MPs call for inquiry into conveyancers who “mis-sold” leasehold advice

Jenrick: Conveyancers failed in their duty

There should be an inquiry into the “mis-selling scandal” of housing developers pointing buyers to preferred conveyancers, who then did not advise on escalating ground rents, MPs said this week.

Several members spoke out on Monday about the role of lawyers as they backed the second reading of the Ground Rents (Leasehold Properties) Bill, which will reduce the ground rent on new residential long leases where a premium is paid to a peppercorn.

Landlords will then not be able to “cheat” by introducing associated management fees and other charges, said junior minister Eddie Hughes, who started the process towards the legislation with a private member’s bill before he was in government.

Speaking shortly before she was reshuffled away from the shadow housing brief, Lucy Powell described the bill as a “very small step” towards “serious leasehold reform”.

She went on: “What I do know is that, unfortunately, many people who bought houses in this situation were advised to use the solicitor of the marketing company or company selling the houses – I have many in my constituency. So they were given poor advice, and this is a mis-selling scam as well.”

Fellow Labour MP Mark Tami agreed. He said: “These people were often first-time buyers, keen to get on to the housing market and get their first home.

“They were told, ‘Don’t use this solicitor or that solicitor; use these ones, and we will give you a discount to use them’, and – shock, horror – many were not even aware… of the property being leasehold, let alone of all the other charges associated with that.”

Another Labour MP, Justin Madders, said that not only were some people told that they had to use particular solicitors, “in breach of Law Society guidelines”, but some were also told that they had to complete within a certain period of time.

“So even if they had used a different solicitor, it just would not have been practical for them to analyse or understand the documents correctly. That suggests to me that there needs to be a complete overhaul and inquiry into how the scandal was allowed to develop in the first place.”

Ms Powell agreed. “There is a very strong basis for a wider mis-selling scandal inquiry,” she said.

Former housing secretary Robert Jenrick said that conveyancers “failed in their duty to their clients: many constituents have come to my surgeries who were oblivious about the homes that they were buying”.

He added: “That applies not only in the situation we have discussed, but with respect to management fees, which may be very high or… may involve charges, for example for putting up a satellite dish, building a conservatory and so on.

“Conveyancing solicitors need to take much greater care to bring such matters to the attention of their clients.”

Conservative Stephen Hammond urged ministers to “talk to the Solicitors Regulation Authority” about the role of solicitors in facilitating ground rent clauses.

Housing minister Christopher Pincher responded to the debate by saying that the bill was narrowly drawn to address “the most egregious offences on ground rents and then move on to the more complicated matter of wider leasehold reform”.

Mr Jenrick outlined what he hoped would be in a second reform bill. “It should include 990-year leases, a simpler, cheaper enfranchisement process, ending marriage value, improving the position of leaseholders in the management of buildings, and ending… the building and selling of new houses as leasehold, because there really is no justification for that.

“Finally, I hope that that bill will look to the destination of a world beyond leasehold. That is the end point towards which we must work. I established the Commonhold Council to see how we could chart that course, and it seems to me that all the complex issues that are raised are surmountable – that is the evidence from the council so far.

“It also seems to me that commonhold will never take shape to any substantial degree in this country without a major government intervention, which means indicating that it is our tenure of preference, or setting an end date for new leasehold properties. I favour the latter.”

    Readers Comments

  • Robert Hailstone says:

    If (and that is a big if) conveyancing solicitors failed to give advice, that is not good, obviously. However, many (if not all) would have provided advice in one form or another. Problem is, clients receive a barrage of documents and advice these days (as a regulatory requirement), and many don’t read, fully understand or remember that advice.

    The forced using of certain firms of conveyancers/solicitors certainly needs addressing, as it seems to be getting more and more frequent.

  • Stephen says:

    The root of the problem with ground rent is not the rent itself, and indeed not the size of the rent or its review pattern. A ground rent of £2000, per annum doubling every 10 years for 4 anniversaries is indeed not a concern PROVIDED the value of that rent is disclosed to the purchaser and is valued using a defined discount rate. The NPV of such a rent discounted at say 5.5% is £143k and so long as that figures is made patently clear in the negotiations up to the time the lease is signed there is no problem as the buyer will reflect that financial burden in the premium they pay for the lease – There would be a requirement for the premium and the value of the ground rent stream to be shown very clearly in the lease and to punch the point home SDLT be applied to the total

    Had this been in operation, the 10-year doublers would not have come about

    This is merely an extension of the principals of the consumer credit act where an APR has to be shown – pity that nearly 1 in 5 people thought it stood for April

  • Robert Reading says:

    The fact of miss selling should be looked into , not only new build ground rent , but trying to sell flats not the lease , which is just a long term Tenure.what ever many Leaseholders spend on the property , be it bathroom ‘ kitchen , landscaping garden , fences, double glazing , heating etc you will get little back as it’s not your property and it’s valued as ground space , garage , garden etc it’s a scam

  • Michael says:

    Many leasehold flats were sold as shared-equity, on terms of 125 year leases. They were government backed via schemes like Help2Own and Help to Buy, and used housing associations. Housing associations have veto rights that were not explained at point of sale. If a leaseholder requests a term extension, which in normal circumstances isn’t a problem. Under shared equity, if the buyer hasn’t fully staircased, the housing associations can refuse and often do. This can be a major problem if a buyers term is approaching, or below, 80 years. It causes a devaluation that cannot be addressed. Government were overseers and failed to ensure all information was delivered.

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