Searches are an essential part of the conveyancing process for a buyer and lender, when buying, or lending money on the security of a property.
Searches are questions raised with public authorities (such as the Local Council and Water Boards), to obtain more information about a property (commercial or residential), prior to:
The exchange of contracts for the purchase of buildings or land; or
The release of funds by a lender upon completion of a loan secured on property.
There are various searches which can be carried out against a property. The standard searches include: a chancel search, water and drainage search, environmental search, and enquiries of the local authority. Where appropriate, additional searches may be obtained too, such as a flood search.
This blog considers:
- The importance of carrying out property searches;
- The issues that can be revealed by the standard searches (outlined above); and
- Possible alternatives to searches.
Why are searches important?
The principle of caveat emptor applies to property transactions in England and Wales. This principle means that the onus is on a buyer to find out everything that it can about a property, before buying or committing to buy it (i.e. upon exchange of contracts). A buyer should be aware of any matters that may affect their investment in a property before they exchange contracts. This can be critical to a buyer’s position, because:
- Once contracts have been exchanged, the buyer becomes contractually bound to complete the contract, on the completion date set out in the contract.
- This means that the buyer is unable to withdraw from the transaction after the point of exchange, without facing liability for breach of contract, where an issue materialises about the property after exchange of contracts, which the buyer could have discovered (or ought to have discovered), prior to exchange of contracts by raising sufficient enquiries or commissioning certain searches that they had failed to do.
As part of their due diligence, the buyer’s solicitor should therefore advise their client to obtain property searches, prior to exchanging contracts for the sale and purchase of the property, so that they are made aware of any adverse matters relating to the property before it is too late.
Whilst searches will not reveal every issue relating to a property, they do reveal important details that could affect the value of the investment in the future and may even influence the buyer’s decision to purchase the property. If an issue is revealed by a property search, it gives the buyers solicitor the opportunity to raise enquiries with the seller’s solicitor to obtain more information about the potential problem with the property before the buyer enters the contract. Additionally, if the adverse finding is so significant so as to affect the use or enjoyment, and marketability, of the property, the buyer can leverage this to renegotiate the purchase price with the seller, or pull out of the transaction at a stage where they would not be liable for breach of contracts.
As for the Bank that is funding a purchase or property refinance, most commercial lenders will require certain searches to be obtained prior to completion. Typically, these include a local authority search, and environmental or flood searches. Alternatively, the lender may accept ‘no search indemnity insurance’, in lieu of searches being commissioned. There are more details on this below.
Types of property searches
Each search contains a standard set of enquiries, with the relevant public authorities’ responses to those enquiries. The responses will of course depend upon the property at hand. An overview of the most common searches is set out below.
Local Authority Search
A Local Authority search consists of (1) the relevant local authority’s replies to enquiries (both standard and optional enquiries), and (2) a search of the local authority’s Land Charges Register.
The replies to enquiries can provide the following information about a property:
- Its planning history, including ‘planning enforcement notices’ and whether conditions of certain planning applications that have been made for work at the property have been complied with by previous owners;
- Restrictions on certain development that may apply within the borough;
- Whether surrounding roads are maintained at public expense, or are privately maintained by the respective landowner(s);
- Proposed traffic and railway developments within the Local Authority boundaries;
- The existence of any Tree Preservation Orders;
- Whether there is any Common Land;
- The Council’s general plans for the area and existing policies, including whether the property is in a conservation area, or a smoke control zone;
- Whether there are any public footpaths or bridleways, as well as any gas pipelines, across the property. These particular matters will be revealed by the ‘optional’ enquiries and given these matters may adversely affect upon a buyer’s ability to develop upon the land, the optional enquiries are often raised by commercial developers who are looking to acquire a plot of land.
The local Land Charges register reveals binding obligations or limitations that run with the land and that the buyer will therefore need to comply with. It may reveal entries such as:
- Whether the building is a ‘Listed Building’;
- Whether the property is subject to any financial charges; and
- Whether the property is subject to any planning charges.
