Showing posts with label professional negligence. Show all posts
Showing posts with label professional negligence. Show all posts

Wednesday 14 December 2016

The New Build Ticking Time Bomb

Most large developers of new build property actively look to steer buyers in the direction of a ‘friendly’ conveyancer.  This step is taken for several reasons mainly to do with the developer’s desire to exercise a degree of control over the buyer’s solicitor.  The influence exercised is discreet but there is no getting away from the fact is exists and raises serious professional issues in relation to conflict of interest and independence.  I wonder how many of these conveyancing firms report this situation in accordance with Chapter 10 (Solicitors Code 2011) obligations and or in accordance with COLP reporting requirements.

This situation has come more into focus with the recent uncovering of failures on the part of some of these firms to advise fully on the mechanics and long term consequences of rent review clauses contained in leases.  It is claimed that this failure is widespread and could result in a wave of professional negligence claims.

Many buyers of leasehold new build property have been unaware that the ground rent on new-build leasehold properties purchased can escalate dramatically in the future.  This is where the lease provides for the rent to be double every 10 years, for example.   Some developers have changed their approach and have linked the rise in ground rent to the retail price index which is a much fairer and less onerous mechanism. 

In a statement issued by one of the large developers Taylor Wimpey it is stated:

“We reviewed the mechanism for ground rent increases in 2011 and decided that the RPI was a more appropriate measure going forward. All Taylor Wimpey homes on developments commenced after 2011 have been sold with ground rent increases linked to the RPI. All purchasers have independent legal advice.

“Until recently, we hadn’t been aware of the concern of some customers and homeowners regarding these pre-RPI clauses and the difficulties that they are currently experiencing in selling or mortgaging their homes. Having heard the cases described and in order to establish the facts, we are undertaking a review.”

A conveyancer acting for the buyer owes both the buyer and if the buyer is purchasing with a mortgage, the lender a duty of care which would require that conveyancer to bring to the buyer’s and lender’s attention any part of the lease which could be viewed as onerous and which could materially affect the value of the property.

In addition to this the Consumer Rights Act (2015), gives home owners the opportunity to seek legal redress against solicitors where they can prove they were not given adequate information to make an informed decision.

Many of the ‘friendly’ conveyancers concerned are financially dependent on this type of ‘referral’ and it must be questioned whether the advice they provide to buyers is completely independent. Some cannot afford to lose this source of work and often hesitant to do anything which could be seen by the developer as ‘hindering’ the progress of the transaction. The degree to which this may have contributed to the failure to properly advice has yet to be investigated but it is clear that given the spate of professional negligence claims it will not be too long before this well-established practice within the industry is fully exposed.

It will also be interesting to see how the role of the developer’s selling agent will be viewed and considered.  Many of these agents are paid on a commission basis and are often very ‘pushy’.  There have been examples quoted of an agent ‘selling’ the property on the basis of a monthly ground rent figure rather than a yearly figure resulting in a misleading picture of the true cost of the purchase.  It will be also interesting to see whether a Court could look to apportion some or all of this liability in the developer’s direction if it could be shown that the relationship between the developer and the ‘recommended’ solicitor was so close that it amounted to an ‘agency arrangement’.

Cosy arrangements of this type must come to an end ( as they do not serve the buyer’s best interests)  and it seems the bubble enjoyed by many may be on the verge of bursting soon.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

Saturday 25 July 2015

Is there a need to order a plan search in all purchase transactions? Orientfield Holdings Ltd v Bird & Bird LLP [2015] EWHC 1963 (Ch) (26 June 2015)


The decision in  Orientfield Holdings Ltd v Bird & Bird LLP [2015] EWHC 1963 (Ch) (26 June 2015) should serve as a warning to all conveyancers of the serious financial consequences that can flow from mistakes made when carrying our due diligence on the purchase of a property.   

In Orientfield the buyer’s claim against the conveyances acting on its behalf was for damages arising out of an alleged breach of contract and/or negligence relating to the purchase of a property in London. Contracts had been exchanged, a deposit paid by the buyers of £2.575 million and completion fixed for the 4th April 2011.

The  buyer sought damages contending  that its former conveyancers were in breach of duty as they had not informed the buyer of the impending development of a school, which the conveyancers had been aware of from a planning search carried out by them.

The trial took place during June 2015. The conveyancers argued that the buyer had bought the property solely as an investment in central London whereas the buyer said it was bought as a residence in retirement for the owner of the its Company.

