You are probably already warning clients about the timings affecting buy-to-let and second-home purchases. You may also want to warn a wider group of clients and estate agents about the possibility of not being able to complete transactions that are affected by the possible stamp duty land tax (SDLT) increase, by 31 March.
The 31 March deadline is putting pressure on conveyancing solicitors (and lenders, mortgage brokers and others) who are extremely busy trying to complete transactions before the additional SDLT becomes payable. Instructions from some clients will be to complete by 31 March or they do not wish to buy.
If there is a possibility that the transaction will not complete by 31 March you should make your client aware of the risk of becoming liable to pay the additional SDLT. Even if there is a contractual date of 31 March, it will not necessarily complete on that date.
In this situation, the client will still be bound and have to pay the additional SDLT if their transaction is subject to the additional SDLT provisions, or if they have exchanged contracts and no alternative measures have been put in place.
You should warn your client that if completion is fixed for a date on or before the 31 March but completion takes place after 31 March then, provided the transaction is subject to the new SDLT provisions, the additional SDLT will be payable. The reasons for a delayed completion will not be material and will include the seller’s default.
You should consider when acting for a buyer:
- making time of the essence for completion to take place on or before 31 March 2016 and/or adding a clause to the contract obliging the seller, in circumstances where completion is delayed due to the seller’s default, to pay the additional SDLT – probably by way of the buyer deducting the additional SDLT payable from the balance due on completion.
You should consider when acting for a seller:
- taking instructions on the type of clause referred to above, obliging the seller to pay the additional SDLT if they default and completion does not take place and resisting such provisions.
It is more likely to be the buyer who defaults because the mortgage funds are not available, for example.
Until the budget on 16 March, the details of how exactly the additional SDLT will operate will not be known, and clients also need to be aware of this.
The fact that there are bank and school holidays falling at the end of March creates additional pressures as does the fact that the Mortgage Credit Directive (MCD) becomes applicable from 21 March. Whilst the MCD is not expected to have a marked impact on process you will need to take account of the new reflection period.
An additional 3 per cent tax will not be welcomed by any purchasers buying an additional property, especially if they feel either that the transaction should have been completed before 31 March or that they didn’t want to purchase at all if the transaction attracted an additional 3 per cent SDLT.
You should explain to your clients that there are aspects of the transaction which are to some extent beyond your control, for example, if you are still waiting for a mortgage offer or search results, or if the transaction is leasehold and you are still awaiting information from managing agents and landlords, or if you are not certain that those on the other side of the transaction – or indeed further along the chain – will be in a position to deal when requested and that you are therefore unable to give warranties as to timings.
There are many variables, but you need to consider the potential losses across a chain of transactions.
For example, you may act for a first-time buyer at the beginning of a chain where the contractual completion date is 31 March. Your client’s mortgage money arrives late and completion does not take place on 31 March. Further up the chain unknown to you there is someone selling one investment property and buying another. That seller / buyer will have to pay additional SDLT and may look across the chain to your client to compensate him.
Some lenders have notified practitioners that because of the volume of work created by the prospective tax changes, they are increasing the time between the submission of the certificate of title and their releasing funds. You may wish to speak to your lender client or the solicitor acting for the lender to confirm their position in relation to the time periods involved at each stage.
It is important that you advise your client as to the likelihood of their transaction completing before the end of the month, as the financial implications may affect their decision to proceed. They may want to withdraw if they cannot be certain that they will not be required to pay the additional tax.
In so far as you are able, when you have clients who are affected, whether directly or as a result of being in a chain of transactions, explain the risks and try and get specific written instructions.