An introduction to planning permission

If you are ever considering being a buy-to-let landlord it is likely you will envision at some point making changes to your property in order to enhance its value. Depending on whether you wish to alter, you may need to obtain planning permission. In fact, it would not be unreasonable to go as far as to say that knowing about planning permission is an essential part of any buy-to-let landlord.

In 1948 the right to carry out property development was nationalized. In other words, landowners’ right to build and alter buildings, or to use land or buildings for a different purpose, was taken away by the government. Since that date, anyone wishing to carry out development needs permission to do so.

Permission is given mainly by the local planning authority for the area, which in most cases is the district, borough or city council (collectively referred to as ‘district’ councils). In addition, local government was charged with preparing plans for their areas showing where various kinds of buildings could and could not be built. Thus, the modern comprehensive planning system was born. The system is now overseen by Department of Communities and Local Government in England; the Scottish Government; the Welsh Assembly Government and the Department of the Environment in Northern Ireland.

The planning system was introduced so that property development could be controlled in the public interest. Previously, buildings could be built anywhere, or they could be demolished, and land and buildings could be used for any purpose the owner chose. This was thought to be inefficient and sometimes had harmful consequences. The idea behind the planning system is that new buildings and uses are controlled to ensure:

that incompatible uses are not sited together;
the preservation of important buildings and areas;
the conservation of the countryside and natural environment;
the prevention of urban sprawl;
that the appearance and layout of new development is compatible with existing development;
that resources are not wasted;
that infrastructure can be provided efficiently;
that people’s enjoyment of their properties is protected;
highway safety;
co-ordinated provision of new housing and employment facilities.

However, the planning system is not coercive. It relies on landowners wanting to undertake development. An owner does not have to use land in a particular way just because it is allocated for that use or development. Similarly, even when permission is given, the owner is not compelled to act on it. The system is only concerned with what can be built. It does not deal with how it is built. Structural stability, health and safety, sanitation and so on are dealt with under separate legislation and regulations.

Fundamental to the planning system is planning policy. As well as allocating sites and areas for certain types of development, council development plans contain guidance and standards for buildings and uses, relating to matters such as design, layout, density, garden space, privacy, noise, highway safety, size and mix of buildings, parking and many other issues. This guidance, and standards, is known as planning policy and can be set out in a range of development plan documents. There is a preparation process that development plans must go through and public consultation and opportunities for public comment are built into the procedures.

In addition to local policies, the governments of the UK publish national planning policy documents. Inevitably, these are more broad-brush in nature. Their function is not only to guide decisions on individual development proposals but also to give direction to the development plans drawn up by local authorities. The government indicates what should be taken into account when preparing local plans and, in some areas, the thrust of what they should say. When seeking permission for development, planning law requires the body responsible for making the decision to do so in accordance with formally drawn up local planning policy, unless there are sound reasons for coming to a different conclusion. Therefore, planning policies are the prime consideration in whether planning permission will be given.

Permission is needed for development; consequently there is an application process for seeking that permission. Two types of planning application can be made. First, there are ‘full’ or ‘detailed’ applications. These show all aspects of the proposal and are specific about precisely what would be built, what alterations would be made or what use would be made of land or buildings. Second, there are outline applications. These are made to establish, in principle, whether a building can be built, leaving some or all details of the scheme to be determined subsequently. Outline applications can only be made for buildings not for changes of use, including conversions. The details of the building and site layout are called ‘reserved matters’, because they are reserved from the outline application. Another type of application is then made for the approval of reserved matters within the scope of the original outline permission. Once they have been approved, the outline and reserved matters together are the equivalent of a full planning permission.

Although planning permission is supposed to be obtained for development before it takes place, inevitably building work and changes of use happen without the necessary consent. In these circumstances, an application can be made for permission after the event. This is generally referred to as ‘retrospective’ planning permission.

There are various other applications which can be made after planning permission has been granted. Conditions are attached to permissions and there is a procedure for applying to remove or vary conditions. In certain circumstances, this type of application can be used to make changes to the design or layout of an approved scheme. There is a separate procedure for making very minor changes to a planning permission, called a non-material amendment. One condition attached to a planning permission is a time limit within which to begin the development permitted; this is usually three years for full planning permission (five years in Northern Ireland and Wales). Applications to extend the duration of planning permission are often referred to as ‘renewals’ although they are, technically, new applications.

Of course, not all planning applications are successful and the system includes an appeals process. Appeals are made to central government bodies: the Planning Inspectorate in England and Wales, and the Planning Appeals Commission in Northern Ireland.

The appeals system in Scotland is a little different. Appeals against decisions taken by council officers are decided by a group of elected councillors. Appeals against decisions taken by the council’s planning committee are made to the Scottish Government’s Directorate for Planning and Environmental Appeals.

Appeals can be made when a council refuses permission, fails to make a decision within set time periods, or grants planning permission subject to conditions which the applicant wishes to vary or remove.

Appeals provide the opportunity for the merits of a proposed development to be considered by an independent inspector (reporter in Scotland, commissioner in Northern Ireland), free of local politics. Appeal decisions, and the interpretations they contain, are supposed to be taken into account by councils when deciding planning applications. Thus the appeals system is intended to keep a check on councils and to provide some consistency in decisions between councils.

