A solicitor has been fined £8,000 for failing to advise clients of the risks inherent in three off-plan development schemes which were not completed, putting nearly £30m at risk.
The Solicitors Regulation Authority (SRA) said it did not know “how much, if any” the overseas investors had been able to recover of £29.3m in deposits they sent to the sellers in relation to 379 units.
Approving an agreed outcome, the Solicitors Disciplinary Tribunal (SDT) heard that David Sewell admitted the misconduct.
The SRA said there was “no evidence” that the solicitor’s clients were “obvious candidates” for a high-risk investment scheme and they may have regarded investing in the UK buy-to-let property market as a “relatively safe” investment.
The SRA said the public expected those earning fees to represent buyers in a property transaction “to act as a first line of defence against unduly risky transactions”.
Mr Sewell, who qualified in 1976, described himself as an experienced commercial conveyancing solicitor. He worked first as an assistant solicitor and latterly as a consultant at Oliver & Co, and first became involved with fractional developments in 2012.
He retired from the firm in 2018 and had “no intention of practising as a solicitor in the future”.
The SRA said problems with the three schemes included minimal contractual control over and protection of funds and certainly less than would typically be in place in an ordinary construction project of this size. This indicated how limited the legal protections were and the “inherently high risk that funds would be mis-spent or even misappropriated”.
Investors had to pay 50% of the purchase price upfront but these risks were not made clear to them.
The SRA stressed: “Whilst it is open to purchasers to take such legal risks, they must be fully informed of them when they do so.
“The investment was effectively worthless unless the development is brought to completion. Thus not only was the level of risk inherently high, but the risk if it materialised was the total loss of each investor’s funds.”
Mr Sewell had contributed to the drafting of the original purchase agreement on which subsequent contracts were based, which the SRA said should have made him “particularly aware” of the weak level of legal protections they afforded.
In mitigation not endorsed by the SRA, Mr Sewell said that, prior to the schemes which led to the disciplinary proceedings, Oliver & Co had completed “many successful fractional developments”.
His main role was to examine the title to the schemes and prepare or approve the contract, standard form of lease and ancillary documents.
Mr Sewell insisted that the transactional work on the off-plan developments was carried out by a team “supervised by others” and “although he contributed to the standard documents sent to all clients, the ultimate responsibility for those documents rested with others”.
The solicitor said that he and colleagues had travelled to Hong Kong “to attend meetings with clients to advise and deal with enquiries” on the documents.
“Despite travelling to meet clients in their own country, it is accepted that, minded by earlier successes of projects by the same developers, his advice failed to deal adequately with the matters admitted.”
The SDT concluded that Mr Sewell “should have provided adequate advice to his clients as to risks in investing in off plan properties, which were inherently risky investments, in order for his clients to reach informed decisions”.
By failing to provide it, and instead relying on clients to “seek out other less well-qualified professionals”, Mr Sewell failed to provide a proper standard of service and put client funds at risk.
He was fined £8,000 and ordered to pay costs of £7,500.