When selling your property, as the homeowner there a number of responsibilities to ensure the legal transfer of ownership, and one of those responsibilities is informing your property factor of your intention to move. This is called the ‘letter to factor’.
Homeowners in factored properties have legal responsibilities as outlined in the Deed of Conditions when the property is purchased, which includes important matters such as, keeping up to date on factoring fees and maintenance fund payments to keep your building’s shared areas in order, as well as insuring the building’s common areas. When transferring ownership of the property to a new buyer, a solicitor needs to ensure that these legal responsibilities have been upheld.
In partnership with our friends at law firm Harper Macleod, we explore the importance of sharing information between a property factor and solicitor for both the seller and buyer.
Deciding to sell your factored property
Once you have begun the process of selling your property and engaged the services of a solicitor, they will submit a formal notice to your property factor known as a ‘letter to factor’, or 11-point letter. This is a request for information from your property factor which includes:
- Annual factoring charges
- Estimates charges to the sale date
- Float refundable/payable
- Common Insurance Policy details
- Details of known repairs, defects or maintenance issues affecting the property
- Cyclical Maintenance Fund obligations
- Outstanding debt due by the seller
- The existence of any Notice of Potential Liability (NOPL) registered against the property
- A request for factoring charges to be apportioned
The letter will also confirm:
- The agreed Date of Entry
- The Purchaser’s Name
- The Purchaser’s Solicitor
- Solicitor or homeowner address for the final accounting.
What information will my property factor share with the solicitor?
During this request for information, the property factor will share various pieces of information covering the above points and the status of your factoring account, including any outstanding debts or liability for any accidental damage.
They will also inform the solicitor of any planned works that are fully or partially paid for by the homeowner. They will also provide information on previous works carried out such as building warrants, warranties from completed work, and local authority certificates to the seller’s solicitor.
The solicitor will also need details to inform a potential buyer of any property development funds and common insurance policies to give an accurate estimate of the factoring costs associated with the property.
From a buyer’s perspective, they need assurance that the factoring account has been settled of any outstanding payments and that there are no surprises when it comes to outstanding work or planned work that they may be liable for. A buyer will also need to be made aware of the ongoing factor fees once they take ownership so they can factor this into their budgeting.
The importance of sharing information between a property factor and solicitor
We spoke to Scott King, a solicitor in the residential property, housebuilder and estate agency team at Harper Macleod about the role of a solicitor in the sales process and how important it is for ongoing communication between the solicitor and factor.
What is a solicitor’s role in this process?
“As solicitor for the seller, we will request details of factoring and any block insurance arrangements from the factor when instructed. We will also provide the factor with details of the proposed purchaser, the date of entry and the purchaser’s solicitors.”
How long would it take? Is there a likelihood of delay?
“The solicitor will request this information as early as possible once a proposed date of entry is known. Even if the entry date is not known (for apportionment of common charges) we would appreciate information (particularly on common repairs) to be provided at the earliest opportunity for reasons noted below.”
Can an oversight on this information affect the sale of a property?
“The earlier this information and a “clear picture” of the position is available to the seller or purchaser, then the earlier parties can conclude missives and make any provisions in the contract prior to conclusion to cover ongoing or proposed common repairs.”
Are there any examples of how sharing this information can benefit/protect a buyer?
“The seller’s solicitor shall supply to the purchaser full details of the factoring and block insurance arrangements and will notify the factor of the change of ownership. Under the Scottish Standard Clauses, the seller will remain liable for major repairs or improvements currently proposed (by the development factors, managing agents or a co-owner of the building in writing to the seller), instructed, authorised or completed but not yet paid for. The purchaser’s solicitor will seek confirmation of this and may, where appropriate, stipulate in the contract that a retention from the price is made pending completion of the common repair/maintenance works noted in the factor response letter (particularly where the works are major).
“Where major works are identified, it is normal for the purchaser’s solicitor to request further details, such as the availability of contractor quotes and specialist reports to identify likely costs and to clarify the extent of the proposed works. Major works, for instance structural/cladding issues could in certain circumstances affect marketability and suitability for lending and so appropriate enquiries should be made.
“The factor response letter will also provide the purchaser with details of any block insurance arrangements so that they can be satisfied that their insurance obligations are covered. “Likewise, there will also be information on total common expenditure due by the property owner in the previous 12 months as well as details of any “sinking fund” paid into by owners or regular payments for cyclical maintenance.”
Are there any examples of how sharing this information can benefit/protect a seller?
“Details will be provided as to expected common charges due by the seller once apportioned at the date of entry. In the case of ongoing repairs where the seller will be liable for the property’s share of costs, then the sharing of the factor response letter is needed.”
Is there an example of how a retention would work?
“The purchaser’s solicitor would request information (with appropriate vouching) on the expected costs of any proposed maintenance/repairs and the liability for the property. Provision would be made in the contract for (usually the purchaser’s solicitor) to hold a sum representative of the property’s share (sometimes augmented by 25% in the event that costs exceed estimates) until such time as the works have been completed. The retention would be released to the seller’s solicitor on exhibition of prior agreed documentation confirming that the works have been completed and paid for.
“Retention clauses must, by their nature, cover many scenarios and are in many ways a contract within a contract. The earlier information is available from the factor the better so that the solicitor can consider what is required to cover their client’s interests.”
At Taylor & Martin we have great relationships with law firms such as Harper Macleod and understand the importance of communication when it comes to sharing information with solicitors and with our clients too.
What happens to my factor account?
Once your property factor has received formal notice of your intention to sell, they will start to prepare your final bill, including any outstanding management fees, cost of repairs, insurance premiums and any contributions to a maintenance or development fund. It is the responsibility of the seller to pay all outstanding charges or debt in full as this cannot be passed over to the buyer.
What happens if any outstanding factor fees aren’t settled?
Some factors may ask that solicitors, such as Harper McLeod, retain a certain amount to meet the seller’s expected final charges account. In some cases, solicitors do not retain funds and ask that factors deal directly with the seller for this. It is therefore important that the factor has details of the seller’s forwarding address.
Some factors ask that solicitors remit a certain amount at Entry (in line with expected final charges) while others don’t.
What happens to any overpayments?
If sums retained at settlement (or paid at entry) are in excess of the final bill, then funds are returned to the seller by the factor once their final common charges bill has been raised.
What happens to any sinking funds that the seller has paid into?
Generally speaking, any funds paid into a sinking funds by the seller are left behind and cannot be recouped by the seller at the point of sale.
At Taylor & Martin, we take the upmost care when it comes to sharing information and making sure our clients are aware of any outstanding payments and planned work to ensure a smooth transition for seller and buyer.
What happens after the sale is settled?
As part of their service, most property factors will return your float to you within 6 months as part of a final account, minus any outstanding charges. Although there may be an extension to that to allow time to prepare any outstanding repairs/invoices/electricity charges etc.
The apportionment fee, as outlined in the letter to factor, is a charge from the property factor which covers the work they do to settled the factor account for sale. Often this work can be quite laborious of behalf of the property factor and can often involve a lot of back and forth. It is important to note that by the solicitor instigating the letter to factor, that they are accepting this fee on the seller’s behalf.