Conflict of Interest Estate Agent

nomadicrebel

Evening all,
I hope you are all as well as can be under the circumstances.

A question around a potential conflict of interest. We are in the process of buying a property where there is a short lease of just a few years above marriage value. We asked to see the quote for the lease extension as it seemed rather high. As time progressed, it became apparent that something was wrong. 

It transpires that the Agent selling the property and the Freeholder are sister companies... Once I discovered this, I asked the Agent if he had disclosed this conflict of interest to the seller, which he claimed he had. He had certainly not had disclosed it to me.

The section 42 that was pending to be served is around £8K higher than what I had been quoted. However the agent claimed that if the seller had served the section 42 at a lower amount, the seller would want more in terms of asking price. We had to proceed as we are moving areas for schools so had little choice, but we have not taken the section 42 out, but will apply in 2 years. 

The challenge of course will be in 2 years, there will be less on the lease and we would have improved the property, making the freeholder gain more value. I understand I can complain to the TPOS about this, but before I do so, would be curious to know if this is a conflict of interest in anyone else's eyes? Or has anyone else had a similar experience?

Thanks in advance. 

eddddy

nomadicrebel said:

The challenge of course will be in 2 years, there will be less on the lease and we would have improved the property, making the freeholder gain more value. 

Any improvements to the property (since the lease was granted) should be ignored for the purposes of valuing a lease extension.

Similarly, if the property has fallen into disrepair that should also be ignored. It should be valued as though it has been maintained and repaired according to the covenants in the lease.

As for complaining to TPOS, I guess there's no harm in doing that. But realistically, you could have insisted that the s42 was served with a lower valuation. So you haven't really suffered a financial loss, so it's unlikely you'd get any compensation.

NameUnavailable

Section 42 is the formal process to obtain a lease extension. You should have carried on with that and obtained your own valuation - ultimately it can to to tribunal who will decide on a fair market value. It sounds as though the freeholder simply offered an extension for a price that they set themselves (the informal route).

If you have not taken up the Section 42 process (started by the vendor) then you now must wait 2 years as you have said, but you should go the formal route rather than approaching the freeholder for a price directly. Going formal will also reduce the ground rent to zero whereas a lot of times the freeholder will keep or increase ground rents as part of their terms!

AdrianC

An informal extension may very well be cheaper up-front than a formal extension.

Perhaps it's not peppercorn rent, though?

nomadicrebel

Thanks all, the question however is the conflict of interest. I don't believe the seller is aware that the lease is owned by the sister company and I believe they paid for a formal valuation. 

Further background is the property was offered with the vendors paying the extension. Our offer was declined and it wasn't until the previous buyer fell through that it was offered to us again, this time without the lease extension and we offered a lower asking price. The EA did not disclose that the £20K quote was a sister company, the telephone quotes I have received state £11K to £13K at max. Completion is not until Monday.

The other route is collective enfranchisement of course... 

nomadicrebel

AdrianC said:

An informal extension may very well be cheaper up-front than a formal extension.

Perhaps it's not peppercorn rent, though?

It was a formal extension as the rent was reduced to Peppercorn. 

Slithery

If it was a formal extension then the valuation was carried out by an independent RICS surveyor. There is no conflict of interest.

eddddy

nomadicrebel said:

Thanks all, the question however is the conflict of interest. I don't believe the seller is aware that the lease is owned by the sister company and I believe they paid for a formal valuation. 

Further background is the property was offered with the vendors paying the extension. Our offer was declined and it wasn't until the previous buyer fell through that it was offered to us again, this time without the lease extension and we offered a lower asking price. The EA did not disclose that the £20K quote was a sister company, the telephone quotes I have received state £11K to £13K at max. Completion is not until Monday.

The other route is collective enfranchisement of course... 

As I said above, why didn't you just tell the seller to serve the section 42 quoting an £11k valuation?

Why did you even discuss the valuation with the estate agent - it's nothing to do with them?

As completion isn't until Monday, can you persuade the seller to serve a section 42 notice for £11k before Monday? (Maybe contact the seller directly - not via the estate agent. And not via solicitors, as that would take too long.)


I guess you might have a basis for complaint against the estate agent if the estate agent misled you. For example, if the estate agent said there was some legal reason why a section 42 notice couldn't have a valuation of £11k (which is probably untrue).




Edit to add...
I'm assuming that you have exchanged contracts and completion is on Monday.

But if you mean exchange and completion are both on Monday - you just have to say you will not exchange/complete on Monday unless a section 42 notice for £11k is served. Then the problem will probably be solved.

nomadicrebel

eddddy said:

nomadicrebel said:

Thanks all, the question however is the conflict of interest. I don't believe the seller is aware that the lease is owned by the sister company and I believe they paid for a formal valuation. 

Further background is the property was offered with the vendors paying the extension. Our offer was declined and it wasn't until the previous buyer fell through that it was offered to us again, this time without the lease extension and we offered a lower asking price. The EA did not disclose that the £20K quote was a sister company, the telephone quotes I have received state £11K to £13K at max. Completion is not until Monday.

The other route is collective enfranchisement of course... 

As I said above, why didn't you just tell the seller to serve the section 42 quoting an £11k valuation?

Why did you even discuss the valuation with the estate agent - it's nothing to do with them?

As completion isn't until Monday, can you persuade the seller to serve a section 42 notice for £11k before Monday? (Maybe contact the seller directly - not via the estate agent. And not via solicitors, as that would take too long.)


I guess you might have a basis for complaint against the estate agent if the estate agent misled you. For example, if the estate agent said there was some legal reason why a section 42 notice couldn't have a valuation of £11k (which is probably untrue).




Edit to add...
I'm assuming that you have exchanged contracts and completion is on Monday.

But if you mean exchange and completion are both on Monday - you just have to say you will not exchange/complete on Monday unless a section 42 notice for £11k is served. Then the problem will probably be solved.

Thanks.
Also based upon the move to commonhold announced overnight, this may be resolved in the future. And the point about the estate agent becoming involved, it is a conflict of interest. I wouldn't be surprised if the solicitors for the seller are part of the same organisation as the agents and the freeholder. 

I will try to speak to vendor directly.