Residential Property Transactions - Ministerial Response - 27 September 2018

Findings

Comments

1

Most residential property transactions proceed to the Royal Court without any form of preliminary contract, meaning there is no certainty that the transaction will complete until contracts are actually passed. Whilst the present system allows for preliminary contracts, lawyers advise that they do not improve the timescale and are rarely used unless there is to be a delayed completion.

When  a  property  transaction  fails,  it  creates significant financial costs and stress for the buyer and the seller. Whilst most property transactions proceed  without  problem,  a  number  do  fail because  of  unforeseen  issues  such  as  problems with the condition of the property or, in a minority of cases, as a result of gazumping or gazundering.

People buying and selling properties can use pre- sale  contracts,  which  can  reduce  the  risk  of  a property  sale  failing.  Nonetheless,  this  is  a voluntary practice and it is rarely used in Jersey because, as noted by the legal profession as part of the  review,  the  time  required  to  negotiate  a contract may detract from the actual sale of the property.

2

The timescales for residential property transactions in Jersey are on average significantly shorter than in the U.K., taking 4 to 6 weeks compared to

88 days.

The  average  time  from  offer  to  completion  in England  and  Wales  is  currently  between  8  to 12 weeks[1].  The  Buying  and  selling  homes: consumer  experience  study'  published  in  2017 indicated that 40% of home buyers in England and Wales  felt  the  transactions  process  took  longer than  they  expected.  The  fact  that  property transactions in Jersey take significantly less time than  in  the  U.K.  suggests  that  the  process  is working well in Jersey.

On the one  hand, a lengthy process  can  create more opportunities for buyers and sellers to get nervous  and  pull  out  of  a  transaction.  On  the other, if the process is too short, it can lead to errors and delays.

In this regard, making greater use of technology and  getting buyers  and  sellers to provide  more information  upfront  play  an  important  part  in improving the transactions process and making it run more smoothly.

3

Where the sale of a property fails to complete at the last minute, a significant cost can be incurred by the prospective buyer. This can add significantly to the costs already accumulated in the process of the purchase of a property and may put the buyer in a difficult financial position. The seller may also be put at a financial disadvantage.

The  property  transactions  process  creates significant costs for the parties involved, so the failure of a property sale to complete at the last moment  will  cause  additional  financial  and emotional burdens for those affected.

Findings

Comments

4

Lawyers are frequently not instructed by potential property buyers to commence their work until a late stage, due to the potential buyer wishing to avoid legal costs until his mortgage has been agreed. This can cause delays to the transaction process.

All parties should be encouraged to adopt good practice during the transactions process in order to prevent  uncertainty  and  the  possibility  of  last- minute problems arising. However, the nature of the  transactions  process  will,  inevitably,  create delays and hold-ups, whether as a result of the individuals or the organisations involved.

5

Lawyers are frequently not instructed by the proposed seller until such time as a purchaser is found. This in turn means that the seller's lawyers have not been consulted as to matters affecting title, prior to their marketing the property, leading to possible problems at a later date.

As  noted  in  Finding 4,  all  parties  should  be encouraged  to  adopt  good  practice  during  the transactions  process  in  order  to  avoid  the possibility of last-minute problems arising. There would, therefore, be benefit in making sure that more information is available before a property is put on the market, and relevant parties such as lawyers are engaged at an earlier point.

6

A decreasing number of conveyancers in the Island and an increase in their individual workloads, due to an increase in statutory requirements, has the potential to cause delays in the transaction process.

A  shortage  of  conveyancers  in  Jersey  has  the potential  to  create  delays  in  the  property transactions  process,  especially  in  a  buoyant housing market where there are a greater number of sales. Where possible, more people should be encouraged to take up the profession in order to make  sure  that  the  process  continues  to  work effectively.

7

The parties to a transaction often work to unrealistic timescales, leading to the buyer's lawyers sometimes carrying out conveyancing checks only days before the Friday Court date. This can lead to last-minute problems which might cause the transaction to be delayed, with ensuing upset to both parties.

Improving  consumer  understanding  of  the property  transactions  process  and  making  sure they are aware of their responsibilities is likely to improve  people's  experiences  of  buying  and selling a property. In turn, greater awareness of how the  process works  will help to ensure the parties  to  a  transaction  work  towards  more realistic timescales.