Environmental search
An Environmental Search is a desktop search which examines factors affecting a property including contamination, flooding, energy and infrastructure, stability, radon risks and other influential factors. This is an important search, as if land is deemed to be contaminated and the original party cannot be found, then the current owner may be required to remedy the contamination. Similarly, if the property is located in an area where there is a high flood risk, or instability, then the land may be unusable in the capacity that the buyer wants it for or may prove costly to remedy any defects which arise as a result.
Drainage and Water Search
This search reveals whether the property is connected to mains drainage (if not, then there may be possible maintenance costs associated with the use of these drains), whether there are any sewers located within the boundary of property (if so, then the buyer of the property may be required to allow access to the water company for inspection and maintenance of these), the location of drains on the property, what the charging basis is for the sewerage and water services at the property, as well as the location of water mains etc.
Chancel check
A Chancel search informs a buyer whether the property is in a parish which has actual or potential chancel repair liability. Chancel repair liability is imposed on some property owners in order to fund repairs to the chancel of the local church. The local church may register its right to claim these payments against the legal title of the property. Despite the introduction of the Land Registration Act 2002 to prevent churches from registering such rights, the Land Registry continues to add chancel repair rights to legal titles. Additionally, lenders may require an indemnity policy for potential chancel repair liability.
Additional searches
Depending on different factors of the property (e.g. the age and condition of the property, the historical use of the property, and the location of the property) there are multiple additional searches which can be requested, subject to the results of the above searches and enquiries of the seller. These additional searches include searches such as a flood risk, coal mining search and planning searches.
Do you have to do property searches?
Although most buyers would prefer to conduct searches to gather as much information as possible on the proposed property in question, there are some instances in which a purchase may proceed without searches being obtained.
For example, considering that searches usually take around 2-3 weeks to return in full, there may be situations where searches have been applied for but have not returned and there is an imminent completion date looming which the parties cannot miss. Additionally, there can sometimes be long delays for searches which may impact on a buyer being able or willing to obtain these.
In these instances, a buyer may decide to proceed with the transaction without having the benefit of full search results, and instead rely on No Search Indemnity Insurance. This insurance is a policy which covers a buyer who has applied for, but cannot wait for the results of, searches (e.g. due to time constraints). This policy will provide compensation where a loss is sustained as a result of adverse entries which would have been discovered had a search been conducted.
There are issues with relying solely on No Search Indemnity Insurance. If an issue arises then it is true that prevention is better than cure. In other words, deal with the issue before you are committed to the purchase, rather than have to deal with it after you have bought. For example, should an issue of ground instability arise with a property (which otherwise would have been detected prior to exchange of contracts) then this can result in time being spent where the owners are unable to use the premises, and this can lead to implications on them conducting their business from the premises (e.g. having to close whilst remedial works are undertaken).
How can our property lawyers help you?
Searches can be an expensive and time-consuming aspect of a property transaction, but they undoubtedly prove extremely useful to a potential buyer, or lender. The information provided by the searches is crucial in unearthing risks and liabilities that may affect the property, and which would otherwise not have been discovered until the completion of the transaction, or indeed years later.
The insights that searches provide can flag any issues with the property, and may result in a buyer deciding against proceeding with the transaction if the property will not be able to be used in the way that they would like, or if the property is susceptible to different risks (i.e. flood or ground instability). Potential buyers should carefully consider the risks of proceeding with a purchase whilst relying purely on indemnity insurance alone.
Our experienced property lawyers are here to guide you through the process, ensuring a seamless journey. Don’t leave your investment to chance—contact us today to discuss your property needs, conduct thorough searches, and secure your future with a team dedicated to your success. Call us on +44 (0) 207 228 0017 or via the form below.
If you have a query for our property team, contact one of our lawyers by filling out the form below or call us on +44 (0) 207 228 0017.
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