Legal Briefing

In a weekly column, solicitor Juliet Phillips-James casts her expert eye over a range of legal matters and urges anyone with any questions or problems to come forward for help.

QI am purchasing a house from my parents. The estate agent has valued the property at £200,000 but my parents have insisted they only want £150,000 from me as a purchase price. I have been told this is a transaction at undervalue, what does this mean and will it have any effect on the purchase of the property.

ABuying a property at undervalue simply means not paying the full open market value for the property. This kind of transaction is commonly seen when property is passed between family members, for example when, as a gesture parents sell their property to their child but charge them less than the full open market value. This can however, cause problems. If your seller (in this case, your parents) are found bankrupt up to five years after the sale, the transaction could be ‘set aside’ by the trustee in bankruptcy. This would result in you losing your home and financial investment.

In cases like this and when you are having a mortgage, it is likely your solicitor will ask the seller’s solicitor for an insolvency indemnity policy. The indemnity policy would cover your lender financially should they suffer a financial loss because the property is subject to transfer at undervalue and could be challenged under the provisions of the Insolvency Act resulting in the setting aside or attempted setting aside of the transaction.

Your solicitor can also ask the seller’s solicitors for a statutory declaration of solvency. This is a statement signed by the sellers confirming that they are solvent. These declarations will need to be sworn in front an independent solicitor or commissioner of oaths (this cannot be either parties’ solicitors or anyone from the respective law firms). There is usually a small fee for this service.

It is also prudent to carry out a Land Charges search at the Land Registry against the sellers, this will also provide evidence as to whether there are bankruptcy proceedings currently taking place against the sellers.

If you are purchasing with the aid of a mortgage, it is highly likely your lender will insist on a Statutory Declaration of Solvency and Solvency Indemnity policy and will not proceed to release funds to your solicitor until they can confirm they hold these documents.

Your conveyancing solicitor at Gomer Williams will be able to explain the above in more details therefore please contact the office on 01554 755101.