The House of Commons Housing, Communities and Local Government Select Committee has conducted an extensive inquiry into leasehold reform. This month (July 2019) the government published its response.
It seems that no action will be taken against those conveyancing solicitors proved to have a direct relationship to developers. These solicitors and conveyancers often receive ‘incentives’ for their trouble. However, the committee has called for a ban on financial incentives to encourage an independent and reliable legal service, saying there was no place for ‘coercion or deceptive practices within a modern housing market’.
The National Trading Standards Estate Agency Team will monitor whether the guidance is being followed and report back to government in March 2020, at which time it will be decided whether to take further action.
The Solicitors Regulation Authority (SRA) has a code of conduct in place that requires clear financial information to protect the interest of clients. The Council for Licenced Conveyancers has recently issued a similar code of conduct. The SRA is taking action, having found that in some cases ‘solicitors are potentially leaving their clients exposed to significant risk or potential financial hardship’.
The Commons Select Committee, which conducted the inquiry into leasehold reform, received a ‘considerable’ amount of evidence that developers were incentivising solicitors and insisting on specific solicitors being used. The committee has suggested that the government ban financial incentives.
The Ministry of Housing, Communities and Local Government has, by way of a response, agreed that consumers must be able to access independent and reliable legal advice, stating that there is no place for coercion or deceptive practices. It is established and accepted by the solicitors’ body that clients should be appropriately informed of any financial and fee sharing arrangements.
The SRA has conducted a residential conveyancing thematic review. The review confirmed inter alia that 34% of firms failed to include all of the services and fees that a matter could reasonably expect to attract in their initial quotes. Also it confirmed that in some 37% of cases, firms failed to be open about the real cost of third party disbursements and their firms mark-up on these.
Other potential concerns were identified by the SRA, including solicitors not fully explaining the difference between freehold and leasehold, and failing to double-check that a client understands the long term implications of contractual obligations and fees. In the words of the SRA:
“Whether it’s providing unrealistic or incomplete quotes, or failing to make sure contractual information has been fully understood, solicitors are potentially leaving their clients exposed to significant risk or potential financial hardship.”
The government notes the conclusions of the committee in relation to some solicitors being too close to some developers, but thinks that the existing redress systems in place are adequate.
Chair of the Select Committee, Clive Betts MP, said he was pleased that the government had accepted many of the recommendations, including capping ground rents. However, he felt the government needed to do more for those leaseholders already subject to onerous terms or trapped in leasehold properties they cannot remortgage or sell.
Mr Betts said that, over the inquiry period, he had seen far too many cases where people had been misled by having information not given to them or not fully explained – both of which should be fundamental practice for legal advisers.
As Mr Betts said: “The solicitor is there to act in the best interests of their client and this can be muddied by pre-existing relationships with developers. We are pleased that the CMA has begun action to look into where such relationships may have led to mis-selling in the past.”