8

There are currently only 4 principal property valuation firms used by mortgage lenders in the Island. This means that there is a potential for bottlenecks in the property transactions process if one of these firms is unable to take on work.

As noted at Finding 6, a shortage of surveyors has the  potential  to  create  delays  in  the  property transactions process which, as a consequence, has an impact on buyers and sellers in relation to the speed of a property sale.

9

Proof of a buyer's financial status at the outset of the property transaction process is not standard practice in Jersey.

The ability of a person to afford to buy a property is, clearly, one of the most important things for an estate agent and seller to know upfront. Proof of a buyer's financial status is, therefore, essential to the  successful  completion  of  a  property transaction.

Findings

Comments

Mortgage  lenders  can  provide  a  mortgage  in principle' certificate to confirm a person's ability to  purchase  a  property,  and  this  evidence  will provide reassurance that a property transaction is likely to go ahead. It further reduces the risk that time and resources could be wasted on property viewings that are not likely to go further.

10

The Friday-only court date for property transactions in Jersey, whilst a significant tradition, limits flexibility in the property transaction process.

The Friday-only court date for residential property transactions  is  a  widely  commented-on  issue. Whilst  some  people  value  the  tradition  of  the process,  others  are  concerned  about  the inflexibility it potentially creates in the property transactions process.

11

Creating a pre-sale agreement, which includes a financial penalty for buyers or sellers who withdraw from a transaction, would create a greater deal of certainty in the transactions process and compensate losses incurred by either party.

Pre-sale  agreements  may  increase  the commitment  between  buyers  and  sellers  at  the early stages of a property transaction. As noted in Finding 1,  whilst the  present  system  allows  for preliminary contracts to be entered into between the  parties,  they  are  not  widespread  in  Jersey because  they  can  delay  the  sale  completion process. The benefit may, therefore, be small in the  majority  of  transactions  where  the  process only takes a few weeks.

12

A "Buyer's information pack" which might be produced by the seller at the time of a property going to market, and which would identify problematic issues about the property, would enable the purchaser's lawyers to commence work earlier.

There  is  potential  to  work  with  industry  to develop  better  quality  guidance  for  buyers  and sellers of property. Given that buying and selling a property is something that a person may do only a  few  times  in  his  or  her  lifetime,  a  lack  of knowledge  and  awareness  of  the  transactions process  might  cause  delays  and  misunder- standings that  could otherwise be  avoided. The availability of guidance from the start to finish of the process would help to improve this situation.

It's important to avoid a situation where provision of information upfront creates added costs, delays and  duplication.  This  was  one  of  the  concerns raised  when  the  U.K.  Government  sought  to introduce  home  condition  reports'  in  the  early 2000s.

However,  the  principle  that  more  information should be offered upfront is supported and may cut abortive sales when problems are identified at a  late  stage  of  the  process.  Sellers  should  be encouraged  to  collect  together  relevant information – planning permissions, certificates of works done, etc. – in order to be sale ready' so that the information is available when a property is marketed.

Findings

Comments

The  U.K.  Government  is  proposing  the introduction of a property passport', and this is a policy idea that could be adopted in Jersey in the future if there is evidence to suggest that it would welcomed by consumers.

13

The Jersey Public Registry Index and Document Enrolment (PRIDE) system for registering property transactions has significantly sped up the process for conducting a property title search.

The Jersey Public Registry Index and Document Enrolment  ("PRIDE")  system  provides  an efficient  and  timely  registration  and  recording process for property transactions in the Island.

14

There would be considerable public benefit in creating a Land Registry in Jersey as a more modern, efficient and comprehensive system. The Panel acknowledges that this would require a significant investment of time and money.

There may be public benefit in introducing a Land Registry in Jersey in order to simplify the existing system. As a result, this could reduce the legal costs  of  conveyancing.  However,  whilst  there might be public benefit in such a system, it would be  a  significant  investment  to  make,  and  there would be resource implications of moving to a transaction-based system.

15

Currently only 15 local estate agents are registered with a Jersey-based association requiring its members to follow a code of conduct. This is a minority of the current total number of estate agents active in the Island.

