the early  reparation of a Legal Sellers Pack can shave up to 3weeks off transaction times. Unfortunately, HIP instructions do not always mean that conveyancers are simultaneously instructed, with HIP providers only undertaking the required work on the HIP in accordance with the government legislation. This effectively means that all of the preliminary work needs to be done when the sale of the property is negotiated as opposed to when the property is put on the market, with the opportunity missed to reduce live transaction time.

Many of the original features of the HIP legislation added value to the transaction process. The original HIP legislation obtained a requirement to obtain the Leasehold Management Information from the ground landlord or the management agents in relation to leasehold property. Obtaining this documentation early inevitably sped up the conveyancing process as getting hold of this information is often difficult and time consuming. The government, in their infinite wisdom, decided that this element of the HIP "was no longer required" in December 2007. The reason being that it was difficult for the HIP providers to obtain and slowed the HIP production process down! The reality now is that sellers are often reluctant to meet the cost of leasehold management information until the property is sold - having already expended between £350 and £500 inclusive of VAT on their HIP. The resultant effect is that transaction progress is not any quicker for leasehold cases. The HIP contains local authority and drainage searches. Is transaction time effected by the early request of these searches? Who said that the provision of searches ever delayed property transactions substantially in the first instance? Ten years ago, when it was only possible to obtain your local authority search direct from the depths of your local authority, these searches delayed transactions, especially if the one person who undertook these searches for the local authority was away on holiday! In recent years, an army of personal search companies have established themselves. These companies can provide local authority searches within days of request, so long as the local authority will let them into their buildings. If local authority searches can be obtained within days of request, why order them when the property is placed on the market? The shelf life of a local authority search is limited to 3-6 months. The local authority search is actually out of date on the day that it is undertaken. Additional entries can be made, revealing road schemes or planning or building regulation enforcement notices immediately following the day upon which the search was undertaken. Pre-HIPs these searches were undertaken by the purchaser once the sale of the property had been negotiated. Receipt of these searches inevitably fell in line with the receipt of the offer of mortgage having been received. Contracts were thereafter exchanged within a reasonable time to satisfy the purchaser client and his legal adviser that no substantive entries would have been made to change the local authority search between the time of its receipt and the time of exchange of contracts.

Can the benefit of the HIP searches be passed on to the purchaser? There is a very simple legal principle known as "privity of contract". This principle states that a third party (purchaser) cannot rely on information obtained for two contracting parties (the seller and the search provider). The HIP legislation also specifically confirms that the seller should not rely on any information contained within the HIP and that the usual principles of “caveat emptor” - buyer beware - should apply. Various trade organisations such as The Association of Home Information Pack Providers (AHIP) and COPSO have attempted to make in-roads to circumvent the problems associated with these legal principles by insisting that search providers comply with a HIP Code compliance that they have come up with. Unfortunately, the trade regulations do not carry government backing. The resultant effect is that many HIP providers may well be uninsured and all are totally unregulated. Given the above, would a discerning legal advisor acting on behalf of a purchase client rely on a local authority search provided by a HIP provider? Would a purchaser want to rely on a very important document that had been prepared by a company that may be uninsured and may be unregulated? I would estimate that approximately 90% of local authority searches are being undertaken again by purchaser’s solicitors. In the event that you are not being advised to undertake these searches again by your legal advisor, you need to give serious consideration as to the legal advice that is being provided. Granted, there are many HIP providers who are fully insured and have been working within the conveyancing industry for some considerable time. The lack of regulation within this environment and the existing legislation make the reliance upon HIP local authority searches an impossibility for purchasers.

What about water searches?

The question must be asked as to what information these documents provide. Is the property on mains drainage or is there a water meter? Conveyancers used to rely on the production of water utility bills for such information, why don't they now? In their infinite wisdom, the government decided that only "the best" water searches would do. Water searches have been undertaken by personal search agents for some years, providing a fast and more cost effective service. Not any more, the government have provided direction that all water authority searches must be obtained from the water companies direct. Is it any wonder that the steering committees behind the HIP legislation is made up of water authorities, personal search providers and middle men who wish to profit from this HIP product. Whilst the personal search agents may have missed out on water searches, their business has almost doubled overnight with them undertaking local authority searches for the seller and the purchaser of the same property!

What was the purpose of HIPs?

To speed up the conveyancing process? To reduce the costs of sale to any potential purchaser? Is the purpose of the HIP legislation to provide greater transparency to the purchaser at the start of a transaction? To provide greater transparency, the documentation needs to be read. It needs to be read by a potential purchaser of the property. Any potential purchaser would have difficulty in deciphering much of the information that is being provided. Much of the information that is currently provided does not fundamentally affect the outcome of property transactions in any event.

Having run one of the largest conveyancing departments in the United Kingdom throughout the course of the last ten years, I could count on one hand the number of local authority searches that have led to property transactions being aborted as a result of findings within those searches. I could not count on one finger the number of water searches that have led to a transaction being aborted. As for energy performance certificates, quite frankly any potential purchaser is probably more interested in the colour of the carpet in the downstairs toilet than the information provided in this documentation. The vast majority of documentation that would be of use to a potential purchaser is not contained within the existing HIP legislation. Documents such as sellers property information forms which provide detailed questions and answers concerning the property; leasehold management information providing details of management accounts and service charges; copy planning and building regulation consents and property guarantees are all documents that are critical to the home moving process. Unfortunately, the government thinks that this documentation is too difficult to obtain at the start of a transaction and hence whilst they "may" be included in the HIP, they do not "have" to be included in the HIP. If the purpose of the HIP is not to speed up the conveyancing process or provide transparency, then it must be to enhance our environment by the provision of energy performance certificates. Does it follow that by providing a survey on energy efficiency, they make us more energy efficient? The way that these reports are currently being undertaken needs to be questioned. The property is first of all valued by the estate agent; the property is then surveyed by the energy assessor; the property is then surveyed and valued by the purchaser/mortgage lenders valuer. Why don't we just cut out the middle man and ask the purchaser’s surveyor to prepare an energy performance certificate. This would involve one less trip to the property and would inevitably lead to costs savings and less carbon dioxide omissions.

The government would have us believe that this information is to be provided as a result of the outcome of a EU Treaty. In the event that this information needs to be provided for all properties, why don't they pass the onus on to a purchaser or mortgage lenders valuer to undertake this work when a transaction is purchased or remortgaged. Saturation levels for obtaining EPCs would increase ten fold if this were the case, as far more properties are remortgaged every year than they are sold.

Lloyd Davies

http://www.convey365.com