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Jean-Yves Gilg

Editor, Solicitors Journal

HiP pain

HiP pain


Lawyers still aren't getting to grip with HiPs. Andrew Towler reports

Conveyancing solicitors will find that June 2007 will bring about a massive change in the way they advise their clients on buying or selling a property. The advent of the long-awaited, much-debated and often-derided home information pack (HiP) will see the emphasis pass to the seller to prepare and collate information on a property before placing it on housing market.

This 'bundle' of information, including a report on the physical condition of the property, the terms of sale, evidence of title, planning consent, replies to searches, warranties and guarantees, will be known as a home information pack (HiP). HiPs will be provided to estate agents on behalf of their clients by companies known as HiP providers. The number of these companies is increasing weekly and there are currently around 200 preparing to offer their services to estate agents, who are also gearing themselves up for the changes ahead.

It is estimated that a HiP will cost a vendor between £600 and £1,000 and the government's thinking is that transferring this cost to the seller, coupled with giving any potential buyers detailed information on the property, will make it easier and cheaper for first time buyers to enter the property market and will reduce the number of sales that fall through '“ a fate estimated at present to afflict a staggering 25-30 per cent of purchases.

Market reaction

In theory, this all sounds a great idea, at least that's what the Office of the Deputy Prime Minister (ODPM) '“ now the Department of Communities and Local Government '“ have always maintained. However, closer analysis and scrutiny of the infrastructure needed for HiPs and the effect they may have on the housing market highlight a number of flaws in the grand plan.

The latest research by HiP provider SimplyHIP, suggests that the number of houses put up for sale early next year will increase by 23 per cent, as vendors try and sell before it becomes mandatory to provide a HiP on 1 June. It should be emphasised that the government recently announced that the penalty for having a house on the market, without a HiP prepared for the property, will be £200 per day '“ so sellers would be well advised to co-operate with the new regime. The increase in supply early next year, however, is likely to be matched by a drop in demand, as buyers will most likely wait for 1 June to come about so they can benefit from a HiP. SimplyHIP estimates this drop in demand may be as high as 16 per cent.

One of the most controversial elements of a HiP is the home condition report (HCR) '“ an objective, factual report on the property stating the age and condition of elements of its structure and design. A sticking point at present is that while the HCR will be fairly detailed '“ like a current homebuyers' survey '“ mortgage lenders say they won't accept it for valuation purposes, meaning a potential buyer will still have to part with a couple of extra hundred pounds to secure a mortgage.

Inspector shortages

Finer detail aside, there is also a major logistical problem threatening to render the entire system ineffective '“ that of personnel. Under the legislation and regulations introduced by the government to incorporate HiPs into the conveyancing industry, a HCR can only be prepared by a fully qualified home inspector. This newly created profession is an essential cog in the machinery. As buyers unlikely to have any faith in a 'survey' prepared on behalf of sellers, it will have to be prepared by an independent professional. The thorny issue of home inspectors is discussed in greater detail on p 10, but concern has been raised by reports of surveyors, who spent many years at university and learning their trade, walking out of training sessions in disgust at the way their profession is being 'dumbed down' by the new qualification.

Search company OneSearch Direct's managing director, Ronnie Park, has been heavily involved at industry and government level with the development of the HiP concept and admits to seeing a 'bit of snobbery' from surveyors towards home inspectors. However, he has some comforting words. 'From what I've seen the quality of training of home inspectors is very good,' he says. 'It is not a theoretical test, as many surveyors would have previously experienced, but a far more practical one. Is it as comprehensive as training to be a surveyor is? No. But is it fit for purpose and does it get down to the nitty-gritty? Yes.'

Despite all the negativity and angst, the airing of concerns by surveyors, estate agents and the growing band of HiP providers at least reveals an understanding and regard for HiPs, and a wish to correct faults and get in a position to benefit come 1 June. Solicitors, however, are notably absent from this list, and news such as the recent announcement by supermarket giant ASDA that it is branching out into the conveyancing market and will be offering a HiP with its services, should be taken as a warning they could be priced out of the market.

Unfinished reform

The reforms are by no means finalised, with finer details expected later this month when the secondary legislation goes before Parliament. Among the questions the industry hopes it will answer is whether HiPs will be retrospective in their application. The anticipated boom in people putting their properties on the market in the months leading up to June next year, may well be tempered if the government decides that HiPs will be necessary for all residences marketed after, say, 1 March. All this may do, of course, is bring forward the rush in properties being sold.