Professional  organisations  such  as  the  Royal Institute  of  Chartered  Surveyors  ("RICS"),  the National Association of Estate Agents ("NAEA") and the Jersey Association of Estate Agents, are important  to  the  property  sector  because  they encourage good practice and contribute towards professional standards. This provides assurance to consumers (who may not understand the property buying and selling process) that the estate agent they  are  dealing  with  is  appropriately  qualified and  meets  minimum  competency  standards  in order  to  broker  and  advise  on  the  process  of buying and selling a home.

Moreover,  membership  of  a  professional organisation  provides  consumers  with  greater protections  because  estate  agents  must  comply with  a  code  of  practice,  which  includes requirements  around  client  money  protection, insurance, dispute resolution processes, conflicts of interests and access to independent redress.

16

There is currently no statutory regulatory body for estate agents in Jersey, although there are Jersey-based regulatory bodies for both mortgage providers and law firms.

There is  no statutory body for estate  agents in Jersey as applies to equivalent industries such as financial services or law firms. This issue applies to the housing sector in general – estate agents, letting and management agents, and landlords.

There  are  a  number  of  different  aspects  to regulation.  As  noted  at  Finding 15,  regulation might,  for  example,  include  a  statutory requirement for an estate agent to be a member of

Findings

Comments

a  professional  organisation  or,  as  noted  in Finding 17, to join a redress scheme.

In the U.K., estate agents are principally regulated by the Estate Agents Act 1979, the purpose of which is to make sure that estate agents work in the  best  interests  of  their  clients.  There  is  no equivalent legislation in Jersey, but the Consumer Protection (Unfair Practices) (Jersey) Law 2018

will provide statutory oversight in a number of areas connected to estate agent activities, as noted in Finding 18. In addition, the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 includes

requirements in relation to anti-money laundering with which estate agents must comply.

There may be benefit in bringing these separate pieces  of  legislation  and  other  areas  of  best practice under some form of code of conduct for estate agents on a voluntary or statutory basis.

17

The Public has no complaints process to follow if required, because there is no local Ombudsman for estate agents in Jersey.

This  issue  applies  to  the  property  sector  as  a whole,  including  estate  agents,  letting  and management agents, and landlords. It is important that consumers have swift, effective routes to raise complaints  when  things  go  wrong.  Disputes should  be  dealt  with  firstly  through  an organisation's complaints process but, when this has been exhausted, there is benefit in consumers having  access  to  an  independent  redress.  The current means of redress do not support this, and a consumer's  only  option  is  to  take  a  grievance through the courts.

18

The States have approved the Consumer Protection (Unfair Practices) (Jersey) Law 2018. Once in force, this imposes certain obligations on sellers and their agents in marketing property.

Once in force, the Consumer Protection (Unfair Practices) (Jersey) Law 2018 will help to protect consumers from unfair, misleading and aggressive sales practices. The Law will apply to all traders in Jersey, including estate agents, and ensure that they  avoid  using  misleading  advertisements, statements  and  photographs  when  marketing properties.  This  will  benefit  consumers  when buying a home, and provide them with a means of redress  through  Trading  Standards  if  things  go wrong.

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

1

With a view to creating a greater degree of certainty, the Chief Minister should investigate, via consultation with interested parties, whether a pre-sale agreement should form part of a standard transaction process. This should include a financial penalty for buyers/sellers who fail to comply with the agreement. He should report the findings of this consultation to the States before the end of

May 2019.

CM

Neither accept nor reject

While  pre-sale  agreements  could provide buyers and sellers with greater protection  against  the  risk  that  a property transaction may fail, it is not felt  necessary  to  take  this recommendation forward at this point.

Pre-sale  agreements  can  be  used already  during  the  property transactions process to provide buyers and  sellers  with  greater  certainty. However,  as  noted  by  the  legal profession,  these  agreements  are  not used widely because they can make the transactions take longer.

The  Chief  Minister  agrees  to  work with  industry,  including  the  Law Society, to consider the issue further and  the  potential  development  of different  types  of  preliminary agreements, which could be used in a property transaction between parties if they choose to do so.

N/A

2

The Chief Minister should encourage, in conjunction with the Law Society, a greater number of people to train as conveyancers. The findings of this consultation should be reported to the States before the end of May 2019.

CM

Accept

The Chief Minister will work with the Law Society to see what actions can be taken to encourage a greater number of people to train as conveyancers.

May 2019

3

The Chief Minister should investigate, in conjunction with stakeholders, the introduction of a local qualification enabling persons with a specific qualification of licensed conveyancer to carry out property transactions independently of law firms.

