This month in summary:
- FCA unlikely to introduce formal duty of care on firms
- The summer of subsidence - claims on the rise
- LPA Receivers: no breach of duty when selling to a connected party
- Confirmation that receivers can sue customers for possession
- Government proposes a ban on 'no fault evictions' in England
- Court accessibility
- Update on Guardianship (Missing Persons) Act 2017
- 2019 brings new concerns over the housing market
- A new Data Arbitration Service for the UK
Focus on Northern Ireland
Focus on Scotland
FCA unlikely to introduce formal duty of care on firms
It now appears unlikely the FCA will call for the introduction of a statutory 'duty of care' to be placed on financial services firms to act in their clients' best interests.
The majority of responses were not in favour of a new statutory 'duty of care' but did also consider other options such as:
- revising the FCA's Principles to better articulate the requirement for firms to act fairly in respect of their customers which would allow the FCA more teeth to use their current supervisory and enforcement powers;
- a private right of action for damages based on breaches of the Principles;
- the introduction of a fiduciary duty.
The main arguments cited against introducing a formal 'duty of care' were the "legal complexity" and potential cost and delay of litigation for consumers. It would also impede the FCA's "agility" and ability to respond to market change.
The FCA has suggested it will explore the viability of a private right of action for damages based on breaches of the Principles, as well as other less substantive changes, and produce a further paper in the autumn seeking comments on specific options.
See our article Is all fair with the FCA’s potential new duty of care? for further detail and insight on this issue.
The summer of subsidence: Claims on the rise
The Association of British Insurers has reported that subsidence claims jumped by 350% between the second and third quarters of 2018. This equated to a rise from 2,500 to 10,000 claims, rising in value from £14m to £64m. This is the highest recorded jump in subsidence claims.
The increase is attributed to last year's long dry summer. The prolonged good weather caused soil beneath buildings to dry out and shrink causing cracks to appear. Clay rich areas in South East England were most affected.
Many standard residential insurers would decline cover if a property was known to be suffering or had a history of subsidence.
Historically, the UK Finance handbook required conveyancers to check that customers had adequate insurance in place to cover subsidence, however, this requirement was removed in December 2014 and, since November 2015, lenders have not been able to specify any insurance requirements in their part 2 responses, although these may be placed within the mortgage offer.
Lenders should be cautious when valuations for new lending suggest a risk of subsidence and will want to ensure mortgage offers specify repair work is either undertaken before release of the advance or that a suitable retention is made. In addition, lenders may wish to consider obtaining arboriculture reports to identify and mitigate any future subsistence risks.
Lenders may also want to make sure that they have similar processes in place to ensure that any subsidence issues with existing securities are also identified and rectified by customers.
LPA Receivers: no breach of duty when selling to a connected party
A recent High Court case, in which LPA Receivers sold the secured asset to their appointing lender, has clarified the scope on the duty of good faith and potential conflicts of interest for LPA Receivers.
The facts in Devon Commercial Property Limited v Barnett and Belcher  EWHC 700 (Ch) were relatively unusual. The Receivers were appointed over a Devon cider factory by the assignee of the original lender following a default on the mortgage. Aston Manor Brewery Co Ltd (AMB) was a competitor of Devon Commercial Property Limited (DCP). Following a period of marketing where relatively little substantive interest was received, the Receivers sold the property to AMB.
DCP alleged that the Receivers were conflicted as they had been appointed by AMB; that the Receivers rather than DCP should discharge the burden of proof on the good faith point and that the Receivers did not treat the buyer as a "special purchaser" (as the asset had special value to AMB because of advantages arising from its ownership that would not be available to other buyers in the market) resulting in the property being sold at an undervalue.
The Court ruled that
- there is no conflict of interest in cases where Receivers sell an asset to their appointing lender (assuming correct procedures are followed and evidenced) because the Receivers do not obtain a direct benefit from the sale;
- a mortgagee and a receiver are separate and whilst both owe duties to act in good faith, these duties are individual rather than joint;
- ·on the special purchaser point, the Receivers had adequately and properly discharged their duties.
This case is a reminder that Receivers manage a borrower's property for the lender's benefit, and not the borrower's and therefore are entitled to exercise their powers in the interests of the lender over those of the borrower. It is expected that a conflict may arise.
For lenders, this case provides useful insight into the Court's considerations for Receivers when evidencing the duty of good faith, which of course lenders also owe to the borrower in a lender sale but do not share in a Receiver sale.
Confirmation that receivers can sue customers for possession
In the recent case of Menon v Menon (acting by Peak and Goode as joint fixed charged receivers) 2018 the County Court considered whether fixed charge receivers could sue the borrowers for possession of the security.
The receivers were appointed as agents for the borrowers. The borrowers argued because of this agency it would be illogical for the receivers to sue them for possession as the borrowers were essentially suing themselves and that the borrowers were not wrongfully in possession against themselves.
In a pragmatic judgment the judge recognised that the borrowers' right of possession was postponed by the contractual conditions of the mortgage which allowed the receivers to exercise a right of control over the property. The judge concluded that this allowed the receivers to claim possession against the borrowers regardless of the fact the receivers were the borrowers' agents.
