RECOMMENDED SOLICITORS & INCREASING GROUND RENTS; DISCOVERING HOW RECOMMENDED SOLICITORS WERE SELECTED
This article will focus on how it might be established whether there was a pattern in the appointment and rejection of recommended solicitors by developers, which meant that their recommended solicitors, as a group, were likely not to warn buyers about the risks associated with escalating ground rents
Cost has been advanced as a benefit of having “recommended”, or “panel”, solicitors in the purchase of new build leaseholds because title only has to be reviewed once but if reviewing title (which would include the terms of the lease) is only done once, by one individual, and an onerous term is overlooked, there will be no mechanism for correction; later purchasers will all fall with the first, like a chain of dominoes.
This problem is compounded if the selection of recommended solicitors has skewed the advice given.
This is a slightly revised version of the second of what will be three articles on recommended solicitors and how their recommendation by developers of new-build leaseholds with escalating ground rents may have impacted on the advice received by individual buyers. This article will focus on how it might be established whether there was a pattern in the appointment and rejection of recommended solicitors by developers, which meant that their recommended solicitors, as a group, were likely not to warn buyers about the risks associated with escalating ground rents. The third article will deal with possible remedies against developers although there may well be a bit on the more obvious remedy of claiming against the conveyancer who acted in the purchase and also on the critical question of what might constitute an onerous lease.
As with my preceding article I emphasise that I am not suggesting that all those who acted as recommended solicitors failed the buyers for whom they acted, nor am I suggesting that those who were not recommended solicitors were immune from failing to detect and advise upon onerous lease terms. I should perhaps add two further caveats, first that those solicitors and conveyancers, recommended or unrecommended, who discharged their duties properly and explained the onerous nature of ground rent clauses are unlikely to have attracted publicity in the way that those who failed or are alleged to have failed in their duties are likely to have done. The second caveat is this: different developers had different leases and that which has attracted the most publicity was a particular lease offered by Taylor Wimpey, beyond that, what constitutes an onerous lease is a subject of debate (it is something with which I shall deal in the third article) and the majority of developers would deny that they have offered leaseholds subject to onerous terms.
Before going on to consider how it might be established precisely how recommended solicitors came to be selected, let me explain a little more about why it may be important.
Recommended solicitors did not appear from thin air; in evidence to the Housing Communities & Local Government Select Committee on the 18th November 2018, Jennie Daly, who sits on the board of Taylor Wimpey, said this:
“To assist customers, Taylor Wimpey does, as do many of our competitors, identify solicitors who are familiar with the development, operate locally and are familiar with new home sales.”
and, also in evidence the same day, Jason Honeyman, Chief Executive of Bellway, said:
“We provide a local list of solicitors on each development and often get asked by purchasers for assistance, whether it is flooring contractors, solicitors, curtains and carpets, those types of things. We have a list of solicitors that are local to that development. We would put on that list where we have previously had experience that they are providing a good service to our customers. There are no commercial relationships between Bellway and any solicitor. We have never received any referral fees. That list will change from region to region across the country.
“If I could just explain the purpose, some conveyancing solicitors are set up to work with new builds, to run volume through their business because they have a lot of conveyancers. Those types of solicitors are used to working on developments such as ours or Taylor Wimpey’s. Some conveyancers are more boutique, or there are just one or two partners in that practice, and would be slower and less helpful. We always find the repetition and the volume guys provide a better price to the purchaser and are more used to that type of land.“
As I will explain further below, the main problem is unlikely to have been any deliberate collusion between solicitor and developer but whether the selection of “recommended” or “panel” solicitors, skewed the advice intending purchasers were likely to receive.
Jennie Daly’s reference to “identify[ing] solicitors who are familiar with the development” suggests that recommended solicitors must have had a level of pre-selection contact with developers because, short some improbable recourse to physic powers, a solicitor could have no familiarity “the development” unless the developer had provided sufficient information to have brought about the necessary familiarity.