Factors involved in residential property valuation

The residential market is imperfect. There is no central market place as a result buyers and sellers are relatively uninformed and even their professional advisors, valuers and agents, only have a limited knowledge of what is available for sale and of what is happening in the market.

Every house, flat, bungalow or other unit of residential accommodation is unique in some respect. Even a pair of semidetached houses differ as between right-hand and left-hand units.

This makes the task of valuation much more difficult than in those markets where there are standard units or products such as stocks, shares, gold, apples and cars. It is further complicated by the fact that there is no acceptable unit of comparison.

Residential property can occasionally be compared on the basis of a price per m2 (or sq ft) of floor space, but issues such as the number of bedrooms, reception rooms, car spaces, circulation space, views and the like can all vary between properties of precisely the same floor area, thus making the total unit of accommodation the only acceptable unit of comparison.

In the past the market had seasonal fluctuations, with greater activity and steadier, possibly rising prices, in spring and early summer, a quiet period in August followed by a mini-spur in September. These seasonal movements are less pronounced today but can still be detected. They can be different in different parts of the country and significantly different between London and popular holiday areas such as the Lake District. They can be affected by significant changes in market forces such as a change in mortgage interest rates.

In addition to seasonal movements, there are cycles of under-supply and over-supply and other movements of a migratory nature such as the desire to balance proximity to work with proximity to the country, and leisure activities with travel time and cost.

In most markets increases in effective demand against a fixed supply will lead to an upward movement in price. The upward movement in price encourages suppliers to produce more and for more suppliers to enter that market. In the residential market the response to such a shift in demand is slow.

It is argued that planning controls impede the supply of land and hence the supply of new houses coming on to the market. Even without such controls there would be a delay caused by the inability of the house-building industry to raise productivity in the short run. It is difficult for the market to respond precisely to match an increase in demand in an area because land becomes available in sizeable chunks and house-builders tend to be market followers, not market creators. The result is that an increase in demand in an area may in time be followed by an over supply.

The valuer’s task is to interpret the state of the market in an area at a point in time. Currently the residential market in the UK is experiencing a period of continuing price growth which is seen to be a reflection of: people living longer, greater single occupation of property, migratory growth in population and increased demand by individuals and investment companies to acquire property on a ‘buy to let basis’. The residential sector has been identified by many, at least in the short term, as a safe place for capital.

Over a number of years changes in consumer preferences occur which can be incorporated in new home design but are more difficult to incorporate in the existing housing stock. These style changes can shift the demand and hence value patterns of an area and must be monitored. The upper end of the market can be particularly vulnerable to these changes of fashion.

Residential property has a fixed location and can only be enjoyed at that location. The enjoyment of a property will depend upon general environmental factors and specific local factors. In the case of owner-occupation, the market reflects the relationship between employment opportunities, communications, general facilities of an area and the environmental factors. Growth in economic activity, more jobs and better pay, tends to cause a rise in values because of the relatively fixed level of supply.

Analysis of the economic opportunities of an area is essential if house buyers are to make sound house purchase decisions. Current concerns of global warming may begin to affect values in areas identified as liable to increased flood risk, coastal areas at risk and greater concerns by discerning buyers for environmentally sound energy efficient homes.

Total home demand has to be translated into effective demand. Effective demand is a function of the national economy and gross national product. The valuer needs to know and to consider what is happening to base indicators such as the level of unemployment, the way employment is changing, current wage levels, and the propensity of the population to save and to invest in their own homes.

The reduction in employment during the early 1990s caused by cutbacks and closures led in some areas to reductions in value both in real terms and in money terms. Money in bricks and mortar will not always be safe.

The housing market and levels of home ownership are closely connected with the availability of credit. Effective desire can only be translated to effective demand through the availability of credit, largely in the form of funds for mortgage loans offered by the building societies, the banks and the insurance companies. Availability of, and the cost of, finance are socioeconomic elements in the market-place, as are the loan terms of such organisations. Lenders are very competitive but changes in lending policy can increase demand. Thus increases in income multipliers or joint income multipliers can increase the number of potential buyers or their potential price range.

Credit for house purchase offered by banks and building societies is dependent upon two factors: the security of the property offered against the loan, and the financial status of the borrower. Very simply, the more one earns the more one can borrow. Thus in a housing market where demand exceeds supply higher salaries and wages will provide purchasers with greater purchasing power: this balanced against the fixed supply leads to higher property prices through competition between buyers. The cost of buying, the interest payable on house purchase loans (mortgages), is outside the control of the banks and building societies in that to maintain a flow of savings to sustain a flow of loans they have to compete in the money market. As a result, mortgage interest rates can rise and fall with the world’s changing view of the British economy and with changes in the Bank of England’s base rate. Many mortgage interest rates are linked formally or informally to base rate. A rise in base rate will generally give rise to an increase in mortgage interest rates and a fall to a fall in interest rates.

