JUNE 2011 |
www.opp.org.uk WORDS | John Howell
It constantly amazes and depresses me in equal measure that people will happily invest their life savings in a country they know nothing about on the strength of a recommendation from somebody they have never met and without taking legal advice to make sure that the purchase is safe! Well, there have been new
Fight back now W
hy do people take far too much risk when buying property abroad?
policy to guard against there being some problem with the house that you are buying. Are these products worth having? As ever, the answer is that it all depends...
It is important to understand
developments. The fee charged by a lawyer for dealing with the purchase of a property abroad tends to be about 1% of the price of the property. This seems, to me, to be good value.
The
work involved is substantial and skilled and the element of risk being accepted by the lawyer can be very high. If it all goes wrong they and their insurance company can face a very large bill! But what happens if the lawyer
makes a mistake? In some (but by no means all) countries, there is a proper system of compensation and compulsory insurance. The UK is one of these countries. But in many countries there is no concept of paying compensation for lawyers’ mistakes and in others, whilst there is theoretically a remedy, in practice it is diffi cult or impossible to succeed in a claim. So if you are thinking of using the services of a lawyer it is important to make sure that (a) the lawyer is based in a country where compensation will be paid if s/he makes a negligent mistake and (b) that he or she has adequate insurance. But can you avoid using a lawyer?
Well, there are new options coming along. These are, generally, based round insurance. Instead of (or, as we shall see, in addition to) using a lawyer, you take out an insurance
the ways in which such insurance products work. There are two main ways. In some cases an insurance company reviews the individual circumstances of each individual case and then issues a policy priced according to the risk specifi c to that
“These FSA rulings could dramatically impact on your ability to sell property abroad”
case. More commonly, however, they assess the market as a whole and issue a policy without carrying out detailed checks on each individual property. This means that taking out such a policy will do little or nothing to prevent your purchase turning into a problem but may well give you compensation if it does. In principle, such policies can be a good alternative to the traditional method of using a lawyer to check out each property and some of the premiums I have seen mentioned seem very cheap by comparison with the cost using lawyers. However, don’t get too excited! As with every insurance policy, you need to read the small print and read it carefully. Exactly what is covered? More importantly, what is not covered? What is the maximum payment that they will make? It is also worth checking out the insurance company issuing the policy. Many come from companies that I have never heard of. That may not be a problem if they are
BUSINESS
LEGAL LESSONS | 29
Why take silly risks when investing in overseas property? John Howell looks at some market safety measures and argues that it’s time for our industry to make some serious representations to the FSA. It has plans that could badly affect the market’s ability to sell property abroad – so get ready to stand up and fi ght back.
based in a country where there are arrangements for claimants to be paid if the company collapses but there are many places where, if the company goes out of business, the policy will be of no value. Do remember, however, that the products will only – at best – guard against the risks of inadequate title, no planning consent etc and will not cover other important issues such as how to minimise tax obligations. The insurance policies will also do nothing to help the buyer decide whether the contract offered is a fair and reasonable contract and whether the purchase is a good buy. So they may still need a lawyer. Finally, and on a completely
different point, I am returning briefly to the issue of the Financial Services Authority (FSA). As many of you will know, they have been showing an increased interest in the activities of the overseas property industry and, in particular, in those activities in so far as it comes to selling products that could be perceived as being investments.
For many months I have been
dealing on and off with the FSA over the question of the circumstances in
John Howell of John Howell & Co is a specialist in international legal and property advice. Email:
john@jhco.org Tel:+44 845 676 9195
which the sale of property should be considered to be a regulated activity or governed by restrictions on your ability to promote the property. I think the time has now come where the industry needs to make some serious and co-ordinated representations to the FSA. If you do not do so there is a severe danger that the FSA will make rulings on this subject which will dramatically impact on your ability to sell property abroad – even in circumstances where it is very diffi cult to see that there is any real sense of it being an investment that is being sold. With this in mind I am organising a conference for anyone involved in this area of activity – especially lawyers, developers and agents. The idea is to formulate a broader submission to the FSA and, hopefully, some more sensible regulations emerging. See page 45 of OPP for more details.
Lightning | on the horizon as FSA gets involved in collective investment schemes
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