Review of conveyancing solicitors finds concerns relating to leaseholds and fees
A review of how solicitors offer conveyancing services has found many do not explain the difference between leasehold and freehold and raised concerns about transparency relating to fees.
The Residential Conveyancing Thematic Review from the Solicitors Regulation Authority (SRA), found that while overall most solicitors are doing what they should, there are a number of issues.
In almost a quarter, some 23%, of leasehold purchases solicitors did not explain the difference between freehold and leasehold models of ownership, instead relying on their client to get this information from elsewhere.
One out of five of people who had bought 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.
It also found that 26% did not recall being given a draft copy of their leasehold contract to review prior to signing it and 17% did not think that their solicitor had clearly explained the features of their leasehold arrangement, rising to one in three among first time buyers.
Legal process failures by firms included failing to advise on issues relating to leasehold properties and common pitfalls, for example shared ownership, increasing ground rent, and this was a concern as leasehold purchasers can find themselves liable for fast rising charges, such as ground rents which the Government is hoping to stamp out.
The research also found that while all the firms reviewed by the SRA gave clients quotes before agreeing to work with them, in 34% of cases these initial quotes did not include fees for additional work which should have been reasonably anticipated at the outset.
Typically, these missing costs related to processing bank transfers, accessing online portals, mortgage administration fees, electronic ID checks or administering gifted deposits. The report says that not only can this leave buyers having to pay unexpected costs, but there is a concern that some firms may be providing unrealistic initial quotes in order to win business.
The review found that 37% of firms failed to be transparent about the mark-ups they added to the fee a bank charged for making a telegraphic transfer. In some cases, this led to clients being charged as much as 10 times the fee set by the bank.
‘It is disappointing to see examples of poor practice in conveyancing, which is so important to so many people. While many law firms and solicitors provide a good service and act in their clients’ best interests, those who don’t are letting down not only their clients, but also the profession as whole,’ said Anna Bradley, SRA chair.
‘People should be able to rely on their solicitors to be open about what their services will cost, and to explain the potential financial and legal implications of any transaction. When solicitors fail to do this, for example in relation to long term leasehold charges, they may be leaving their clients open to ever increasing and potentially unaffordable financial liabilities,’ she pointed out.
‘We will now be looking closely at how firms are publishing their pricing for conveyancing through our programme of monitoring firms’ websites. We have already published information for the public on the issue of leaseholds and we will be sharing this report with the Government as it considers leasehold reform,’ she added.
As a direct result of the review six law firms were referred to the SRA’s internal disciplinary processes.
Leasehold reform campaigner Louie Burns, managing director of The Leasehold Group of Companies, said the scale of the lack of knowledge being given out on leasehold properties is a major concern.
‘Ultimately it is the responsibility of conveyancing solicitors to ensure prospective purchasers of leasehold properties are aware of the ownership structure, the lease terms and their long term effect,’ he explained.
‘Freeholders constantly use the argument of Caveat Emptor (‘buyer beware’) and accuse leaseholders of failing to properly understand the implications of owning a leasehold property. If conveyancing solicitors are negligent in their duty to provide accurate and comprehensive legal advice to their clients, then how on earth are leaseholders supposed to make an informed decision?’ he added.
He pointed out that a recent report from the National Association of Estate Agents (NAEA) found that 65% of leasehold house buyers used the solicitor their house builder recommended. ‘We’ve seen numerous cases where the leaseholder has been forced to use a developer-recommended solicitor, who has failed to highlight onerous terms in the lease, such as doubling ground rents and unfair service charges,’ he said.
He also pointed out that the Housing, Communities and Local Government Select Committee report on Leasehold Reform, published in March, found that affected leaseholders may have a strong claim that their properties were mis-sold.
‘We support the Select Committee’s call for the Competition and Markets Authority to investigate mis-selling in the leasehold sector and make recommendations for appropriate compensation,’ he concluded.