The case is unreported and, as a County Court judgment, does not set a binding precedent. Nevertheless, the borrowers have been granted permission to appeal the decision and this could result in further judicial guidance on the nature of receivers' agency. If this proves to be the case we will provide a further update.
Court accessibility: What are your obligations?
On 30 April 2019 the justice minister, Lord Keen, responded to a written question regarding accessibility of the court buildings in the Greater London area. Lord Keen stated that on 26 April 2019 31 of the 56 buildings were inaccessible to people with disabilities. This affected a total of 26 defendants.
Lord Keen highlighted that many of the court buildings were not designed with disabled access in mind. However, the Court Service has a reasonable adjustment policy to accommodate those with particular access requirements. This can include listing the matter at a different court building.
Two of the access problems related to broken lifts, one of which had been out of action for more than a month.
It is not known which particular court buildings are affected by accessibility issues and how this might affect possession claims. Possession claims are, by default, listed in the hearing centre local to the security.
Government proposes a ban on 'no fault evictions' in England
Last month, the government published its response to a consultation entitled 'Overcoming the Barriers to Longer Tenancies in the Private Rented Sector'. The government's response to this consultation states that the current provisions of the Assured Shorthold Tenancy regime do not meet the needs of today's private rental market.
The government has proposed a repeal of section 21 of the Housing Act 1988 ('Section 21'), which enables landlords to evict tenants without reason at the end of a fixed term tenancy.
The government considers that such repeal will be welcome news to renters. Section 21 notices are a large contributor to family homelessness in England. A repeal of Section 21 will offer renters the stability of a longer term rental contract, provided they comply with the terms of the tenancy.
Landlords have raised criticism of the length of time it takes courts in England to process orders to enforce section 8 notices (which are used to evict tenants who have failed to comply with terms of their tenancy) and have indicated that a repeal of Section 21 may result in landlords deciding to withdraw properties from the rental market.
It remains to be seen whether such repeal will impact on the number of investors seeking buy to let mortgage products.
Update on Guardianship (Missing Persons) Act 2017
In many missing person cases dependent family members are left without financial support or access to the missing person's assets. Mortgages can go unpaid but lenders are bound by confidentiality to their customer making resolving the arrears with the family difficult. The Guardianship (Missing Persons) Act 2017 was enacted in April 2017 to address this issue. It allows the Court to appoint a guardian to run the missing person's affairs and deal with liabilities such as mortgages.
The Government published a consultation on implementing the Act in December 2018 and has recently published the results of this consultation with a view to bringing the Act into force this July. The Government is now working closely with stakeholders to develop court rules, regulations for the registration and supervision of guardians and codes of practice for guardians.
With regards to a missing person's debts the Government envisages lenders will adopt individual commercial approaches and work with guardians to resolve debts. The Government intends to explore whether cross-industry practice guidelines could be developed by the industry in this area.
We will provide further updates on the Government's progress over the coming months.
2019 brings new concerns over the housing market
Recent research on behalf of the Homeowners Alliance, BLP Insurances and Resi.co.uk architects has shown that the biggest concerns over the housing market this year include gazundering; the standard of housing in the UK; the poor leasehold system and negative equity.
The study revealed that concerns over gazundering (the process whereby buyers drop their offer prices just before exchange) has risen from 40% of respondents last year to 45% this year. Concerns appear to be highest in London and the South East and lowest in Wales.
However, a bigger concern according to the respondents of the study is the quality of housing in the UK. This is particularly prevalent in those living in rented accommodation.
The fastest rising issue reported by respondents which has risen by 4% from 2018 and 18% from 2015 is the leasehold system. Respondents cited the expense of works and management fees, a lack of control over the works conducted and unfair service charges as the biggest concerns for them.
Finally, concerns over negative equity and depreciating asset value have risen by 3% in respondents this year.
The Chief Executive of BLP insurances has suggested a potential reason for the rise in the above concerns is due to pressures to build more housing leading to a decrease in the standard of the housing industry which is "rife with systematic faults".
He added: "To restore confidence in a faltering sector, more emphasis needs to be placed on improving quality of build and resisting short-term populist solutions to our deepening housing crisis".
A new Data Arbitration Service for the UK
A new Data Arbitration service has recently been set up by a Government approved provider of ADR services to arbitrate on data breaches involving companies and consumers. Consumer Dispute Resolution Limited also operates ADR schemes in the aviation, communications, retail and utilities sectors. The voluntary scheme enables consumers who have complaints about data leaks by companies to be awarded up to £25,000 in compensation via the new dispute resolution service. This includes complaints such as the loss of information in a data security breach, failures to delete data, failures to remove customers from marketing lists, unauthorised marketing contact and cold calling and issues around Freedom of Information/Subject access requests.
If a consumer’s complaint to the company under the Data Protection Act has not been resolved after eight weeks, been rejected or has received an unsatisfactory response, and the company has agreed to subscribe to the scheme already or agrees to subscribe in relation to the consumer’s complaint, the customer can contact Data Arbitration to submit a claim. There is a £10 fee to make the complaint, which is refundable if the customer’s complaint is upheld.
