The Costs of ‘Costs of Sale’

As part of the computation stage of financial remedy proceedings great care is taken to ascertain the accurate net value of the family home and other property owned by the parties or in which they have an interest. Parties instruct chartered surveyors to value the property and accountants to calculate CGT figures; the up-to-date mortgage balance is used and careful consideration is given as to whether it is appropriate to include any exit fee and/or early redemption penalty.

A further important aspect of this process is the deduction of notional costs of sale: the costs of actually selling the property, principally estate agents charges and the costs of conveyancing solicitors and their disbursements.

Estate agents are often willing to charge a fixed-fee of a few thousand pounds for this service irrespective of the value of the property. The fees of conveyancing solicitors are often little more than £1,000 for a standard transaction. This means that – combined – the fees for agents and for solicitors may be little more than £2,500 – £3,000 + VAT. Even conventional estate agents in today’s property market are unlikely to charge more than 1.5% + VAT and often materially less.

But notwithstanding the efforts that are otherwise made to ensure accuracy, the ‘default’ for costs of sale in financial remedy proceedings remains 3%. It is the default percentage in the ES2. This means notional costs of sale of £15,000 are deducted from a property worth £500,000. This may be five times the fixed fee. 1.5% + VAT on such a sale would be £9,000.

On any view, thousands of pounds will therefore routinely – and arguably inaccurately – go missing from the ES2/Schedule of Assets as a cost of sale percentage is used that in all likelihood bears no relation to reality. This can skew the figures – and outcome – both in a sharing case and often more critically in a needs case when a court considers what a party may have available to them in order to rehouse.

But where does this 3% figure come from?

The answer is Behzadi v Behzadi [2009] 2 FLR 649 per Wilson LJ (as he then was) who stated as follows (emphasis added):

‘[7.1] The wife has, or was taken by the judge to have, three inherited properties in Tehran … Their total value, according to a jointly instructed valuer, is equivalent to £474,000 … The judge did not allow for costs of sale, as to which there was no evidence; but in this court Mr Wise rightly concedes that there must be costs of selling real property in Tehran and that, in the absence of evidence to the contrary, they should be taken at the percentage nowadays conventionally taken in respect of the sale of real property in England and Wales, namely 3%. That leaves £460,000.’

This appears to be it. This percentage figure is not a requirement or something that a higher court has explained and prescribed. It is – at its highest ‘conventional’ – the same word used by Nicholas Francis QC (sitting as a deputy High Court judge) in SJ v RA [2014] EWHC 4054 (Fam), who referred at [29] to the need to deduct ‘the conventional notional 3% costs of sale’. It has never been said to be either accurate and/or reasonable.

No court has therefore ever prescribed 3% – or any percentage – as the correct figure. It was simply said – originally in a judgment of 8 October 2008 and hence now approaching 17 years ago – to be a ‘conventional’ figure.

The current landscape

Times have moved on – and property prices have continued to rise – meaning that ever greater sums go missing from ES2/Schedules of Assets.

It is therefore hoped that if the court is presented with clear evidence to the contrary, most likely local agents’ commission rates, it should be inclined to depart from this convention.

In L v L [2021] EWFC B83 His Honour Judge Booth (sitting as a deputy High Court judge) at [42] resolved the issue as to the notional deduction at 1.25% ‘relying on judicial notice of the housing market in the absence of expert help’. He also noted that the single joint expert ‘could have been asked that question’.

It is of note that the editors of Butterworths Family Law Service refer to L v L – a Manchester case – at [844.5] stating that although 3% ‘has become the “industry standard”’ ‘regional variations appear to be used. For example, in the north 2% is more commonly used for costs of sale.’

A more flexible evidence-based approach is also evident from GW v GH [2023] EWFC 298 (B) per District Judge Napier. This judgment is not technically citeable but it does provide a useful example of a more evidence-based approach. The district judge said as follows:

‘[33] Turning then to the various factors concerning computation, and first the costs of sale. There is the traditional argument between 2 per cent and 3 per cent. There is no fixed rate at law. In Behzadi v Behzadi [2008] EWCA Civ 1070 Wilson LJ referred to the percentage conventionally taken as being 3 per cent. That was a convention from 15 years ago.

[34] The best evidence here is the rate actually achieved on the forthcoming sale of Property C. That rate is, according to my calculation, 1.7 per cent and that is a London property. The West of England is a different market, but the Court has the benefit of three estate agent valuations for the FMH. The rates, once VAT is added, are nowhere near 3 per cent and, on my calculation, are all less than 1.5 per cent. I accept there will be legal fees to add on top. Therefore, a reasonable cost of sale to be applied to all properties except Property C, is 2 per cent. For Property C, the actual costs of sale in the sum of £34,946 should be used, as per the ES2.’

If there is to be a ‘conventional’ figure it is suggested that 2% (taking account of VAT) is the highest it should be and that there is a persuasive argument that 1.5% or 1.75% should be used. However, it would be far better if care is taken to ascertain the commission rates used by local estate agents so that accurate figures can be used so that thousands – often tens of thousands – of pounds are not routinely missed from ES2/Schedules of Assets.