The government can influence the economy, finance and hence the marketplace. Governments set minimum standards for new homes, through planning control, building, energy and health regulations. These standards affect costs, which influence developers’ attitudes as to feasibility and influence the volume of new houses in the market-place. EU regulations may also influence market forces. The requirement for a statement as to the energy rating of a property may impact on the value of low rated properties in the same way as energy ratings have led to the disappearance of most non A rated electrical goods.

The government can and has influenced the market in other ways, such as by encouraging public sector tenants to purchase their homes, by imposing rent control and protection on the private rented sector, and by changes in taxation.

The general level of values depends upon the general and area-specific levels of economic activity, community income and wealth; the existing quality and quantity of residential property in an area; the rate of addition to that stock; the point at which a local market happens to be in a particular cycle, and the underlying confidence that people within and outside a particular area have in the economic future and prosperity of that area.

The fixed location of property means that the nature of the neighbourhood and the immediate surrounding properties are crucial factors in terms of buyers’ attitudes and hence in determining a value for a property within the level of values for that area.

A number of factors affect the attitude of buyers. These factors in turn determine whether an area at a point in time is considered to be desirable with rising values, acceptable with stable values, or depressed with falling values. A similar house in each such area could have very different values.

People need property, in this context people need somewhere to live. The size and composition of the population is an indication of the number and possible size of houses required by that population. But the residential market is a local market so it is important to consider the population within a definable area and to know its composition and the extent to which it is changing. Is it an ageing population, is it growing or declining naturally and/ or by migration into or away from the area? Demand characteristics can change both across the country and within local areas. Over recent years developers have become niche operators, seeking to satisfy current demand.

Market analysis identifies the need for, say, starter homes, single-person homes, family homes, luxury homes, retirement homes, student villages. Market analysis will also identify preferences in terms of type of accommodation, design, materials, construction, internal layout and facilities.

The socio-economic composition of a neighbourhood has a major impact on values. A socially deprived or underprivileged area will display that fact in the deterioration of the urban fabric, including the deterioration in physical condition of homes. Deprived means depressed, which signifies low incomes, multiple occupations and low values.

In time, however, a combination of other factors, including the architectural and historic nature of an area, may draw in a wealthier class who will gentrify or reinstate the properties to their original condition and turn such an area into a high value area. Such movements are observable but not always predictable.

In a similar way areas historically noted for housing the wealthier owner-occupier may go into decline as large units or large plots become a financial burden and are sold for conversion and multiple letting. In time the same area may revert back to single family ownership or be substantially redeveloped for low-cost housing or high-value housing, depending upon the level and nature of demand at a point in time when redevelopment is seen as the proper solution for a declining neighbourhood.

The level of vandalism and crime are regrettably indicative of an area’s undesirability. Such changes are partly attitudinal and, like a disease, can spread very rapidly If a community senses that no one cares about an area, in particular the authorities, then the residents cease to care. The result is decline, which is immediately reflected in falling property values.

Active residents’ associations and neighbourhood watch committees show concern by the community for their neighbourhood which can stimulate pride in an area and lead to rising values. The market and market values are obvious reflections of social desirability.

The extremes of social deprivation and social well-being coincide with the extremes of values to be found within a defined geographic area. The residential valuer must be alert to the potential for change and be aware that within broadly defined residential groupings there will be pockets of properties which appear to defy logic but nevertheless maintain high values in areas of low values or areas of low values in an area dominated by high values.

Once a change in an area is signaled the value movement tends to be fairly fast as the new socio-economic group moves in to replace the higher or lower socio-economic group.

These social features are closely related to the income profile of the population and the underlying economic activity of that section of the population that predominates in a given residential area. This is further reflected in market activity. Properties in desirable areas change hands quickly, with a minimum of properties remaining vacant. Properties in declining areas tend to remain on the market for longer periods, tend to become vacant and remain vacant, deteriorate, shift to multiple occupation, and may finally be condemned.

Local politics are a reflection of and a response to these changing social and economic forces. The future of a neighbourhood can be affected by the strength of the community in political terms. Strong representation can produce improvements to schools, health and community services and dictate the attitude of the authorities to that area. Small changes on their own have little impact, but in combination can strengthen a neighbourhood. Thus the attention of the authorities to street cleaning, refuse collection, repair and maintenance of roads and footpaths, street furniture, local schools etc will all become part of the environmental picture which impacts upon buyers’ attitudes and hence on their willingness to commit themselves to a purchase at a particular price.

Physical and environmental factors help to define the neighbourhood. Those areas which are, in physical terms, well maintained and environmentally most attractive are those which are likely to become socially most desirable and hence in time occupied by the economically stronger. This tends to create a community with political strength which becomes protective and perpetuates the status of the area.

Natural and man-made features may provide the boundaries to identifiable residential areas. In some cases there may be a spill-over effect, with values declining gradually from high value areas to low-value areas. In other locations there can be pronounced changes in value either side of a building or road. Roads, particularly motorways and main commuter routes, railways, rivers, lakes, village greens, sports fields, parks may all act as boundaries.

