Understanding Retentions

Understanding Retentions in your sale transaction

If the property which you are selling is one where one or both of the following situations exist:

  • there is a factor or property manager

  • there has been a statutory notice or repair scheme placed over the property in respect of works which have been carried out or are in the course of being carried out

then there is a likelihood that at the end of the transaction McVey and Murricane will be asked to retain monies to meet any potential liability that may be your responsibility.

When we receive notification that a retention is required, we will advise you making reference to this note. You will have a number of questions of which probably the first one is why do you have to enter into this process?

The standard conditions of sale include a number of clauses dealing with these situations. The person who is buying a property does not want to find that they become responsible for a bill that is yours. Certain legal provisions exist which enable that concern to actually materialise and accordingly these "retentions" are the practical method of dealing with liabilities of yours for which your bill has not yet been issued but will be issued in due course.

An example would be where there is a property manager or factor to the property. Normally speaking they will provide you with an account four times a year but on the date of your sale the account for the period from the last account provided by the property manager/factor until the date of your sale will not yet have been prepared or issued. Because there is a statutory facility for your final bill to the factor/property manager to become attached to the property, the person who is buying the property wants to know that sufficient funds have been retained by McVey and Murricane to meet your liability.

The Curse of Regulation

This is where matters become more complex. First of all it can often be years before certain types of accounts are finalised. Even in a straightforward situation it will often be at least six months before matters are finalised. Secondly, the Law Society of Scotland has introduced stringent regulation in relation to circumstances where solicitors are holding such balances. The thrust of this regulation is a reasonable one in that the Law Society of Scotland wishes solicitors to send monies that may be due to clients or other parties as quickly as possible. However, the regulation conflicts with the circumstances where retentions are necessary because other solicitors, factor/property managers and local authorities look to the solicitor for the seller as someone who is seen as a reliable "home" for the money while final accounting and other issues take place.

Because of the Law Society of Scotland requirements on balances, all solicitors are now put to a great deal of additional work when maintaining such retentions. Many solicitors are refusing to hold such retentions which can often create problems for their clients. McVey and Murricane do not wish to create this sort of issue for their clients but equally, because of the level of work involved, require to make a charge to cover the work involved, which is quite separate from your actual transaction.

Squaring the Circle

Accordingly the following table deals with the choices available to you. When we contact you about any retention which potentially affects you we will make reference to these possible outcomes.

Outcome 1

  • Straightforward retention required by factor/property agent.

  • Charge to set up retention account - £15 plus VAT

  • Charge to finalise matters - £25 plus VAT

  • Alternative options - That we pay the amount required by the factor/property manager as a retention directly to the factor/property manager and ask them to account directly to you for any balance due to you. The benefit of this alternative option is that you save the additional costs charged by McVey and Murricane. The downside is that the factor/property manager have the funds and you have no control.

Outcome 2

  • More complex retention required by factor/property agent where some form of major or more material works have recently been completed or are in the course of being completed.

  • Charge to set up retention account - £20 plus VAT

  • Charge to finalise matters - £50 plus VAT

  • Alternative options - Again the alternative choice mentioned above is available to you. However, in the circumstances of a major or more material set of works there is greater potential for there to be a disagreement between you and the factor/property manager.

Outcome 3

  • Any retention relating to a statutory notice served by a local authority or other agency

  • Charge to set up retention account - £20 plus VAT

  • Charge to finalise matters - £50 plus VAT

  • Alternative options - On occasion it may be possible to lodge funds directly with the relevant local authority or agency or an agent acting on their behalf but generally this is not possible or desirable. Given the bureaucratic problems relating to such matters it is best for the funds to be retained. If the amounts are very small then you may be happy to send them directly to the relevant organisation but experience of these bureaucratic arrangements involving local authorities or agencies means that McVey and Murricane cannot guarantee that lodging the funds "upfront" will avoid a further request at a future time.

The charges detailed here are separate from any fees charged during the transaction in respect of interaction with the factor on information or material required by the purchaser of the property.

Regrettably, this is another area where modern regulation of solicitors combined with the complexity of recent legislation providing factors and property managers with much greater powers results in problems for the average person selling the property. McVey and Murricane are endeavouring, as far as possible, to ameliorate these problems for their clients but, for which, modest charges understandably need to be rendered.