Selling Leasehold Property | Completing LPE1
According to Land Registry data, the number of leasehold transactions rose by 18% between 2011 and 2015 and in London 57% of all property transactions involve leaseholds.
When any leasehold property is sold the lease administrator (usually the Managing Agent, Management Company or the Landlord) completes replies to the Leasehold Property Enquiry form (LPE1) to provide information to the prospective purchaser on the property at the expense of the seller.
The Conveyancing Association (a trade body for conveyancers) has called for reform of the current process citing delay in the provision of information, overcharging and duplication of costs as problems and reasons for change.
The proposed reform recommends transparent and reasonable costs and an obligation to provide information within twenty days of receiving the costs from the seller and so best practice would be to adopt this process and so in advance of any legislation.
When you are completing LPE1 enquiries remember that the Purchaser is paying for and is entitled to rely on the information received from you so make sure it is accurate. You can instruct solicitors to make replies on your behalf or you can complete the replies yourself.
- Make sure it is clear to the purchaser who you are completing the replies on behalf of. It is not unusual for the enquiries to be sent to both Management Company in relation to the service charge and Landlord in relation to the ground rent. Whichever one you are acting for – make it very clear that you are only answering in respect of that party and that separate enquiries may/will be needed from the other party. Situations can arise where replies are given on behalf of the Management Company, but the purchaser mistakenly believes the replies have been given by the Landlord’s representative, leading to confusion.
- Check the terms of the lease for alienation and notice of transfer requirements. Check that you are the party entitled to the notice. If notice has to be served on both Management Company and Landlord and you are providing details of your own requirements and fee only – make this clear and point out that the Landlord (or Management Company) may charge an additional fee.
- Include details of arrears of ground rent and service charge. Provide a statement and attach it to the replies to avoid any misunderstanding. Make clear that – even when someone is paying by Direct Debit by agreement there are arrears and monies owing (unless the balance on the account is completely clear). Notifying arrears to a prospective purchaser means you are likely to have them paid on completion of the sale.
- Include the documentation referred to in the enquiries. You will/may need to provide:-
- A copy of the insurance policy for the building
- Accounts for the last 3 years
- Minutes of meetings of the Management Company
- Details of any RTM claim or collective enfranchisement application made
- Have a policy regarding how you deal with any balancing charge at the year end. Apportionment of service charge should be left to the purchaser and seller but where a balancing charge is likely to follow at year end – provide as much information as you can to make it easier for them to reach agreement. Beware of completing all enquiries with a standard figure for a retention. If at the time of completing the LPE1 you knew (or ought to have known) that the balancing charge was significant you could face an argument with the tenant over whether they are liable for it. Responses to this question should make clear that you do not have sufficient information to respond and that any figure is a best guess – but you do need to spend the time to make a best guess