Proximity to one or another may give rise to higher or lower relative values depending upon the desirability or otherwise of being close to such a feature. There are rarely any hard and fast rules about the behavioural attitude of the residential property market. This is because it is often the combination of many factors that creates good or bad in the eyes of the buyer. Some river locations are highly sought after, others far less so given the current increased awareness of flood risk.

Motorways and railways may act as boundaries but the combination of ease of access, visual intrusion and noise, together with other environmental factors, will determine whether they add to, or take away from value.

Soil, subsoil, natural drainage, probability of flooding, micro-climate, topography and aspect are all physical factors which historically may have determined the desirability of building in an area and may still today have an impact on values. Proximity to the right schools, shops, libraries, golf courses, country club, leisure facilities, may add to value.

But on the other hand, proximity to anything likely to cause a nuisance such as factories, sewage-works, football grounds, bingo halls, discotheques or anything that might give rise to rowdyism and general misbehaviour will tend to depress values.

Communications to the rest of the area, surrounding public open space, motorway linkages and places of employment are all very important location factors. So too, is the existing quality of development, road patterns and standard of property maintenance in determining the good, the bad and the indifferent areas of a defined residential market. Nor would it be a complete story without mentioning the importance of pressure groups in the form of conservationists, environmentalists, ecologists and politicians.

All of these have an impact on the market for residential property. Thus at a given point in time these various forces will have combined together to create a particular level and pattern of values in an area. A change in one or more of any of the forces or components mentioned will alter the supply of, or the demand for, all residential property; or for a sector of the market or just for one specific property; the result being an increase in supply or a decrease in demand or a decrease in supply or an increase in demand and a corresponding change in prices and hence in values. It would be rare indeed for only one force to be moving, so interpretation of cause and effect can be very complex. The general economic climate together with the quality of different residential areas creates a pattern of values for a defined market. Within that market the valuer must now consider the site-specific qualities of a house and its physical condition in order to assess its market value.

What the terms for different property buyers can reveal to you

There are many terms familiar to estate agents that come to categorise buyers. Take for example the term “first time buyers”. The term itself may or may not be accurate in the impression it conjures – it makes us think of a young couple with no children, but of course it could equally apply to a couple with children, or an older couple, or a single person who has been renting for a long time. So the term does not really paint a useful picture of the individual’s age. What it does, though, is give some inkling of the buyer’s position. A first time buyer has no previous property to sell and is hence chain free, and has that benefit on his side.

If an individual is identified as a “next- time buyer” in estate agent parlance that means he is hoping to move up, but the purchase of the next property may be complicated if there is an existing property still on the market. A next-time buyer, however, is likelier to have a more sizeable deposit, if the sale of the existing property goes to plan. Next-time buyers will be seeking properties with more rooms, possibly garden space, better schools around, because the move may be motivated by children, or the thought of preparing the nest for the arrival of children.

Empty nesters is a term that is increasingly common in usage. What is an empty nester? It is a couple whose children have left the family home and are hence looking to buy a different property – with a difference. While most people keep buying bigger properties as they go along, empty nesters are looking to downsize.

It makes sense to downsize in your latter years. Firstly, it frees up equity that can be used towards retirement. Secondly, the upkeep of a smaller property is easier, rather than one with lots of rooms. Thirdly, it means you do not need expend finances to keep heating unused rooms, just to keep away mould.

The government feels that empty nesters could make up one in five home buyers, and it would help relieve the housing crises if existing family homes were sold to growing families while grown families reverted to smaller homes. The empty nesters market is expected to grow and for that reason financial products catering to the elderly may be in greater demand; estate agents may also find it beneficial to have a greater number of downsizing properties on their books.

Flying freeholds: possible arising disputes

Whether you are an estate agent, or seeing to buy a property, it is always a good idea to understand the terms you may encounter during the conveyancing process, not just so that it expedites the process – which, if you are a property hunter, means you spend less time talking to the solicitor who is charging you by the hour – but also so that there is common ground and understanding that prevents any issues at a later stage. It is more difficult to break away at the later stage of the buying process because you may feel you have already invested too much time and money already, and the pressures of time – if you need to have a property to move in to soon – may mean that you have to go along with the purchase even if you are not entirely with aspects of it. Another situation that may arise is that the mortgage lender may not be willing to lend, grounding the whole process to a halt. So while it may seem like a hassle to have to familiarise yourself with these new terms, it is a worthwhile investment

One term that may cause a fair bit of confusion is the term “flying freehold”. Many people assume this to be a case of the freehold of a building being transferable to another party, or having some sort of fleeting existence, but that is not the case. The term actually has some physical connotations. A flying freehold actually refers to a freehold of a property that overhangs another space. For example, if an apartment is built in an overhanging archway, that freehold does not cover the space below the dwelling. The apartment has a flying freehold. But this does not mean you should start getting your tape measure out and calculating the overhang area of guttering and drain pipes. The flying freehold element only refers to spaces which are habitable and space taken up by chattels are not usually considered.

Nevertheless, if you have any doubts our concerns about the possibilities of a flying freehold you should notify your conveyancer so that this can be checked out fully at the start of proceedings. It is also a good idea to mention this to your mortgage lender. It demonstrates to everyone that you are on the ball and proactive!

