RESERVATIONS OVER A RESERVATION - Aborted Leasehold Purchase

Three months later, the Buyer withdrew, citing problems with the lease, and requested that the reservation deposit be returned. The Developer refused and the Buyer then raised a complaint against the Agent, referring to terms in the lease relating to business rates, ground rent, and services charges.

Investigation

In considering the issues raised, the obligations on agents to disclose material information in relation to the property and the lease were applied to the evidence provided by the Buyer and the Agent. Those obligations are explained in detail in paragraphs 7i and 7k of the TPO Code of Practice for Residential Estate Agents.

The Agent provided a copy of the brochure they had produced advertising the units. The information in the brochure was derived from the lease.

The brochure explained that the Lessee would be liable to pay any rates or taxes arising out of the use of the property and a share of the rates or taxes in respect of the communal parts of the development. The development was mixed tenure and the Developer wished to maintain a uniform lease and therefore refused to amend the document to reflect the solely residential use of the property.

The brochure also explained that Lessees would also be expected to pay service charges calculated based on approximately £2 per square foot. However, the Buyer pointed out that the subsequent Legal Report received from her solicitor stated an annual service charge of £1,285 which was more than £2 per square foot, and therefore felt misled by the Agent’s brochure. It was noted that the Legal Report was not specific to the unit the Buyer was interested in and, instead, provided estimated average figures for the service charges.

The lease’s ground rent provisions were also included in the Agent’s brochure where these were stated as an annual charge of 0.2% of the property’s value. The Buyer subsequently found through the Legal Report that the ground rent was subject to a review every five years in line with inflation measured against the Retail Price Index (RPI). The Buyer asked the Developer to cap the potential future increases, but the Developer refused.

Outcome

In relation to the rates and taxes, the lease required the Lessee to pay, it was clear that the Agent’s brochure had stated the situation correctly, reflecting the terms of the Lease. This was also the case in relation to the level of service charges due on the Property, as the Agent had made a reasonable estimate of the service charge based on the information provided to them by the Developer.

Regarding the ground rent, the Agent’s brochure correctly stated the basis of the charge. However, it omitted the fact that the Ground Rent was subject to five-year reviews based on the RPI, a requirement of paragraph 7k of the TPO Code of Practice. This became clear much later in the transaction and was one of the various factors that caused the Buyer to take the decision to withdraw from the purchase.

Whilst the Agent had included the majority of the pertinent lease terms in their sales brochure, the Adjudicator was of the view that the omission of information of the five-year ground rent reviews and the basis upon which those reviews were conducted, was important information that should have been provided at the outset, especially as it had caused the Buyer a degree of aggravation and inconvenience when it later became known. However, it was also evident that it was not information that would have caused the Buyer to take a different decision when considering whether to pay the reservation deposit.

Award: £200