Solicitor failed to advise on “obvious risks” of off-plan schemes

SDT: Harm to clients was foreseeable

A solicitor who failed to advise on the “obvious risks” of four off-plan property development schemes has been fined £10,000 by the Solicitors Disciplinary Tribunal (SDT).

The SDT found that although there were no complaints about David Hayhurst’s conduct of the conveyancing process and he did not charge unreasonable fees, his advice was “so inadequate as to be incompetent”.

Mr Hayhurst, at the time based at now-defunct Liverpool firm 174 Solicitors Limited, told the Solicitors Regulation Authority (SRA) that he did not believe it was part of his retainer to advise on the “appropriateness or validity” of the schemes.

Approving an agreed outcome between Mr Hayhurst and the SRA, the tribunal heard that all four development schemes were funded mainly by off-plan deposits of between 40-80% of the purchase price of each flat.

The SDT described Mr Hayhurst as “an experienced solicitor who specialised in residential and commercial property law” and “generally acted for developer clients, but also for buyers in off-plan schemes”.

The buyers were “usually overseas buy-to-let investors, often based in East Asia”. While such schemes were not inherently dubious, the SRA said, there were “inherently risky”.

The SRA said it emerged during its investigation that “the typical profile of an investor was a 30-something schoolteacher who had gradually saved up enough to invest by putting something aside each month”.

The SRA went on: “They were not obvious candidates for a high-risk investment scheme.

“They may well have regarded investing in the UK buy-to-let property market as a relatively safe investment, when in fact these particular schemes were anything but.”

The SRA said that, had they been advised about risks, some clients might have decided not to invest and would not now face losing the whole of their capital.

The developer of the first and biggest scheme was wound up in 2016, having received over £2.3m in deposits. The SRA had since learnt that the project “may have been part of a fraud”, although there was no evidence that Mr Hayhurst “could have been aware of this at the time that he acted for buyers”.

The developer of the other three developments received over £500,000 in deposits before entering a company voluntary arrangement in 2017.

The SRA said it was not aware “of how much, if any” of these funds the purchasers were able to recover by way of civil actions or insurance claims.

Mr Hayhurst initially told the regulator he was “comfortable” that he had advised on all the areas that he should have done and it was no part of his retainer to advise on the “appropriateness or validity of the scheme” for each client.

He argued that there were “other professionals that can assist”, such as accountants.

However, Mr Hayhurst now accepted that he should have advised on the “obvious risks” of “inherently risky” property development schemes, and even if advice on risks was outside the scope of his retainer, he still had a duty to advise on risks which came to his attention while carrying out the retainer.

The SRA rejected Mr Hayhurst’s argument that the clients had already incurred reservation fees of £5,000 before his involvement, meaning he had “added responsibility” to ensure transactions were completed.

It said the reservation fees were “transparently part of the commercial pressure” applied by the scheme’s promoter to encourage investors to get involved.

“A solicitor ought to have seen through that and not allow it to get in the way of providing proper and adequate advice.”

Mr Hayhurst admitted that he failed to act to best interests of his clients, failed to provide a proper standard of service and failed to behave in a way that maintains public trust in the profession.

He had also failed to achieve the old outcome 1.5, in that the “advice provided and representations given were so inadequate as to be incompetent”.

The SRA said that, according to the solicitor, his work for the buyers in the four off-plan schemes that it investigated accounted for only around 10% of his law firm’s income and there was no allegation that his fees were unreasonable.

Approving the outcome, the SDT said that, whilst not intended, the harm caused was “foreseeable” given the solicitor’s level of experience.

Mr Hayhurst was ordered to pay a fine of £10,000 and costs of £15,000.

    Readers Comments

  • Charlie Sampson says:

    A very sad story. What your article does not highlight is the very common practice where law firms are sub-contracted by developers to be the acting solicitor for potential clients. This is akin to the fox asking his mate to act in the best interests of the chickens. Until this practice is banned and solicitors are regulated to offer proper legal advice rather than basic transactional work then these sad stories of innocent investors losing their life savings will continue to happen.

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