As an estate agent, it is a good professional practice to inform the buyer if a flying freehold does exist. Yes, while you may argue that the estate agents have an obligation to the seller more than the buyer, it is professional to mention this to the buyer if they are not aware of it, as they will certainly want to investigate it. It would save you time and money down the line and avoid the situation where a potential buyer withdraws or their mortgage lending falls though. And if you do sell a property with a flying freehold, the buyers may come back to you in future if they decide to sell, simply because they know you are thorough in your approach, and, well, you have sold the property before and know it well!

Solicitors, or more accurately in this case, conveyancers, need to be mindful of the possible scenarios that flying freeholds may entail. If you are purchasing a property with a flying freehold, a conveyancer should advise you both on the difficulties which may arise. For example, some mortgage lenders may not lend on a flying freehold. And you must certainly always find out who should bear the responsibilities of repair or how they are divided, as this is almost always an issue that will arise in time. And even if getting a mortgage is not a problem, for example, if you are a cash buyer, a conveyancer should inform you about the existence of flying freeholds simply because while you may think you are relatively unaffected by it, it may affect a future buyer who may have difficulties getting a mortgage for your property, or have reservations about buying it. Your purchase of a flying freehold property may make it harder for you to sell in the future. Enough said, don’t hide your head in the sand, or leave it to the conveyancer or mortgage lender. Knowledge is power!

For a flying freehold to exist, part of the freehold property that is being bought must overhang part of another person’s freehold property, and the overlapping area must be of a significant size, allowing for habitation. In some properties, such as semi-detached ones, this scenario may be fairly common. For example, part of the bedroom of one house may be sited above the lounge of a neighbouring house. A more common example is seen in properties where a room is built on an arch that allows a road through for parking at the rear of the property. If the area that overhangs is a space merely limited to chattels such as drain pipes or guttering, then the property is not said to have a flying freehold; conveyancers speak of these as having a right of ‘eavesdrop’.

But what if you live in a block of converted flats, where one property entirely sits directly on top of another?

If all the owners in the block collectively own the freehold, then the property is said to be a leasehold property with a share of freehold. The flying freehold principle does not apply, but nevertheless, the mutual obligations of property owners mentioned below may still do.

Flying freehold properties have mutual obligations to each other. The upper property should have a right of support from the lower one, while the lower property should enjoy a right of shelter from the upper one. If you live in a semi-detached house where one bedroom is directly over your neighbour’s lounge, then you have responsibilities to maintain your property so that it does not have any impact on your neighbour’s. Your floor is your neighbour’s ceiling, in the overlapping area, and if you do not maintain your own roof, causing your floor to flood, then your neighbour’s ceiling will be adversely affected too. Any major works that you carry out within your own property, for example, for example, in replacing floorboards must also not adversely affect your neighbour or the value of his property.
If you purchase a property with a flying freehold then you also have responsibility to the area under it, particularly with regards to maintenance.

If you have a property that has an area overhung by your neighbour’s property, then while your neighbour has the flying freehold, you have what is known as the creeping freehold. Your obligations to your neighbour above are the same as your upstairs neighbour’s obligations to you. You should not do anything within the confines of your property that will jeopardise your neighbour’s.

Estate agents and conveyancers should always advise buyers on these obligations at the outset to avoid any misgivings or disputes in the future between affected parties.

Most parties with flying or creeping freeholds usually work things out amicably but sometimes relations may sour and lead to dispute.

If the property you have is overhung by your neighbour, are you entitled to go into your neighbours’ property to carry out works? And if such works are enforced, are you entitled to recover the cost from them?

A landmark case regarding flying freeholders was the case of Abbahall v Smee (2002). The property owner with the flying freehold allowed it to fall into a state of disrepair, thereby affecting the property below. Loose masonry was falling onto the public thoroughfare below, affecting visitors to the ground floor property.

The court ruled that the owner of the property with the flying freehold had responsibilities to the party below, although the costs of the roof repair to the flying freehold property were borne in a 75/25 split by both parties as they would equally benefit from the repair.

If your property overhangs another, the Access to Neighbouring Land Act 1992 allows you legal provisions to go to your neighbour’s land to carry out repairs to your property. Of course, a simple word with your neighbour and mutual understanding is usually enough without having to apply for a court access order. But if you have to go the legal route to carry out repair, you will probably have to indemnify the other owner against any loss, damage or injury.
Perhaps a lesson to learn is that if you are buying a property with a flying freehold, or any property for that matter, make sure you can get along with the neighbours!

And what do mortgage lenders make of flying freeholds? Their view of it varies. Some lenders will avoid lending on such properties, while others will consider it only if the overlapping area falls under a certain percentage of the whole property. Some lenders will lend only if there is flying freehold indemnity insurance. Either you or your conveyancer should inform the mortgage lender of the existence of a flying freehold as soon as possible.

A flying freehold property is perhaps best thought of either as one whose structural integrity is dependent on another property, or where that overhangs another property in a way that has bearing on it. Either way, there are implications that property buyers, conveyancers and mortgage lenders should be aware of!

Would you use a buying agent?

