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’.
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
