The Competition and Markets Authority (CMA) has expressed concern that conveyancers’ advice to leasehold clients may be compromised by their relationships with developers.
An update from the CMA on its investigation into the leasehold said it was concerned more generally that homeowners have been unfairly treated and prospective buyers misled by housing developers, and that it was now planning enforcement action against wrongdoers.
On conveyancing, its report said developers recommending panel solicitors has been “the subject of criticism”.
The CMA said: “It is permitted under professional conduct rules and there are obvious advantages in principle. However, the solicitor’s duty is to act in the best interests of their client, with independence, honesty and integrity.
“There is a risk that this may be compromised if solicitors are concerned to avoid losing the recommendation that comes from the developer.
“This is a matter of concern and goes together with concerns about the effect of some inducements offered to purchasers to move to speedy exchange of contracts.”
Law Society president Simon Davis said a developer recommendation can be appropriate as it may simply be because they have handled a number of transactions on a development and are familiar with the documentation.
“However, there should be no penalty for buyers wanting to instruct a different firm, nor should they feel pressured to use a particular solicitor via financial enticements.
“Solicitors offer impartial advice to their clients independently of developers and/or estate agents. However greater transparency in those relationships could prove to be a benefit to all parties.”
A spokesman for the Council for Licensed Conveyancers said: “Property lawyers licensed by the CLC have a duty to put their clients first.
“Any breach of that is a serious matter and if a purchaser feels they have not been properly advised we would urge them to raise it with the practice and if they are still dissatisfied then with the CLC. People should always be free to make their own choice of lawyer.”
The CMA identified a series of concerns, including escalating ground rents, people being misled about the cost of converting their leasehold to freehold ownership, buyers not being told upfront that a property is leasehold and what that means – and even in some cases being told by developers that it is no different from freehold – and owners being charged excessive and disproportionate fees for things like the routine maintenance of a building’s shared spaces or making home improvements.
CMA chief executive Andrea Coscelli said: “We have found worrying evidence that people who buy leasehold properties are being misled and taken advantage of…
“We’ll be looking carefully at the problems we’ve found… and will be taking our own enforcement action directly in the sector shortly.”
The CMA is now completing all the necessary legal work to launch direct enforcement action against companies it believes have broken consumer protection law. This could result in firms signing legal commitments to change how they do business. If they fail to make the required changes, the CMA could take action through the courts to make them comply with the law.
The watchdog said the evidence also supported the case for changes to the law planned by the government, including supporting the move to ban the sale of new leasehold houses and reduce ground rents for new leases to zero.
Mr Davis said: “We have long called for consumers to be provided early in the buying process with information about the key terms of the lease of the property they are considering. Developers and estate agents should be making the terms explicit from the outset – this is what they are required to do already under consumer protection law.”