What is a buying agent? To use the full term, a residential property buying agent is an individual or a property company that act on the instructions of the buyer to locate a suitable property and negotiate on their behalf. Who uses a buying agent? It could be someone who is an overseas buyer, and who needs the presence of a local, in-country agent to handle such a purchase. But it may also be an individual who is already in-country, but does not want to deal with the hassle of a property purchase.

But why, if you are purchasing a property, would you not want to be involved in its developments? Two main reasons stand out. The first is time – individuals who use a buying agent are usually too busy to handle the property search themselves. Secondly, it is for anonymity – if a well-known person was looking for a property, and wished it not to be widely known, a buying agent affords a level of third-party anonymity.

If you are considering using a buying agent, there are various regulations that would be useful to be aware of.

Associated Services

You are not obliged to use any associated service which is offered by the agent. In other words, while an agent may suggest to you to use their recommended financial adviser or surveyor, you have no need to do so. You are entitled to use your own financial adviser, legal representative, or surveyor. You may think that in using the buying agent’s recommended personnel, the buying process may be sped up because of established relations between the parties, but this may not necessarily be so. And it is good to consider that buying agents may receive kickbacks from such recommendations, so you may find yourself paying higher costs to their recommended service agents, which eventually flow back to the buying agent themselves.

You are entitled to decline such services – don’t let the agent pressurise you into one, or make you feel bad about it. The refusal of such services should also not prejudice any offers or viewings through the agent.

Duty of Care

It is customary that a buying agent must always work in the best interests of their client, that is to say the person who is paying for the agency services. The estate agent should treat, all those involved in the proposed sale or purchase fairly, and with courtesy. If the buying agent or one of his staff, has any personal or business interest in the property, the buyer or seller, must be told as soon as possible in writing. That is to say, if the buying agent, for example, is advising the client to buy a property that the agent has a stake in, this must be made clear at the outset.

Fees and charges

An agent must inform the buyer in writing, before they agree to use his service, what fee (including VAT) is payable and when the fee is due. It must be stated clearly whether the fee is a fixed price regardless of the achieved buying price or whether it is calculated as a percentage based on that achieved buying price.

Illegal / Criminal Activity

Allegations of illegal and criminal activity (e.g. fraud) should be referred to the relevant authority (such as the police) or regulators (such as Trading Standards) who are empowered to undertake enforcement action. The Ombudsman does not have regulatory powers and cannot consider allegations of illegal or criminal activity.

Marketing

The selling agent must describe the property as accurately as possible and not misrepresent the details.

Agents are legally bound under the Consumer Protection from Unfair Trading Regulations 2008 to describe a property truthfully and provide material information to allow potential buyers to make an informed transactional decision. Sales particulars should give a general description of the property and will highlight, for instance, the type of heating, double glazing installed, or appliances or furnishings that may be included in the sale. The buying or selling agent will not have tested any facilities but if they are of particular importance to you it is wise to question the agent further to allow him to and he can ascertain the relevant information from the seller or the sellers agent on your behalf.

Negligence Claims

Negligence is a term with a legal meaning and only a court can decide if an agent’s actions or inactions were negligent. The Ombudsman cannot decide claims of negligence and cannot speculate on what a court may decide. Consumers should seek legal advice if they wish to pursue a negligence claim.

Offers

The buying agent must record all offers received and not conceal, misrepresent, withhold or delay communicating offers. It is the seller who decides whether to accept an offer; to reject an offer; when to stop marketing the property after an offer has been made, and to whom to sell the property to and at what price.

Terms of Business

All buying agents must give their clients written terms of business. The buying agent must clearly explain all fees and charges and tell you if any fee will be payable if you withdraw your instructions to buy the property.

When dealing with the agent you should ensure that you understand:

The fee that will be charged and whether it is based on a sliding scale according to the eventual sale price is at a set amount.
How long the agreement runs for; how you can terminate it and with what period of notice is required.
Whether you will have any continuing liability to the agent for a fee if you do terminate the agreement.

In particular you should:

Realise that when you sign the agreement you are entering into a legally binding contract under which you may be liable for fees.
Ensure that you have read and understood the terms of the agreement and the commitments you have entered into. Do not feel pressured into simply signing it and be aware that if you sign the document in your home or at your place of work you are entitled to cancel it within 14 days.
Make sure that you receive copies of all relevant documents such as the agent’s terms of business.

The Estate Agent

He is instructed by the seller of the property and whilst he has a responsibility to treat any prospective buyer fairly, his client, (the person paying for his services), is the seller. Both selling and buying agents are required to act in the best interests of their clients. They have no control over the legal process but will generally assist in checking on the progress of the purchase and, if agreed, in handing keys over on completion of the sale. Buying agents can also neogtiate on you the buyers behalf if instructed.

The Legal Representative

A Licensed Conveyancer or Solicitor and will progress the formalities of the sale and determine with the seller and the buyer the potential dates for exchanging contracts and completion.

The Mortgage Provider

If you require a mortgage to buy the property you may be dealing with a bank or building society, either directly or through an adviser. The agent is not allowed by law to give you any financial advice but he might refer you to an adviser with which he has links or which is a separate part of the same company. The agent will not have access to the records of the mortgage provider or adviser and has no control over the progress of any mortgage application.