The question which follows naturally from that, is to what extent did interaction go both ways? For example, did the potential panel solicitor provide a sample report on title and/or a letter of advice or give some prior indication of their likely content? If so to what extent was the selection of recommended solicitors dependent upon what went back to the developer? To what extent were there warning signs about onerous terms which were overlooked or which resulted in solicitors providing a cautionary report on title/letter of advice being rejected?
Just as importantly, might the very fact of establishing a panel have impacted on the advice potential purchasers were likely to receive?
Consider this: a firm of solicitors is approached to see if it might be interested in becoming a recommended solicitor for a developer, there will be a quantity of work involved (note Jason Honeyman’s reference to the “repetition and volume guys“) and if problems with a particular lease are picked up and the firm’s advice is likely to be “this lease has onerous terms and you ought to think very, very carefully before proceeding any further with this purchase”, the firm may well anticipate that the volume of conveyancing work it is likely to receive will dry up very quickly and judge that this is not the development on which to be a recommended solicitor. The firm which fails to see the problem, on the other hand, will not be put off and may well in due course become a recommended solicitor.
Another issue is that every client of a solicitor is entitled to expect that the advice they receive has been considered on their behalf, or, if it is not to be considered individually, at least to be told that the benefits of a lower cost may be at the expense of individual scrutiny. The indications are that there was no individual scrutiny, in this regard, not only may the already cited reference to the “repetition and volume guys” be pertinent, but also this later exchange between the Chair of the Committee and David Jenkinson of Persimmon Homes:
David Jenkinson: Can I just explain? The real reason Persimmon uses a panel of solicitors is to save the customer money because they only need to review the title once. If you go each individual time, the biggest part of actual cost from a sale is to review the title.
Chair: You are saying, “That is the solicitor to go to because they will do it more cheaply for you”.
David Jenkinson: No, they will save them the cost of doing the title.
The saving of costs was also mentioned in the latest evidence given to the select committee but the potential difficulty is that, if reviewing title (which would include the terms of the lease) is only done once, by one individual, and an onerous term is overlooked, there will be no mechanism for correction; later purchasers will all fall with the first, like a chain of dominoes.
Establishing the mechanics of the process of selection is potentially important because it may go to whether the advice received by purchasers could properly be characterised as truly “independent” or whether the overall circumstances are such that a duty of care could be imposed in relation to the selection of recommended solicitors under the principles enunciated by the House of Lords in Caparo Industries Plc v Dickman  2 A.C. 605 (I will deal with this more in the third article). How might this be done?
There is already a campaign for an enquiry into leasehold mis-selling and a judicial enquiry with power to compel the attendance of witnesses and to order disclosure of documents, would have the powers necessary, provided the use of recommended solicitors was included within its remit, to establish answers to the questions posed in the first part of this article, which are expanded and set out in point-form below:
- What were the mechanics of the selection process?
- Who approached whom and what were the terms of that approach?
- What criteria did the developers apply in selecting solicitors?
- Did developers either ask for examples of reports on title and letters of advice from potential recommended solicitors or were the developers otherwise aware of the solicitors’ general practice?
- Which solicitors were rejected and why?
- Which solicitors declined to act as recommended solicitors and were their reasons for declining ever established or followed up?
- Was there a discernible pattern in the acceptance and rejection of recommended solicitors?
- To what extent were developers aware of the pitfalls of escalating ground rents?
- How consciously did developers pursue a strategy to ensure sales of what many buyers would now describe as “toxic leaseholds” were not impeded by properly cogent legal advice?
Others may well come up with additional questions.
Naturally, some people will suspect there was deliberate collusion between recommended solicitors and the developers and, of course, any enquiry should investigate that possibility assiduously; personally I am sceptical that there was deliberate collusion, and, to the extent it may be found to have occurred, I doubt that it was widespread – but I may be wrong and certainly questions asked by the Select Committee suggested evidence had been received of recommended solicitors being pushed by developers’ sales staff was worrying, if not direct evidence of collusive behaviour.
