The government has postponed the introduction of Home Information Packs (HIPs) and Energy Performance Certificates (EPCs) to 1 August 2007, instead of 1 June 2007 as originally envisaged.

The announcement came on 22 May 2007, just days before they were to become compulsory for all properties in England and Wales. It followed a discovery that there would not be enough energy assessors ready in time for the 1 June deadline, and an application for judicial review by the Royal Institute of Chartered Surveyors (RICS).

As a consequence, the HIP Regulations 2007 have been revoked (this being the second set scrapped – the first being those from 2006). In May the RICS agreed to put its court action on hold, and on 11 June the government published revised Regulations (in draft) and issued guidance about those changes, and their plans to implement HIPs from 1 August 2007.

The three most significant changes that are going to form part of the revised Regulations are:

• HIPs will be phased in. There will be three phases of implementation. From 1 August they will only be needed for larger properties, with four bedrooms or more. They will be extended to other properties as and when more energy assessors become accredited. Next in line are threebedroom properties – HIPs will be introduced for these when 2000 home inspectors and/or energy assessors (HI/EA) are ready. The final phase will make HIPs compulsory for all other properties – when 3,000 HI/EA are in place.

• Anyone who needs a HIP can, until the end of the year, market their property straightaway, provided they have ‘commissioned’ a HIP. This changes the previous position where a seller had to have their HIP in place before they could market.

• EPCs can be up to 12 months old when a property is put on the market (pending the results of a full consultation taking place this summer on the nature and age of an EPC – in line with the government’s promise to the RICS). Previously they had to be no more than three months old.

Why so few energy assessors?

The government maintains that the reason there were so few inspectors was due to the uncertainty stemming from the pending application by the RICS. Apparently newly-trained energy assessors coming out of training were not paying the fee to become accredited, in case HIPs did not become law. This does not seem credible and the real answer may not be known. What is clear is that the government grossly miscalculated the numbers that were needed, and did not time their training in order to fit in with their original start date. It does now seem to have learned that lesson, given its plan to phase in HIPs according to when energy assessors are available. Indeed there will be a running total of sorts on their website (www.homeinformationpacks. gov.uk) for all to see.

The RICS’ effect

The RICS’ application for judicial review and the government’s announcement is a nice example of how public law can operate in this country. If the RICS were ever successful in the courts, it would mean a new law would be delayed (or scrapped) via the courts, even though it was passed by MPs in Parliament just days before.

The RICS’ decision to stay proceedings merely puts the case on the back burner. It can be revived at any time, especially if the government does not fully consult or address the other concerns of the RICS. The prospect of the court case being resumed raises the potential for more uncertainty and delay. A lot will depend on the content of the revised Regulations, which have just been published in their modified form. On first reading, those Regulations do go some way in addressing the RICS’s concern (at least in relation to energy assessors) and reduce the chance of court action (if all goes to plan). However, the RICS’s official response is awaited.

What about the latest changes?

If the latest changes to the HIPs regulations are accepted and implemented there may be enough energy assessors to carry out EPCs, especially if the plan to phase them in works as well as it sounds. The 11 June update states that a property can be marketed for a limited time without a HIP, before an EPC is available. The EPC must be provided as soon as is possible (and in any event before exchange of contracts) but the Regulations do not define how long you can market without a HIP, though some might say it should be 14 days (as it was in the 2007 Regulations).

The latest changes would avoid a ‘big bang’ introduction of HIPs, and the resulting jolt to the property market. Indeed in the 11 June update, the government states that:

...independent economic analysis... suggests that any impact on the volume of properties marketed... is likely to be... small.

It also states that in the medium term, as HIPs improve transparency and increase competition, ‘the operation of the market should improve’.

Estate agents would be happier (at least until the end of the year) as they would not need to wait for a HIP to be prepared before they could get on with marketing the property in question.

The ‘soft’ introduction would allow everyone in the property industry to test out the new idea, on a relatively small section of the market, where any teething problems could be ironed out. It should allow everyone to become familiar with the new system.

The government is intending to conduct a full review of how HIPs are working at the end of the year, which may lead to further changes, all with the intention of improving the property market.

However, some fundamental issues and concerns will remain and others could surface when HIPs finally ‘go live’.

Effect on gazumping

It is questionable whether in fact the changes would improve home buying and selling, or reduce gazumping. On the contrary, it may lead to more confusion, uncertainty and delay, until HIPs become compulsory for all, particularly in a chain. For example, some would have HIPs (eg those with four bedroom homes), while others would not. This can lead to more tension as those with searches sit tight, lose sleep or pace up and down (or perhaps badger their solicitor or estate agent) while waiting for those without HIPs to carry out the requisite searches. Solicitors and their clients will not be happy at that prospect, nor would those sellers in a chain who have paid for a HIP but also for searches on a related purchase.

Obtaining leasehold information – the notorious managing agent

A major concern aired by conveyancers is that HIPs do not solve the problem of obtaining leasehold information from the landlord or managing agent. The 2007 Regulations attempted to alleviate this concern with the 28-day rule (meaning you could market with a HIP provided you had ordered the leasehold information and reasonably believed you could get it within 28 days). This rule stays in the revised Regulations. However, all conveyancers know of many managing agents who do not respond within 28 days. This problem would have been resolved if the revised Regulations required managing agents to provide (or use their best endeavours to provide) the requested information within, say, 28 days. Why should estate agents and sellers be subject to time limits but not landlords and their managing agents? They are often the worst culprits and a major reason for delays. Surely the regulations should be amended to tie in the managing agents, who are an important part of the process?

