Missives: time to add a penalty
Following his client suffering serious health problems due to stress caused by failed property transactions, a solicitor makes a plea for the profession to take urgent corrective action
Domestic conveyancing in Scotland is badly flawed. This needs to be urgently addressed by the profession to stop confidence going out of the domestic market, and to prevent solicitors obtaining an even worse reputation than they may have already.
I have recently been involved in a stark example of how bad this can get. An old client of mine instructed me to sell her house. Due to the usual system and a couple of minor conveyancing wrinkles, which were able to be sorted out nearly as quickly as they had been raised (rather late in the usual fashion), we found ourselves in the situation that missives had not been concluded the day before settlement. It appears that the purchaser lost the use of some paddock land for horses near to the new house (a factor that was nothing to do with the purchase and never mentioned to us) that day, ascertained that she was not bound into the purchase and pulled out for this reason.
My elderly client was therefore left on the day she was due to move out, with removers having already packed up her house, and a house “on line” ready to move into (but obviously not concluded), having to call a halt to the whole thing, lose her new house, unpack and start again. That caused her great angst and stress, and it was only in the last couple of months that she prepared herself with some trepidation to start the process again. Another purchaser was duly found, and the whole system started again with us being unable to pin down a contract, increasing stress levels. Unfortunately, my client suffered a stroke which was put down to the stress of this system.
In addition to the stress caused to clients, I have noted that the stress levels of my own staff having to rush things through at the last minute have also increased over the last few years.
The public perception of the Scottish domestic conveyancing system is far above the actual poor reality just now.
So, the domestic conveyancing system is broken and must be fixed, but how?
A penalty offer?
My initial thought, other than trying to get the banks to commit to the amount they are willing to offer in a loan before a closing date (which, whilst ideal, appears to be impossible from the conveyancing panel’s perspective), was to suggest that an Australian type system was adopted where it became common practice for a set percentage of the purchase price to be paid as a deposit within a few days of offer being accepted. However it has been pointed out to me that some purchasers simply do not have a deposit available if they are, for example, downsizing or for other legitimate reasons.
Professors Brymer and Rennie (Journal, May 2017, 34) suggest an exclusive option for the price of a home report. I don’t feel that is enough penalty to stop people just balancing hundreds of pounds to walk away against other costs they may face (such as a couple of months' rent). However if that is all a buyer is willing to offer, the seller can weigh that up with other factors.
Accordingly, my proposal is that a new crucial part of an offer becomes standard in that not only would we specify the headlines of price, date of entry and extras, but an “initial penalty” figure would also be offered. Ideally it would be useful if the profession had a standard percentage of the price agreed for this “initial penalty” (3%?). My suggestion is that the standard missive would be changed so that there would be an extra penalty position placed in the offer. The current “unrestricted” penalty could be left for “last minute” issues, but an additional option could be added that after conclusion of the bargain, but up to a certain date (say 14 days before settlement – to allow parties to cancel removers etc) the purchaser could withdraw but would have to pay this initial penalty in order to do so.
Parties could still opt to conclude a “clean offer” quickly without this optional “get out” if they were in a position to do so, by simply deleting the relevant new clause, which would obviously be preferable.
The key is to have a system that would mean both parties to the contract could and should conclude reasonably quickly, and would know there was a limited penalty if they pulled out “early”. The position we now have after conclusion (i.e. at best 14 days before settlement) would remain unchanged in practice.
Whatever system is considered and adopted, I think it is essential that we return to a system which allows parties to conclude a bargain within a couple of weeks of an offer being accepted in principle. Accordingly I think that solicitors' firms should alter their systems to make that the norm. The Law Society of Scotland could look at the possibility of requiring solicitors to withdraw from acting if buyers or sellers were not giving prompt instruction, in a similar fashion to the system used to prevent gazumping. This would bring the standard of conveyancing and the Scottish system back up to the level expected (currently incorrectly) by the Scottish public.
When the conveyancing system was last seen to be broken – when all offerors at a closing date had already had to pay for a survey in an overheated market (principally in the big cities) – Scottish conveyancers were able to fix the system by going to a “subject to survey” process before the Government had time to bring in the home report, and were able to patch the system perfectly adequately at that time. We are now in a far worse position and some solution has to be found to prevent missives being concluded commonly in the week of settlement, which is unacceptable for all sorts of reasons. The proposal given above is not perfect, nor is it the only solution possible, but whatever the solution, one must be found quickly which results in missives being concluded well before the date of entry and must be broadly adopted across Scotland for the sanity of clients, solicitors and their staff.
Willie MacRae is senior partner with Liddle & Anderson, Bo'ness