I hope I am not wrong about collusive behaviour, however, because it would point to a much deeper malaise at the heart of the conveyancing professions than I believe exists. Most conveyancers, I think, endeavour to do their honest best, Sadly that honest best may not always be good enough and, that leaseholds with escalating ground rents were sold in such numbers, is indicative of widespread shortcomings in conveyancing practice. Honest errors, however, are capable of being remediated by better education and training (which is why I am happy to have played my part in that by being involved with training webinars for the Conveyancing Quality Scheme for the Law Society) whereas the causes of dishonest errors are not so easily remedied.
Of the various ways of establishing what happened with recommended solicitors, my first choice would be a judicial enquiry. A lesser form of enquiry without powers to compel attendance of witnesses and the disclosure of documents would, in my view, be stonewalled and would, in all probability, fizzle into something inconclusive and unsatisfactory.
But there may not be the stomach for a judicial enquiry in Government circles, certainly not with the MHCLG under its present Minister, who has already expressed the view, in effect, that the past cannot be corrected. What options might individual leaseholders be able to pursue?
There are essentially two options both involving litigation whether by an individual or a group of individuals. The first, making a claim and seeking disclosure in the course of it, would be inherently risky. Making a substantive claim involves having a formal statement of case set out and framing a claim with the requisite degree of precision before disclosure has been obtained would be difficult. Disclosure can, however, be obtained before the issue of proceedings under CPR r.31.16 where:
- the applicant and the respondent are likely to be parties to subsequent proceedings;
- if proceedings had started, the respondent’s duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and
- disclosure before proceedings have started is desirable in order to –
(i) dispose fairly of the anticipated proceedings;
(ii) assist the dispute to be resolved without proceedings; or
(iii) save costs.
There is no jurisdictional requirement that a claim must have a minimum level of merit – ECU Group Plc v HSBC Bank Plc  EWHC 3011 (Comm)
Questions of merit are properly considered as part of the court’s exercise of discretion in the context of the particular case – Smith v Secretary of State for Energy and Climate Change  EWCA Civ 1585,  1 W.L.R. 2283,  12 WLUK 173.
In the case of a purchaser who had used a recommended solicitor and purchased a leasehold property from a developer:
- the direct contractual relationship between the parties,
- the well-established history of concern about the role of recommended solicitors
- the likelihood that disclosure may well determine whether in a particular case any claim should be brought, and
- that any application could be focused in time on the period when, in relation to any particular development, recommended solicitors were appointed.
would probably militate in favour of pre-action disclosure.
One thing that would be very hard to maintain as a ground for opposing disclosure would be legal privilege. It has been central to the developers’ position that there was no contractual relationship between themselves and recommended solicitors; claiming privilege would be dependant upon some form of retainer having existed.
Insofar as there may be an issue of limitation, the fact that developers have maintained throughout that the buyers received independent legal advice, would, if it turned out that the advice had not been truly independent, probably engage the concealment exception under Limitation Act 1980 s.32(1).
The position would be quite closely analogous to that in ECU Group Plc v HSBC Bank Plc (above), which concerned an allegation of “front-running” on the currency markets: long-standing suspicions dating back to 2006 did not amount to knowledge of the fact, and the company could not with reasonable diligence have discovered the truth at the time as all the relevant information was in the exclusive possession of the bank.
Applications for pre-action disclosure do have the disadvantage that the reasonable costs of providing the information have to be borne by the applicant but where an application could be pursued by a group of purchasers that would reduce the individual costs. However given that such applications would probably need to be pursued on a development-by-development basis, the saving in time & cost of investigating the interrelation between recommended solicitors and leasehold mis-selling as part of a judicial enquiry would seem a compelling argument in favour of that course.
This blog post does not constitute legal advice and no duty of care is assumed by the author to anyone reading this post or acting upon its content.
© Rawdon Crozier 2018. This Note is copyright and the author asserts his right to be identified as the author. It is licensed for onward NOT FOR PROFIT transmission only, on terms that the author must be identified as such.