The Surveyor/Valuer

Instructed by the prospective buyer or their mortgage provider and will offer various surveys from a general valuation report to a structural survey. Unless the mortgage provider specifies otherwise it is the buyers choice as to the type of survey undertaken.

Commercial – Guidance and Information

If you’re one of the many that have ever considered running your own business and working for yourself, you may – depending on the nature of your business – need commercial premises. A commercial premise is a place from where you run your business, and is the opposite of a residential property, although if you work from home (such as some tutors) then the lines can be blurred!

Commercial premises are usually leased initially, although if your business becomes big enough you may wish to buy the freehold or a permanent location. But the assumption is you move from considering leasehold to considering freehold. For many businesses the latter step is one they never make because the outlay to buying a permanent property is too large. But whether you are leasing or buying a commercial property, there is enough jargon to befuddle you at the outset. Fortunately, here is a guide to help you get to grips with the terms.

 

What is “Alienation”?

Alienation is the legal transfer of title of ownership to another party.

 

What happens with “Assignment” of a lease?

Assignment of a lease is where the tenant transfers/sells its interest in the property for the unexpired term of the lease to an assignee.

 

What is an “Authorised Guarantee”?

An agreement an outgoing tenant enters into with the landlord when it assigns its lease to a new tenant. Under the agreement, the outgoing tenant guarantees the performance of the covenants by the new tenant. The outgoing tenant therefore becomes the guarantor for the new tenant.

 

What are Business Rates and who collects them?

Business rates are a business tax for occupiers of non-domestic property, collected and managed by the local council.

 

What is a “Break Clause”? (If you are a football fan, chances are you’ll already know this!)

A break clause (or a ‘break option’ or ‘option to determine’) is a clause in a lease which provides the landlord or tenant with a right to terminate the lease before its contractual expiry date, if certain criteria are met.

 

What is the “Break Notice”?

A break notice is the formal notification that one party wishes to exercise its right to terminate the lease in accordance with a break clause. Notices must be drafted with care, taking into account compliance with any pre-conditions, to ensure the right is successfully exercised.

 

What does it mean to “Contract Out” and why does it happen?

The parties to a lease may, by agreement, contract out of the Landlord & Tenant Act 1954 with the main consequence being to remove the tenant’s rights of renewal, and eligibility for compensation in certain circumstances (e.g. landlord’s redevelopment ).

 

What are “Covenants”?

Covenants in a lease refer to the obligations imposed on each party by the various clauses.

 

What are “Dilapidations”?

Dilapidations are the potential breaches of a tenant’s lease covenants in respect of repair, reinstatement of alterations, and redecoration. These can be raised by a landlord during the term of the lease or at lease expiry.

 

What is an “Estate Charge” and who levies it?

Part of the tenant’s service charge liability relating to the maintenance of the estate on which a commercial property is situated. The landlord normally imposes it on the tenant – think of it as a service charge for commercial properties.

 

What is meant by “Exceptions and Reservations”?

These are areas that would otherwise form part of the property but are not included in the lease.

 

What is “Forfeiture” and who has the right to it?

When a business tenant is in rent arrears or in serious breach of the lease terms, then the commercial landlord will in most cases have the right to forfeit – the right to summarily end the tenancy. The landlord must, however, comply with relevant legislation when exercising this right.

 

Full Repairing and Insuring (FRI) – who is responsible?

FRI is a term used to describe a lease where the tenant is responsible for all repairs and for insuring. The term also applies to the liability for payment of these costs. FRI leases can therefore include terms where the landlord pays for external repairs and insurance and recovers the cost from the tenant usually via a service charge.

 

What is meant by “Gross Income”?

This is one of the terms any business must acquaint themselves with. This is the total current income receivable from a property investment before allowing for any deductions.

 

What is “Gross Internal Area”?

Gross internal area refers to the total area within the perimeter walls of a property and makes no allowance for the space occupied by staircases, walls, etc. This measurement is the standard measurement given for industrial property. It gives you a rough idea of the space available for the running of your business, but if there are prominent features like large walls or spiral staircases, then these will eat into the area.

 

What does “Guarantee” mean?

An agreement whereby a third party is liable to pay the tenant’s debts, or carry out their duties, if the tenant fails to do so. The person that gives the guarantee is the tenant’s guarantor.

 

Who is the Head or Superior Landlord?

The person who is landlord to the tenant’s landlord (see freehold).

 

What are Heads of Terms and why are they necessary?

Heads of terms agreements record the requirements of both the transacting parties in the property transaction. It is designed for both parties to fully understand what they are subject to, and reduce any misunderstandings. The heads of terms form the basis of the eventual contract and will be passed to the parties’ solicitors tasked with drafting the contract or lease.

 

What is Indexation?

The practice of linking tenant payments under the lease to a published index, such as the Retail Price Index (RPI) or the Consumer Price Index (CPI). Mainly associated with service charge payments and rent reviews. This is to ensure that the payments rise in accordance with other societal rates. While fixed payment rates are sometimes used, landlords will more commonly use indexation.