Out-of-date searches

The old question of the age of searches still remains unresolved. It is common practice that searches should not be more than six months old on completion. As the average length of time a property stays on the market exceeds this, many searches would be out of date on completion. The government’s announcement made no comment to rectify or alleviate this situation. There is still uncertainty as to whether local authorities or insurance companies will be ready and willing to ‘refresh’ old searches (or provide insurance), and whether either would be acceptable to the Council of Mortgage Lenders (CML).

Getting personal

Many conveyancers are still wary of personal searches. These have been given more prominence by the HIPs legislation, which gives concessions until April 2008 and some search providers’ have subscribed to the Council of Property Search Organisations (CoPSO) Search Code protocol (www.copso.org.uk/), which sets basic standards and quality criteria they must follow (including a minimum level of indemnity of £2m).

Local councils restrict personal search providers access to important data that forms part of a local search (eg planning history, building control history), largely to fend off competition from those providers. Flexible solutions were offered by the government in response – eg insurance cover for the missing data for personal searches done until April 2008, by which time the government hopes to persuade local councils to offer better access to their records. However the CML has not radically changed its stance on personal searches and the amended Part 1 of its handbook still asks conveyancers to check Part 2 to see if the lender accepts them, and if so, under what conditions (eg member of CoPSO). In many cases it still wants the conveyancer to take the risk, and not many are willing to do that. Others have predicted lenders will react more positively and pragmatically over time, especially where financial advisers tied to estate agents direct customers (ie sellers) towards those lenders who do accept them.

When is a four-bedroom house not a four-bedroom house?

How is the government going to set about defining a four-bedroom house? Many cynics have already pointed out a new marketing ploy – the three bedroom house with a study. While this may work for some properties where the valuation would not be affected, others have rightly pointed out that there is little to be gained in doing this, as in the vast majority of cases the loss in market value when cutting out one bedroom would far outweigh the cost of a HIP. Moreover, the next phase would catch three-bedroom properties, so if a seller wanted to try to exploit this loophole, they would not have long to do so (but could probably try the two-bedroom house with a study ploy).

Commissioning a HIP

What does it mean in practice for a seller who needs a HIP from 1 August to market, as long as they have ‘commissioned’ a HIP? In a buoyant market or a property hotspot, a seller might sell their house within the first few days. However, they would have done that without producing the HIP to the buyer, who would presumably not have cared about a HIP when they put their offer down for the property. Would the seller still be liable to produce the HIP? If so, then what if, after the HIP is produced, the buyer finds something they do not like in the search or title, and pulls out? We are back to square one and HIPs have not served their purpose.

The link with EPCs – why?

Many are still puzzled by the link between HIPs and EPCs, ie why one must go with the other. The need for the EPC derives from an EU directive that has resulted in a separate set of Regulations. However, the government has and continues to maintain that they must go hand in hand, which to many does not make any sense. Lawyers already prepare the legal element of the HIP, so this does not pose sufficient problems to warrant a postponement of their introduction. The government is perhaps using the HIP as a vehicle for the EPC. It is interesting to note that other kinds of properties (those let to tenants and commercial properties) will also require EPCs in due course, but not now, and the equivalent regulations are not tied to any other legislation.

Money matters

A huge amount of time, effort and money has been spent by the property industry in getting ready for HIPs. While many jumped with joy and breathed a huge sigh of relief at the news of their postponement, for others it came as a disappointment, as they had invested significantly in information technology, setting up new businesses, employing new staff and buying premises (just look at First Title and their vast warehouse or LMS and their projection to produce 300,000 HIPs in the first year). Their business plans may need a review because of the last minute decision to postpone. The latest announcement provides some comfort, as there is a clear intention to introduce HIPs.

Conclusion

The 11 June update shows the government has at least made a better effort to address some of the industry’s concerns, particularly in relation to EPCs. However, they do not go far enough. Many issues may remain unresolved, especially the provision of searches that could be out of date when the property is sold, or the problems faced in obtaining leasehold information from managing agents and landlords.

The majority view remains that HIPs, even in their watered-down form, will not speed up home buying or reduce gazumping. People will still inexplicably withdraw from purchases, and the fact that the Home Condition Report is only voluntary means you have not eliminated that significant section of the public who withdraw because of an adverse survey. Nor can you cater for that first-time buyer who simply cannot get their mortgage offer sorted out in time.

Unless and until those issues are dealt with, there are still going to be problems, delays and confusion in home buying and selling.

The RICS will closely monitor the government’s activity to see if it meets the terms of its stay. One important term was that the Department of Communities and Local Government (DCLG) undertake a 12-week consultation – a term that clearly won’t be satisfied as HIPs are going to be introduced less than nine weeks after the announcement that they would be delayed. The government has responded by saying that it views the consultation as being separate to the implementation of HIPs. Consultation will be an ongoing activity and not a condition precedent to their introduction.

It will also be interesting to see what the other major players in the industry such as the Law Society and the National Association of Estate Agents have to say. No doubt they will also keep a close eye on developments.  © Property Law Journal