The Solicitors Regulation Authority’s 2019 review of the residential conveyancing sector found shortcomings in the advice some firms gave to leasehold homebuyers.
In what the SRA describes as a ‘dangerous assumption’, several firms said that they saw no reason to explain the difference between freehold and leasehold, assuming the client would already know or the estate agent would have already explained it. Ultimately this leads to the question as to whether the solicitors have breached their duty of care.
As a result of the SRA’s review, six law firms have been referred to the regulator’s internal disciplinary processes. No doubt these firms will have their Reports on Title scrutinised.
Regarding leasehold advice, the SRA report found:
- Nearly a quarter of firms did not explain the difference between freehold and leasehold properties, with some relying on the client’s knowledge or information provided by an estate agent.
- One out of five people who had purchased a leasehold property did not remember being provided with any information on the length of the lease, service charges and other payments such as ground rent.
- 26% of clients did not recall being given a draft copy of the lease to review prior to signing it.
- 17% did not think that their solicitor had clearly explained the features of their lease – rising to one in three among first-time buyers.
Leasehold reform campaigner Louie Burns of The Leasehold Group of Companies, said: “Conveyancing solicitors who are found to have given inadequate or misleading advice should be held accountable and leaseholders must be given adequate compensation.”
When inadequate advice only becomes apparent years later
A buyer may not appreciate the significance of a lease provision when the purchase completes. The ground rent problem may only become apparent years later, when a buyer’s conveyancer or mortgage lender examines the lease during a sale or remortgage.
The issue could concern the remaining lease term, an escalating ground-rent provision, high service charges, anticipated major works or a provision dealing inadequately with repairs, insurance or the management of the building. The fact that the original purchase completed with a mortgage does not necessarily establish that the provision was explained to the buyer or that other lenders would have regarded the property in the same way.
The original report on title is therefore an important starting point. It may show whether the buyer was told what the lease required, how payments could change and whether a particular provision could affect a future sale, remortgage or lease extension. The lease, replies to enquiries, mortgage papers and correspondence from the original purchase may provide further evidence of what was identified and investigated.
The original lender’s written conveyancing requirements may also matter. Lenders’ requirements are not uniform and can change over time. Looking only at a lender’s current requirements may therefore give an incomplete picture of the position when the property was bought.
A difficulty encountered on a later sale or remortgage does not, by itself, establish that the original advice was inadequate. That requires consideration of the lease, the information available at the time, the work undertaken and what the buyer was actually told.
One example is an escalating or onerous ground-rent provision that is only fully appreciated when the owner later tries to sell or remortgage. When I Bought explains what may need to be examined when a ground-rent problem is discovered after purchase.
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