 

What is an Internal Repairing Lease (IRL) and how is it different from an FRI?

Unlike a FRI lease, the landlord retains responsibility and financial liability for the cost of external repairs.

 

Who is the Landlord?

The person who grants the lease or who now has the right to enforce the terms of the lease. Be sure you are aware of how this is different from the head or superior landlord!

 

Why is a Lease necessary?

A legally binding contract between a landlord and a tenant which sets out the basis on which the tenant is permitted to occupy a property.

 

What is “Lease Surrender”?

An agreement whereby the parties bring a lease to an end other than by contractual expiry or use of a break option. This can often involve negotiation of a premium or rely on a mutually beneficial surrender. Lease surrender can occur at the early renewal of a lease, when one lease is surrendered and another one is drawn up.

 

What is a “Lessee”?

The legal term for ‘tenant’.

 

Who is the “Lessor”?

The lessor is the legal term for ‘landlord’.

 

What is the role of a Managing Agent?

A managing agent is the party instructed to oversee the property by the property owner or landlord. Managing agents have varying responsibilities, from maintenance and repair management to rent and service charge collection.

 

What are “Market Rent” and “Market Value”?

Market rent is the estimated amount for which a property could be leased. The market value is the estimated amount for which a property could be sold.

 

What is “Net Income”?

The income from a property investment after deductions for ground rent and non-recoverable expenditure.

 

What does “Net Internal Area” mean?

The ‘useable’ measured internal floor area of a building. It is the gross internal area minus unusable floor areas such as stairwells and walls.

 

How is “Net Yield” calculated?

Takes the assumed or actual costs associated with purchasing the property into account to produce a figure in respect of the relationship between the rental income and the total capital investment.

 

Open Market Rent

The most common basis of valuation at rent review (also known as open market rental value – OMRV). Defined as the rent at which the premises might reasonably be expected to let, in the open market, at the review date, on the terms of the hypothetical lease.

 

Overage – definitely not what you might think!

Overage (also known as ‘clawback’) concerns the right to receive future payments triggered by future events. Achieving planning permission for change of use or development, practical completion of a development, or the sale or lease of the completed development are potential events that could trigger an overage clause in a lease.

 

What is a “Premium”?

The price paid for a lease, in the open market, where one tenant assigns its interest to another, replacement tenant.

 

What does “Quiet Enjoyment” mean?

This is a term entitling the tenant to operate the premises without interference from the landlord.

 

Rateable Value

The assessment required of non-domestic property to represent the rental value at a prescribed valuation date, subject to assumptions about repair on a full repairing and insuring basis.

 

What does “Reinstatement” refer to?

Refers to the tenant’s liability to remove its alterations at lease expiry, reinstating the property back to its condition at lease commencement.

 

Rent

The amount the tenant pays regularly to use the Property.

 

What is “Rent Review” and when does it occur?

A periodic review of rent during the term of a lease. Rent review clauses often require an assessment of market rent at the review date, but some incorporate other factors, such as the movement in the Retail Price Index.

 

What is the Rent Review Memorandum?

Records the outcome of the rent review process, whether the review is settled by agreement or arbitration / independent expert determination. It identifies the lease, the review provisions and both the original and current parties, recording the amount and effective date of any revised rent. It may either be annexed to the lease or retained with each party’s deed packet as a separate document.

 

What is the purpose of the Repair Notice?

Usually taking the form of an interim schedule of dilapidations, the intention of the notice is to highlight breaches of the lease to both the landlord and the tenant.

 

What is the “Schedule of Condition” for?

This is a record of the condition of property at the commencement of a lease. This is so that any damage arising later can be properly assessed.

 

Schedule of Dilapidations

This is a list of outstanding repair and maintenance items that have accrued under the terms of a tenant’s repair and maintenance obligations.

 

Security of Tenure

Unless the parties have ‘contracted out of the Landlord and Tenant Act 1954, tenants of commercial premises have the right to remain in occupation, and to a new tenancy on terms prescribed under the L&TA legislation. Also known as ‘lease security’.

 

Service Charge

Payable by a tenant for services provided in relation to the repair and maintenance of common parts.

 

Who imposes Stamp Duty Land Tax and who pays it?

A government fixed tax, chargeable on the execution of documents, relating to transactions such as leases, agreements for leases and conveyances. The duty is payable by the purchaser or lessee.

 

Sub-letting

Where a tenant grants a new lease for the property, or part thereof, to an alternative occupier, for a period less than the residue of the tenant’s lease.

 

Tenant

The tenant is the person who rents the property from the Landlord. Also referred to as ‘Lessee’ or even ‘leaseholder’.

 

What is the “Term”?

Also known as “Lease Period”, this is how long the property is to be rented for.

 

Transfer of a Going Concern

A mechanism used on the sale of a property investment where VAT is chargeable but not actually payable. It is only applicable where the asset is and remains income producing after the transaction.

 

What is “Vacant Possession”?

A term denoting the empty state of a property.

 

Without Prejudice

A legal term used in negotiations and correspondence meaning that anything said, or offers made cannot be subject to forced disclosure in the event of litigation or arbitration.