Understanding Repairs

Repairs, statutory notices and their major impact

This topic relates mainly, though not exclusively, to traditional flats particularly those in the major cities and those properties which were formerly owned by a local authority or housing association and where there is some form of general renovation of an area taking place.

The background

These are issues that arise often and much more so than at any time since the early 1980s. At that time many traditional tenement properties were being refurbished because a political decision had been taken that such properties should be retained and improved rather than being knocked down as had been often the case in the previous 20 years.

Two main developments (broadly linked to each other) have resulted in these repairs issues again being to the fore. There was recognition by the Scottish government and local authorities that despite the refurbishments of the early 1980s, many tenement properties were suffering from a lack of repairs and, just as importantly, a lack of organisation to carry out those repairs.

Traditionally, in the West side of the country factors or property agents were often employed to organise repairs. On the East side of the country such factors were much rarer partly because the traditional form of title in Edinburgh and the other East cities do not create an environment where such a factor could be employed. However, even in those properties where factors were involved, repairs were not being carried out because all too often the factors were not being paid and they lacked an efficient method of ensuring that the property costs were "attached" to the property meaning that, on the next sale of the property, the outstanding property costs would be paid. The net result of this position was that repairs were not being carried out.

The Scottish government passed substantial legislation aimed at remedying the state of affairs. In addition councils became far more "activist" in promoting repairs notices that demanded that work to be carried out. At the same time housing associations promoted extensive urban improvement schemes in many areas where the housing was owned by the local authority or housing associations. Many of those houses have been sold following the "right to buy" legislation in 1980 but the owners of those houses might now be responsible for the proportion relevant to their house of these extensive urban improvement schemes.

All of this has created an environment where repairs and repairs notices have become a major part of conveyancing especially for tenement properties and ex-local authority houses.

However, in Edinburgh, there would be a further twist in the story. Following a veritable blitz of statutory notices issued by the Council, concerns arose over the legitimacy of some of the steps that had been taken. Various enquiries were instigated but the net result was to place a virtual freeze on the system causing many problems for buyers and sellers.

Dealing with these matters in practice

Four central questions will arise in respect of any property that is likely to be affected by potential repairs. The diagram describes the order in which these questions should be considered.

In 2009 a group of experts devised a standard contract which it was recommended to be utilised in house purchase and sale transactions. This standard contract has been widely, though not universally, used by Scottish solicitors and one of its more controversial elements was how it dealt with the issue of repairs.

The terms of the standard contract placed the onus for repairs very much on the seller. In particular they state that if any statutory repairs notice has been filed against the property, the liability for that notice, even though the work may not have actually started, remains with the seller. Furthermore, it goes further and states that 125% of the proposed cost of the repairs plus administration costs be retained from the purchase price.

This seems straightforward but does not really produce a result that is fair in every case and in many situations individual negotiation has been necessary. But inference was that a notice on a property would result in the seller being liable even though no works had even been planned.

Recognising that these clauses were producing inequitable results there has been a move since 2014 to change the inference.

Parties to a transaction where repairs notices exist should consider the MMiFourStep analysis.

MMiFourStep analysis

FIRST: have any repairs been carried out for which accounts have been issued but those accounts have not yet been paid?

SECOND: have any repairs been carried out for which no accounts have yet been issued?

THIRD: have any repairs been instructed but not yet carried out?

FOURTH: are there any repairs which are in contemplation by a statutory notice or otherwise but have not yet been instructed?

Steps FIRST and SECOND are reasonably straightforward. In these cases the repairs have been carried out and accordingly the property is being sold with the benefit of those repairs. In these circumstances, the purchaser is paying the seller for the property in the repaired state. An issue that remains with step SECOND is that it can often be difficult to ascertain what the final account will be for a particular property, and in the absence of the final account the 125% rule will generally be insisted upon.

Steps THIRD and FOURTH are much more difficult. In both of these cases the repairs have not actually taken place as yet and arguably, if the seller is paying for the repairs, the purchaser will be benefiting from an improved property at no cost to the purchaser. This argument becomes less powerful if the repairs are of a technical nature rather than those which might add value to the property.

It is in respect of steps THIRD and FOURTH that there is a current mood of change. And while the pendulum is swinging, an established position has not yet been reached meaning that considerable re-search, investigation and extended negotiation is often necessary. Unfortunately this creates the expenditure of additional time over a normal transaction and in most cases they require to be an additional charge.

Matters to look out for when you are selling:

First of all it is essential that you provide us with as much information as you have. The more information that is available, the more likely McVey and Murricane will be able to ensure that your obligations are kept to the minimum possible.

Except in extraordinary circumstances, it is unlikely that the seller will escape liability for repairs that fall under steps FIRST and SECOND. However, it is likely that the seller will wish to minimise their obligations, if at all possible for repairs, falling under stages THIRD and FOURTH. However, the success or otherwise of that position will very much depend upon the negotiation that is conducted with the solicitors acting for the purchaser. That negotiation in itself depends upon the negotiating power of the parties. If it has been difficult to sell the property, the negotiation power probably will rest with the purchaser. However if there was a queue of people interested in the property, then the negotiation power is much more with the seller.