The conveyancing transaction included a Property Information Form completed and signed by the Sellers. In the question headed Notices and Proposals they had marked ‘no’ in respect of any notices or letters received which would affect the property and in answer to whether the sellers were aware of any proposals for development nearby, they had written that the buyers should make their own enquiries, which the conveyancers had queried with the sellers solicitors as being an unsatisfactory answer.

In email correspondence the sellers solicitors told the conveyancers to carry out a Plan search which they did and which revealed all the planning proposals for the area including the school. The conveyancers sent their report on title of 9th November 2010 to the buyer without revealing the results of the Plan search and confirming to the buyer  the local authority search result “which does not reveal anything adverse”.

After receiving the report on title the buyer gave instructions to the conveyancers to proceed to exchange of contracts with the deposit of £2.575 million paid.

The buyer’s friend in this Country discovered through talking to neighbours, the proposal to redevelop the school.

The buyer then contacted the conveyancers via emails who sent her a copy of the Plan search result with a comment that as they had not seen the search result, they may wish to take independent legal advice.

Email correspondence followed between the Claimant and conveyancers asking for the purchase to be rescinded on the basis that the sellers had not disclosed the school development. The conveyancers did not follow up on this or advise the Claimant to obtain a valuation of the property before rescission. The conveyancers appointed Counsel to advise on whether the sale should be rescinded. Counsels advice identified three reasons why rescission would prove difficult and also risky, one being that there was no evidence the notice of development had been sent to the property.

A property litigation lawyer was subsequently engaged by the buyer and notice of rescission was served on the basis that  “the answer to question 3.1 in the PIF was untrue because (i) the Plants had received notice of application for both outline planning permission in 2008 and detailed planning permission in 2010, (ii) the Plants had commissioned Knight Frank to submit a detailed objection on their behalf at outline application stage and (iii) with others, had objected via Boisot Waters Cohen at detailed planning stage”.


Negotiations took place and the proceedings were settled before trial on the basis of a 50/50 split of the deposit. 

The buyer then brought proceedings against the conveyancers for breach of contract or duty and their failure to let the Claimants know about the Plans search results and the Defendants failure to investigate the results in an effort to recover the other half of the deposit and unrecovered costs.  The conveyancers denied breach of duty using and argued that even if there was a breach there was no causal link between the alleged failure to advise and the consequential loss. Essentially arguing that the buyers would have still proceeded with the purchase in any event. 

His Honour Judge Pelling on considering Breach of Duty found in his judgment that the conveyancer  “was in breach of his duty by failing to include in the ROT a summary of the effect of the Plan search report, the further investigations that could be undertaken with the LPA without undue difficulty, cost or delay, and to invite instructions in the light of that summary. By doing so, he would have given Ms Chow the opportunity to decide whether she wished to proceed, withdraw or obtain further information before deciding”.

In considering Causation, His Honour Judge Pelling ruled that the final point to prove this issue was the email to conveyancers acting on the property purchase where the Claimant had said
“I am sure I would not have entered into the purchase agreement if I had known that there was going to be a school for 1250 pupils and 250 staffs in the same block as my property.”

He continued that even though the buyer had become aware of the conveyancers failure to reveal the results of the Plan search and had taken other legal advice, he did not believe that the email was anything other than it was “reflective of her honest belief at that time”, which she had expressed long before the start of the proceedings. He was satisfied that the Claimants had “established the causal link necessary to maintain its claim in damages for breach of duty against the defendants”.

The decision is to be appealed. 


Lessons to learn


There are a number of unanswered questions arising from the above which makes it difficult to carry out a complete and fully informed evaluation of the decision and its practical consequences. 

To begin with its unclear why the buyer agreed to compromise on the financial consequences of rescission when it seems the seller had not acted in good faith when failing to disclose the fact that notice of the development has been received by the seller but the seller had failed to disclose this in the Property Information Form. It seems to be that there had been a deliberate concealment which should have provided a more than sufficient basis to justify a clean and complete rescission of the contract.  Perhaps the buyer was not too concerned about not making a full recovery given the fall back of a claim against the conveyancers.  

It would have been interesting to know whether there would have been a different outcome to  the rescission discussions had the conveyancer not sought a plan search and had proceeded to report to the buyer solely on the basis of the Protocol documents. 

The decision clearly reinforces a message which seems to have become lost in the age of the Protocol that when acting for a buyer greater energy and scrutiny needs to be given to the replies to the answers given by a seller in the Property Information Form and related communication.  Its unclear why the conveyancers did not press the sellers solicitors for an answer to question 3.1 of the property information form  and not accept what is fast becoming a standard reply of ‘rely on your own searches’.  The seller should be required to answer 3.1 with a ‘yes’ or a ‘no’.  A search will not reveal whether  a  seller has received a planning notice.  Only the seller would know and this is why the question is raised in the Form. 