CM

Accept

A  lack  of  qualified  professionals creates  the  risk  that  the  property transactions  process could be  slowed down  as  a  result  of  insufficient resources to deal with the number of property  sales.  As  above,  the  Chief Minister  will  liaise  with  the  Law Society  to  see  what  actions  can  be taken to encourage a greater number of people to train as conveyancers, which may include the introduction of a local qualification.

May 2019

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

4

The Chief Minister should investigate, in conjunction with the Law Society and Jersey Estate Agents' Association, the introduction of a standard practice for a potential buyer to produce evidence of sufficient funds from their bank or mortgage broker, before making a formal offer on a property. Progress should be reported to the States before the end of May 2019.

CM

Accept

The  requirement  for  a  person  to provide  a  mortgage  in  principle' certificate before viewing properties is a  sensible  recommendation.  It  is  a practice adopted by a number of estate agents in the Island already when they first meet with prospective buyers.

It is for estate agents to decide whether they  wish  to  make  this  part  of  the process  they  use  when  selling  a property, but further consideration will be  given  to  how  take-up  can  be promoted with industry.

May 2019

5

The Chief Minister should consult with the Bailiff , with regard to the feasibility or otherwise for introducing a second date in the weekly Royal Court calendar for conducting property transactions, as is the current practice in Guernsey. The findings of the consultation should be reported before the end of May 2019.

CM

Neither accept nor reject

The Chief Minister will liaise with the Bailiff  regarding  the  feasibility  of introducing a second day each week in order to conduct property transactions.

The   Bailiff  has  already  provided  his comments  on  this  issue  during  the review. The Bailiff stated that he did not believe that it would be feasible to split  the  dates  for  passing  contract across  different  weekdays,  owing  to the  difficulty  of  manging  an  already busy court diary and the disruption this may cause other court users.

Nonetheless,  if  there  is  evidence  to suggest that the Friday-only court date is  causing  a  hindrance,  further consideration will be given to how the process  might  be  improved  and  its resource implications.

September 2018

6

The Chief Minister should consult with the stakeholders, whether there is potential scope for property transactions to complete outside of the current Royal Court process. He should report the findings of these consultations to the States before the end of May 2019.

CM

Neither accept nor reject

This  recommendation  would  require further  substantial  consultation  with the  legal  profession  to  understand whether  there  is  potential  scope  for property transactions to be completed outside  of  the  Royal  Court,  and  the benefits  that  this  might  deliver.  As such,  the  Chief  Minister  will  liaise with  the  Law  Society  to  better understand  whether  there  would  be merit  in  taking  forward  this recommendation.

May 2019

Recommendations

To

Accept/ Reject

Comments

Target date of action/ completion

7

The Chief Minister should consult with all interested parties, as to the desirability of establishing a land registry in Jersey. The Chief Minister should report his findings to the States before the end of May 2019.

CM

Reject

As noted in Finding 14, establishing a land registry in Jersey would require significant  investment.  The  Chief Minister will consider the issue further with interested parties such as the Law Officers'  Department  and  the  Law Society,  but  is  minded  to  reject  the recommendation  as  it  stands,  as  it would  not  be  a  priority  given  the financial challenges facing the Jersey Government at this time.

N/A

8

The Chief Minister should introduce a means requiring all Jersey estate agents to be members of an approved professional body and to adhere to a code of conduct. This work should be completed by the end of May 2019.

CM

Neither accept nor reject

It is vital that estate agents adopt good standards of practice in their business activities, and a regulatory framework has the potential to support this aim.

Nonetheless,  before  any  form  of statutory  regulation  is  introduced, other forms of non-statutory industry- led regulation need to be considered, which might be a more proportionate response.

The  issue  will,  therefore,  be investigated further with the support of the Jersey Estate Agents' Association.

It should be  noted that a number of estate  agents  in  Jersey  are  already members  of  professional  industry bodies, either locally (the JEAA) or of the U.K. (e.g. RICS and the NAEA). As such, there is more that can be done to  encourage  estate  agents  to  adopt voluntary  self-regulation  before  a statutory form is considered.

This, in turn, would provide consumers with greater clarity and protection in their interaction with estate agents, and ensure  a  level  playing  field  for  all agents in the local market.

N/A