Transfers of Equity – A Brief Summary

In a transfer of equity of a property the owner adds or removes a person to or from the title thereby altering the ‘ownership’ of the property. The important point to remember is that the equity in the property is different from the value of a property. The equity of a property is the value of the property less the outstanding value of the mortgage. So, if your home values at £300,000 and the value of the remaining mortgage is £100,000, the equity in your property would be £200,000.

 

Although in a transfer of equity the legal ownership of a property is transferred, such a transfer is different from buying and selling a property (in which also the legal ownership is transferred). In a typical transfer of equity there is usually no money changing hands between the parties involved. For example, this happens when a property is solely owned by a married person, who then transfers part of the property to the other as a gift.

 

In the common legal jargon the transfer of a property to either a husband or a wife as a result of divorce settlement (in which money is being transferred) is sometimes also referred to as transfer of equity. So a person may transfer the equity of the property to their spouse as a result of the divorce settlement provided the spouse accepts to pay the mortgage on the property.

 

One important point to remember is that in the transfer of equity cases where no money is being transferred between the parties, one solicitor can act for both parties; such cases are usually involved transactions between parties who are related by blood, adoption, marriage or living together. The other aspect of such transactions is that there will be no stamp duty land tax liability.

 

There is, however, an exception to this rule.

 

If there is a mortgage on the property, there may be some tax implications for the parties. For example, if A and B own a house that is valued at £500,000 with an outstanding mortgage of £200,000 and if A transfers his share of the property to B as a gift, then B will be deemed to have paid half of the outstanding mortgage, namely £100,000, which is currently calculated at 0% (subject to B not owning another property on completion of the transfer). For SDLT purposes B’s liability is therefore calculated based on their obligation to be liable for half of the mortgage.

 

If the property is subject to an outstanding mortgage, the lender’s consent will be required before a transfer of equity is made. It is the usual practice for the lender to give its consent where the new owner is in a good financial standing and can undertake to pay the mortgage payments. Sometimes, however, the lender may require the redemption of the mortgage before the transfer of the property.

 

If a transfer of equity is effectively a gift or a transaction at undervalue, the law allows for transactions to be set aside in cases of bankruptcy or insolvency of the person who has transferred the property.  A trustee in bankruptcy has the power to challenge any disposition of assets by the bankrupt at an undervalue that took place in the five years prior to the making of the bankruptcy order. However, a third party purchaser of such property in that time is protected provided that the purchase was for value, the third party acted in good faith and had no knowledge of the bankruptcy petition.

 

If you have any questions regarding transfer of equity, please contact Alireza Nurbakhsh at alireza@meaby.co.uk or on 020 7703 5034.

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Blogs

Another setback in the cladding crisis

Only a few days after we wrote about the Government’s announcement that was expected to unlock some of the property market, there has been yet another setback for properties affected by the cladding crisis.

When Housing Secretary Robert Jenrick announced that buildings of less than 18 metres in height would not need an EWS1 form and should be considered by lenders to be safe, a number of major lenders pledged to follow this recommendation which would allow an estimated 800,000 flats in low-rise buildings to be eligible for mortgages again.

However, there have since been numerous reports that banks are in fact unlikely to change their lending policies until the Royal Institution of Chartered Surveyors, known as RICS, updates its own specialist guidance.

While individual lenders had initially committed to following the Government’s recommendation, UK Finance stated until RICS and the Government officially update their advice, the members of UK Finance (which includes every major lender) would continue to be guided by surveyors’ expert opinions.

In turn, RICS have stated that it cannot alter its position until the Government’s official advice changes, and some reports suggest that this may not take place until November.

EWS1 forms had previously only been required for the tallest tower blocks, but the Government altered its guidance in January 2020 to include residential blocks of any height despite studies having concluded that there is no major risk in buildings below 18 metres (which is usually between 4 and 6 stories), and that the fire risk could simply be managed by installing alarm systems and sprinklers.

You can find more detailed information on the Government’s website, or at Today’s Conveyancer.

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How Has the Pandemic Affected the Conveyancing Market?

 The lockdowns during the pandemic appear to have spurred a high interest in owning your own home and have changed people’s perceptions of what their ideal home is. People are now looking at properties that have gardens with green spaces locally for fear of further lockdowns. However, people still have major concerns that they will not be able to afford to move house.

 

First-time buyers are currently in a better position to get a foot on the property ladder as they can benefit from the 5% deposit option and the fact that house prices are not rising as fast as they have done in past years. As rent is on the increase, buying a property of your own on a lower deposit is more beneficial and something that many people are now taking advantage of. Buyers can also benefit from various Government schemes, including Help to Buy.

 

For homeowners, the pandemic has created a great seller’s market with fewer homes remaining unsold. A substantial number of homeowners living in city centres are now choosing to buy properties in rural locations. Owners of flats are choosing to move into houses to benefit from more outdoor space. During the lockdowns families who would normally spend money on foreign holidays, commuting, going out or shopping were able to save their money resulting in people having higher savings to put towards their move. This, coupled with better mortgage rates and interest rates not rising, is making it possible for more people to become homeowners or for current homeowners to buy the house of their dreams.

 

Whatever your housing needs, our highly experienced property specialists at Meaby & Co Solicitors can guide you through the legal process of buying and selling and will make your move and experience as smooth and hassle free as possible. Do not hesitate to contact us for a free, no obligation quote at info@meaby.co.uk or on 020 7703 5034.