This was  the first error made by the conveyancers and one which is reflective of a more growing and widespread practice.  

It is clear a failure to disclose a search report having received one is not advisable especially when it should have been obvious having read through it that it contained information highly relevant to the transaction. The unanswered question is whether this decision would have been the same had the report been sent to the buyer but without comment and advice on its content.  Looking at the judgment it would on the face of it appear that the mere disclosure of the report would not have been sufficient, though this is far from clear, particularly when there must be a reasonable expectation that a client having received the report would have read through it. 

The other unclear aspect is whether there is in fact an obligation on a conveyancer to always commission a plan search or at the very least advise that one should be obtained.  My view is that the latter should at the very least form part and parcel of the practice of a comment conveyancer. By advising the client of the insufficiency of the local authority search when it comes to pending planning applications the client should be advised in clear terms that a plan search should be sought or at the very least the client should make their own enquiries with the local authority. 

At the end of the day the conveyancers in this case really do not have any excuse for the failures and I doubt any appeal will be based  on the breach of duty issue.  I suspect what has happened here is that the report has come in and was overlooked.  In a bust conveyancing practice this can happen.  The more avoidable error was the  failure to push the sellers solicitors on providing further information on the reply provided to question 3.1 of the Property Information Form.  The readiness to accept an unacceptable reply to that question was the beginning of a very bad day for those conveyancers. 

MJP Conveyancers are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@mjpconveyancing.com

Thursday 18 December 2014

Advice to a selling client on a request for a reduced deposit

Accepting a reduced deposit on a sale transaction without explaining the risks and seeking a client’s explicit instructions could expose you to a costly professional negligence action if the transaction fails to complete ( see Morris v Duke Cohan ( 1975) 119 SJ 826) . 

The question all practitioners should be asking is whether the seller will be adequately compensated for any loss on an aborted transaction post exchange of contracts.

So what sort of advice should in these circumstances be given?

The advice we give is in the following terms and is designed as can be seen to ensure that the seller client has been given written advice on the risks in the hope that the client can then make an informed decision on the request.

‘Your buyer(s) is asking to pay a deposit on exchange of contracts which is lower than the sum normally payable, that is 10% of the purchase price. 

The deposit is either paid to us (for us to hold) on exchange of contracts, or is held by the seller solicitors to our order.  That is to say, the seller’s solicitors would be required to pay the deposit to us if and when requested.  They would not be able to refuse or release the deposit to the seller.

We are under a duty to bring this to your attention and to seek your written instructions on the request before proceeding.

The main reason why a deposit is paid is because, if your buyer fails to complete the transaction  ( which is rare but not unknown) , you can forfeit the deposit ( that is keep it) which can then be used to cover your abortive sale costs, the cost of re-sale, and also if necessary the cost of  interest on a bridging loan if you have a related purchase and wish to continue with that transaction. 

For this reason we always advise that the full 10% deposit should be paid so as to ensure that if the transaction does not complete you will not be out of pocket. 

If you were to accept a 5% deposit for example, then if the transaction did not proceed to a completion you would still be able to claim the other 5%,  but as this is not held by us or by the buyers solicitors to our order, you would have the inconvenience and cost of having to take the buyer to court to collect the unpaid part of the deposit.  You may also find that the sum which you do have access too is wholly inadequate to compensate you for your loss.

The purpose of this note is to explain the consequences of accepting a reduced deposit so that you can make an informed decision on the request before providing us with your written instructions.  For this reason if you would like us to explain the above in any further detail please feel free to contact us.

We now await your written instruction’.


David Pett – Director and Solicitor with MJP  Conveyancing 

You must not rely on the information on this website as an alternative to legal advice from your solicitor or other professional legal services provider.   If you have any specific questions about any legal matter you should consult your solicitor or other professional legal services provider. You should never delay seeking legal advice, disregard legal advice, or commence or discontinue any legal action because of information on this website.

Thursday 27 January 2011

Ground Rent Disputes


MJP solicitors are currently assisting 23 clients who are seeking to recover damages from their former solicitors for professional negligence for failing to properly advise as to the consequences of a ground Rent revision in their lease which will considerably increase the ground rent payable at the 25 year review period.

If you have a similar concern or wish for further information please contact David Jones on  01603877000 or by e-mail at davidjones@m-j-p.co.uk

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