What can you do when your Local Search result turnaround time is six months?
What is a local search?
As part of the conveyancing process, solicitors submit ‘searches’ to various public authorities to identify potential issues with the property. Perhaps the most important of these searches is the local authority search.
The local authority search is twofold. The first part is a land charges search which shows any statutory charge or restriction relating to the land being purchased. These would include whether the property is a listed building, located in a conservation area, subject to a tree protection order or any planning agreements and/or conditional planning permissions. The second part supplies information relating to public highways, proposals for new roads, rail schemes or planning decisions that could affect the property, as well as breaches of planning or building regulations or the existence of a compulsory purchase order. Limited environmental factors, such as whether there is radon gas present, are also covered.
Official Search or Personal Search?
There are two different types of local authority searches – official or personal.
The ‘official’ method involves sending forms directly to the local authority where a search is conducted by council staff. The search is then signed and stamped by a council officer and returned “as is” back to your solicitor.
The ‘personal’ (or regulated) method provides the same information as the official method but is put together by a search provider unaffiliated with the council. An employee of a search provider visits the council office and inspects and records the information kept. The search provider makes sure the searches are standardised and gives summaries of the most pertinent information required, so there is less chance important information is missed. Regulated searches have insurance policies attached to them, including professional indemnity insurance against individuals’ errors or omissions. It is important to remember to check such policies to ensure that they provide adequate cover, and to check whether third parties (such as lenders) can claim under them. Personal searches are usually quicker and cheaper than an official application, however legal practitioners debate over which search is preferable and most commercial real estate solicitors favour the official method.
What are the current delays and why?
There are currently long delays in obtaining local search results from several councils due to closures and business interruption caused by the coronavirus pandemic. However even before the pandemic some local land charges departments had a backlog of searches because of staff shortages and computer hacking. At the date of writing, West Dorset District Council has a 60 day turnaround (or a 90 day turnaround for an official search), Plymouth City Council has a turnaround of 40 days (or 55 for an official search) and due to their computer system being hacked, Hackney Council has a turnaround of 180 days (6 months) to return a local authority search (and a further 15 days for an official search). Clearly delays of such lengths will cause frustration and, in some cases, could lead to transactions not completing at all.
What can you do when faced with such long delays?
Indemnity insurance
One option available is to purchase a search indemnity policy. The risks covered by such insurance varies between providers, however generally they will cover any loss sustained because of adverse entries which would have otherwise been revealed had a search been carried out prior to completion of the transaction. Loss is usually calculated to the value of any financial charge revealed or as a reduction in market value of the property.
Although this is one way to mitigate certain financial loss, search indemnity insurance offers no protection against issues arising from the search results that would have prevented the transaction going ahead in the first place. For example, a developer’s plans for the site could be inhibited by the property being listed or a planned railway scheme being constructed next to the site. Similarly, the search results could reveal a matter which would prevent or hinder a future sale going ahead, thereby reducing the value of the asset.
In addition, many institutional funds will likely not agree to complete without search results and most mortgage lenders will stipulate that the borrower must order searches as part of their terms and conditions. However, in light of the current issues with extensive delays, some mortgage lenders are relaxing this requirement.
Conditional contract
Another option would be to exchange contracts conditional upon acceptable search results. If the local search reveals a result that negatively affects the property, the conditional contract would enable the buyer to pull out of the transaction and get the deposit back. However, if the search result is satisfactory the matter would proceed to completion. Clearly the negotiation of what would constitute an adverse result would be heavily negotiated and not all sellers would be happy to enter into a contract which is conditional upon search results (particularly where there could potentially be months of delay) unless they had an accurate expectation of what the results are likely to be.
Conclusion
Although these options are available and can be used to circumnavigate the local search delays to enable the purchase to progress swiftly, each case is specific to its requirements and buyers should carefully consider the risks of each route against waiting it out.
Katie is a Senior Associate in our Commercial Real Estate team.