ESCALATING GROUND RENTS & THE ROLE OF RECOMMENDED SOLICITORS.
Below is the text of a brief submission I made to the DHCLG but first a little additional background as to why I made it.
The role of recommended solicitors has been much commented upon and has generated a fair amount of fury on the part of buyers who felt themselves inadequately advised about escalating ground rents. A survey by the Leasehold Knowledge Partnership found 71% of leasehold house buyers used developer recommended solicitors. The possibility of claims against recommended solicitors has been widely canvassed in the media, as another article on the LKP website illustrates, but beyond that and a general expression of outrage, the “recommended solicitor problem” has not been forensically analysed, hence the submission below, which asks in effect “How did recommended solicitors get recommended by developers of new-build leaseholds with escalating ground rents?”
When new-build leaseholds with escalating ground rents started to come on to the market (from about 2009), it is a matter of record that many solicitors were not alive to the pitfalls with which such properties came but it is unlikely that they were all unaware. Notwithstanding this, the lack of awareness seems to have been particularly widespread among recommended solicitors. Let me make this clear, more research is needed and I am not suggesting that all recommended solicitors failed buyers, let alone making any comment on individual cases, but, if it is right that the unawareness was particularly prevalent among recommended solicitors, it is a legitimate area of enquiry to ask how that might have come about?
This is what I said in my supplementary submission:
I have already made one submission but given the extended deadline I thought I ought to add something re one matter I had neglected to comment upon which is the role of recommended solicitors in relation to leasehold mis-selling. I think the selection of recommended solicitors by developers has been insufficiently considered.
It is a matter of record that many buyers of “new” leaseholds with escalating ground rents complain they were not properly advised by recommended solicitors.
It does not seem to me that the process of how solicitors came to be recommended has been considered.
Did developers, for example, select solicitors to recommend on the basis of draft reports on title?
If so did developers effectively make their recommendations based on the advice they knew in advance such solicitors would provide?
If so there is a case for saying that, even if the solicitors acted in good faith, the developers had assumed a duty of care towards the buyers and ought to be liable for the advice buyers received.
Given that the current Minister has indicated reforms are not going to affect past transactions this may be of some importance as to the justification for such a course.
Ibraheem Dulmeer of the Leasehold Advisory Service and I wrote about the chequered history of recommended solicitors and the potential ethical difficulties of acting as a recommended solicitor in the Law Society’s ‘Property in Practice’, Issue 59, June 2017 in an article reproduced on Lease’s website . On the back of that I was invited to supply the leasehold module for the Law Society’s Conveyancing Quality Scheme 2018 update, which I did with an experienced conveyancer, Suzanne Broughton of Wolferstans solicitors (in fact we ended up contributing 3 of the course modules). The specification for the leasehold module specifically asked that we should cover:
- Understanding the potential dangers of buying or lending on leasehold properties with leases containing provisions for escalating ground rents and other excessive charges
- Advising clients of the risks of proceeding with such transactions.
- Understanding the potential for claims against conveyancers if clients are not properly advised.
This is something, I take as an implicit endorsement of the original article, and its cautions about the position of recommended solicitors. Those cautions are now expressed in amplified form in the CQS 2018 leasehold module.
This is why it would be interesting to know how recommended solicitors were selected. Not only about the mechanics of the selection process, but the criteria the developers applied. It would be interesting to know too, what solicitors were rejected and why? Most of all it would be interesting to know how aware of the pitfalls the developers were and how consciously they pursued a strategy to ensure sales of what many buyers would now describe as “toxic leaseholds” were not impeded by properly cogent legal advice.
If there was a pattern in the appointment and rejection of recommended solicitors which meant that recommended solicitors, as a group, were likely not to warn buyers about the risks associated with escalating ground rents, or at least not in terms which buyers would readily understand, to what extent can the buyers be said to truly have had independent legal advice?
In this scenario, those who acted as recommended solicitors and who did not give adequate warnings about escalating ground rents, may have been entirely innocent of any collusive behaviour with developers but, in their selection, the advice given to buyers may, nonetheless, have been pre-determined by the developer.
That is why I do not think it is enough for the Government to say in effect: “This has all turned out terribly and (when eventually we have time to legislate) we will make sure it doesn’t happen in the future but the past is the past and we can do nothing about that.” Unless and until the role of recommended solicitors has been investigated and in a thorough and forensic way, the suspicion will remain that something did not simply go wrong but was caused to go wrong and, if the advice given to buyers was controlled by developers, it would be very much harder to justify letting what happened in the past go by uncorrected.