The government has always insisted that it will be steeled for any market fluctuations brought about by HiPs by conducting a 'dry-run' over the next 12 months, starting 'this autumn'. Only last month, Housing Minister Yvette Cooper encouraged estate agents and solicitors to join the other 49 organisations participating in this 'run' or 'miss the moment and risk being left behind by a fast changing market'. However, many of those interested in the HiPs market are unsure exactly what the government does to facilitate this dry run, and are finding out for themselves. OneSearch Direct has been offering a pre-sale survey to sellers for a number of months, while the HiP Action Group (HIPAG) is set to launch its 'Pre-sale Legal Packs' next month. Both these organisations have signed up as 'early adopters' with the government, and will report any findings to the DCH, but it is encouraging to see the industry taking the lead and not waiting for government approval when time is already a diminishing return.

'The dry run has already started for many and is definitely industry-led,' says HIPAG chief executive Rob Hailstone, an ex-conveyancer who set up the organisation as an independent group two years ago to bring together solicitors, estate agents and home inspectors under one roof. One of Hailstone's major selling points for HIPAG, which now has around 1,500 members, is that he insists on no referral fees between professions to avoid running up costs and expenses that would undoubtedly eventually be paid by the property seller through the HiP purchase. HIPAG will produce its own HiP under the new regime and Hailstone hopes to get a competitive advantage capitalising on the flaws in the proposed system. 'I was handed a specimen HiP 12 months ago that, as far as the existing legislation specifies, is complete, with all searches deeds, warranties and an HCR. However, when I went through it, I noticed that there were a number of issues it raised that

hadn't been addressed and as a conveyancer I would have handed it back to the potential buyer, wanting a quick sale and said: 'Come back to me in three or four weeks when all the problems have been resolved.' For example, the deeds referred to a restrictive covenant, that wasn't included, and work had been carried out on the property that hadn't been approved under building regulations.'

Involving solicitors

What Hailstone concludes is that while HiPs will give a buyer information on a property, they can be defective for conveyancing purposes and don't offer full transparency. His solution involves sending out the standard HiP, which fulfills all legal requirements, for a property to the marketing estate agent and the HIPAG solicitor representing the vendor. The solicitor will then return the HiP within 72 hours, with any potential problems highlighted and identified.

Even Hailstone admits HIPAG isn't the only answer, saying solicitors should talk to as many potential partners as possible. 'But please do something, there is less than a year to go now until HiPs are compulsory, that in itself should eradicate doubt from most solicitors' minds.'

Malcolm York, sales director of Conveyancelink, urges similar action, saying that one of the problems is solicitors may miss out completely, with estate agents going directly to a mass HiP-producing factory when a client decides to sell a property, and then making a decision on who does the conveyancing afterwards. This idea of the estate agent single-handedly obtaining the HiP causes problems for the consumer and the legal profession, York says. 'The demand for HiPs will be driven by estate agents, so solicitors must put their energy into building relationships with them to avoid missing out. Law firms themselves can produce a HiP, it takes the burden away from the agents and is likely to be viewed in a better light by the consumer. A recent survey concluded that estate agents are one of the least trusted professions. They are far more likely to put their faith in a HiP produced by a law firm.'

York thinks Conveyancelink has come up with a solution, with its newly launched product, the Legal HiP, or LHiP for short.

This web-based solution creates a bridge between estate agent and law firm and involves solicitors in the transaction as early as possible. Conveyancelink is providing the service to both parties free of charge, only requesting a fee if registered law firms want to use their marketing prowess to appeal to local estate agents. The basic idea of LHiPs is that an estate agent will enter a potential seller's details into the website and, then a local solicitor will access these and start preparing a HiP for the property, using their own choice of search company and home inspector. York estimates the turnaround time for a pack under this initiative could be as little as one week, if all parties operate at maximum speed. The solicitor can then turn all the collated documents into a pdf-based pack and send the completed HiP to estate agent or vendor.

Despite such offerings, it is still vitally important that solicitors understand the nature of a HiP and what it does and does not contain. 'While all packs will include compulsory components, such as the home condition report, terms of sale and evidence of title, solicitors also need to understand the importance of requesting additional reports on behalf of their clients - and the risks that they face if they do not," says James Sherwood-Rogers, managing director of Landmark Information Group's legal and financial division, emphasising the need for solicitors to obtain an environmental report. 'With up to half a million homes on or near areas of toxic waste, contaminated land and other environmental information is currently included in over 60 per cent of home-buying cases, and it is important that solicitors and consumers alike do not mistakenly think that every eventuality is covered by the compulsory element of the HiP.'

The government has yet to fully finalise the plans for HiPs and their future providers are still jostling for position in a market that is not yet tangible, but that does not mean that solicitors can afford to wait any longer to act. With under a year to go before the conveyancing market changes for the foreseeable future, those left in the blocks are in serious danger of not having enough time left to catch up.