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Government supports recommendation to dispense with requirement for EWS1 for buildings below 18 metres

On 21st July, the Housing Secretary, Robert Jenrick, announced that the Government will support the recommendations in an independent expert statement on the building safety in medium and lower-rise blocks of flats. The independent expert statement was commissioned by the Government earlier in the year to consider issues of proportionality in relation to building safety in medium and lower-rise blocks of flats, the impact on the housing market, and what more the Government could do to ensure approaches are proportionate to the level of risk.

The statement makes the following recommendations:-

  • EWS1 forms should not be a requirement on buildings below 18 metres.
  • In the small number of cases where there are known to be concerns, these should be addressed primarily through risk management and mitigation.
  • There should be a clear route for residents/leaseholders to challenge costly remediation work and seek assurance that proposals are proportionate and cost effective.
  • The Government should work with the shadow Building Safety Regulator to consider how to implement an audit process to check that fire risk assessments are following guidelines.
  • Fire risk assessors, and lenders, should not presume that there is significant risk to life unless there is evidence to support this. This would ensure that they respond only to the evidence and adopt a far more proportionate and balanced approach.

Following the advice in the published statement, HSBC UK, Barclays, Lloyds Banking Group have committed to review their practices and the Government is expecting other lenders to follow suit.

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What responsibilities will the RTM company acquire after taking over management?

Once the RTM company acquires the right to manage, the management functions that the landlord or management company are responsible for (as per the lease) are transferred to the RTM company.

 

These include:

 

  • Monitoring tenant’s compliance with their covenants in the lease and enforcing the covenants where they are not complied with
  • Collecting service charges
  • Insuring the block
  • Granting approvals required by the lease e.g., for assignment or alterations
  • Providing services (as prescribed by the lease)
  • Repairing and maintaining the property
  • Managing the property

The right to collect the ground rent will not be transferred to the RTM company and stays with the landlord. The RTM company will also not acquire the right of re-entry or forfeiture and this remedy stays with the landlord.

 

The RTM company (after taking over the management functions) can agree with the landlord or management company for the landlord or management company to continue with one or more of the management functions if all parties agree to do so, e.g. the RTM company may want the landlord or management company to continue insuring the property.

 

Due to the number of responsibilities that the RTM company will acquire, the RTM company may want to employ a managing agent to manage the property on behalf of the RTM company.

 

If you have any questions about RTM companies, or your right to manage, please contact us at info@meaby.co.uk or call 020 7703 5034.

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Survey shows that employees are failing to take their annual leave entitlement during the Pandemic

A survey conducted by Warner Leisure hotels has found that the average worker took just a week’s worth of annual leave during 2020 with some opting to be paid for the leave that they could not take.   This is notwithstanding the fact that the Government amended the Working Time Regulations to allow annual leave to be carried over for up to a maximum of two years for some workers.

 

It also discovered that one in three workers also failed to claim their full annual leave entitlement for the annual leave year and lost on average seven days’ leave.

 

When calculated across the board across 24.7 million full time working adults, this means that there was a loss of annual leave of around 57.057,000 days in total.  This is absolutely staggering.

 

It seems that for many employees, 2021 will not fare much better in terms of taking time off, with plans in chaos amidst the introduction of the Government’s traffic light scheme for travel to overseas destinations.

 

The research also discovered that the main reason workers failed to take all of their allocated annual leave entitlement was due to concerns about work piling up whilst they were away with nobody to cover, being too busy in general and concerns about their job and what will happen when they are away.

 

It is also the position that with many staff working from home, and with no where to go, they also did not see the point of taking time off just to be stuck indoors.  In fact 48% believed that it was pointless to take annual leave due to Covid restrictions and lockdown and with many having to look after and home school their children.

 

The survey also found that four in ten workers said that their employer does not allow them to contractually roll over annual leave into the next year, with more than a quarter having a fear of annual leave, which prevents them taking time off.  One in three said that they had taken annual leave that they did not enjoy.

 

The survey is very interesting and shines the spotlight on some employers’ failures to take steps to ensure that their staff take their full annual leave entitlement on health and safety grounds.   The purpose of annual leave and the minimum entitlements (5.6 weeks)  enshrined in the Working Time Regulations are to promote the health and safety and well-being of staff.

 

It seems that many employees have formed the view that if they cannot travel abroad for a holiday then it is not worth taking time off.  However the UK does have some beautiful and scenic places to visit and if we remember the weather last year, especially the Spring and early Summer it was extremely warm and sunny.

 

The Government did actually amend the Working Time Regulations early last year to enable workers to carry over up to 4 weeks holiday up to the end of December 2022 if it ‘was not reasonably practicable’ for them to take some or all of the holiday to which they were entitled as a result of Coronavirus.   This covers staff who were furloughed, laid off, self-isolating or who were too sick, and those who were required to continue working and were too busy to take time off.

 

We would recommend that (notwithstanding the lawful carry over provisions from 2020), Employers have robust annual leave policies in place.  These should make it clear that annual leave must be taken during the course of the annual leave year, when convenient for the business,  even if staff have no plans to travel and that if they do not take their full entitlement then they will lose it.  It is certainly worth reminding staff and on a regular basis.

 

If you have any questions about annual leave entitlements during the Pandemic or more generally then contact Steven Eckett – Partner and Head of Employment on 020 7703 5034 or seckett@meaby.co.uk

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