If the arbitrator decides that compensation should be awarded, the company will be bound by the decision and will have 30 days to make payment to the consumer.
It remains to be seen whether there will be any interest from companies to subscribe to the voluntary scheme. It is still early days. However, in a climate where parties are encouraged at every stage to consider alternative dispute resolution, this is another option available to show the Court that parties to a data breach have attempted ADR before embarking on potentially costly and lengthy court proceedings.
RIOs – a year in review
March 2018 saw the FCA reclassify RIOs to 'standard' mortgages, allowing lenders to offer interest only products to those close to or already in retirement by removing the age restrictions; but the uptake by mainstream lenders has not been significant.
It's now a year since the regulatory changes took place but London & Country Associate Director, David Hollingworth, notes that lenders have appeared to be reluctant to enter this market which is dominated by smaller mutuals. Statistics provider Moneyfacts shows that 11 of the 12 current RIO providers are building societies. Many mortgage brokers agree that there is demand from older borrowers but simply not the product choice available.
It begs the question why the big players are avoiding this market. Will Hale, CEO of Hodge Lifetime (the only non-building society to enter the market so far), notes that creating, testing and bringing a product to market can take time. Further, the larger lenders' processes, which are more computer-driven, are likely to have hampered them in underwriting, particularly in relation to issues such as income and affordability, where most retirees in today's society receive income from various sources, much of which is unlikely to be guaranteed. David Hollingworth agrees that the mutuals have, so far, been able to capitalise on their ability to take “a more individual approach”.
However, this sector looks set to further develop over the next 12 months to meet customer demand and there is evidence that a number of larger lenders are ready to enter the market in the near future.
Support growing for digital re-mortgages
It has now been a year since the first digitally signed mortgage deed was registered at HM Land Registry in April 2018.
In a blog article this month, the Land Registry has indicated that 14 lenders are now ready to use the digital mortgage deed signature service. Between them these lenders hold a 58.2% share of the mortgage market.
The Land Registry is also working with a number of other lenders and conveyancers to help them get ready for the new service. Lenders who are interested in joining the scheme should contact the Land Registry at: firstname.lastname@example.org
The Land Registry states that it will need to undertake further tests before the system can be extended to purchase transactions.
Focus on Northern Ireland
NI High Court introduces new Commercial Hub which commenced on 29 April 2019
A new Practice Direction (the ‘Direction’) has been published which will change the landscape of commercial disputes in NI. It will create a new Commercial Hub (the ‘Hub'). The Direction sets out the scope of the Court/ Hub in commercial disputes with the intention being that matters will be dealt with more efficiently and cost effectively. It extends not only to matters in the Commercial Court, but also Chancery, Family and Judicial Review cases. The Hub can sit anywhere in NI and is not restricted solely to the High Court in Belfast.
There is a new case management system, whereby all matters which fall within the Hub will be the subject of 3 case management stages – 1) Early Directions Hearing, 2) Case Management Conference, and 3) Pre-trial review (unless the parties agree and the Judge is satisfied that there is no requirement). The intention is to minimise the number of Court Reviews/ attendances, and for matters to be dealt with in greater detail and with more Court scrutiny at the above 3 stages.
Parties are now required to agree a discovery plan before the Early Directions Hearing, and for the first time in NI, the Court will expect E-Discovery processes to be implemented, such as the agreement of key search words and predictive coding. There are now potential cost implications for the parties insisting on ‘all discovery’ as opposed to what is relevant and goes to the core of the dispute.
There will be considerably tighter timeframes/ deadlines which is an indication that NI will follow in the footsteps of England & Wales after the Jackson reforms.
The Practice Direction makes it clear that practitioners are expected to comply and sanctions including costs orders, dismissal, or the striking out or limiting of claims, defence and/or evidence may be imposed for failure.
For more information, please contact Ciaran McCorry, Associate, and member of the Belfast litigation team.
Focus on Scotland
The Building Scotland Fund
The Scottish Government has injected thirty million pounds investment from its Building Scotland Fund to allow for the building of new properties in the private rental market. The funds will be given to Sigma, an Edinburgh property group.
The Fund itself was established last year in an effort to provide commercial rate loans. The Government announced that the funding will allow a further 1,800 properties to be built specifically for the private rent market. This funding, which is known as the Build to Rent model, is expected to give tenants in the private rental market greater security and result in long term tenancies.
The Government aims to reduce the uncertainty which comes with renting a property, provide a significant increase in the number of rental properties available and provide high quality properties with a professional management service.
Public officials have stressed the benefits of contributing such a significant amount of investment to Sigma's Private Rental Sector fund for Scotland, including long term security, suitability and confidence in appropriate safeguards for private tenancies.
Sigma has a tried and tested model which has been successful in England and has, with this investment from the Building Scotland Fund, secured the approval of the Scottish Government with the hopes of injecting the private rental market in Scotland with thousands of new rental properties.