A quarter of leaseholders were not made aware of what they were buying

Revealed: Thousands of leaseholders were not properly advised on what they were buying – and six law firms could be disciplined

A quarter of conveyancing firms did not explain the difference between freehold and leasehold to homebuyers, legal watchdog finds
Some 94% of leaseholders regret ever buying a leasehold property
Six law firms set to be disciplined by the watchdog as a result of SRA review

By Will Kirkman For Thisismoney.co.uk

Published: 13:49 BST, 4 April 2019 | Updated: 13:49 BST, 4 April 2019

A quarter or leaseholders were not made fully aware of what they were buying by their legal counsel, This is Money can reveal.

As pressure mounts on developers and solicitors embroiled in the leasehold scandal, research from the legal watchdog has confirmed a significant proportion of solicitors potentially breached their duty of care to their clients.

A review of the conveyancing sector by the Solicitors Regulation Authority, seen exclusively by This is Money, found that 23 per cent of conveyancing firms advising leasehold homebuyers did not explain the difference between freehold and leasehold.

In what the SRA describes as a ‘dangerous assumption’, several firms said that they saw no reason to explain the difference as they assumed the client would already know, or the estate agent would have already explained it.

A quarter of conveyancing firms didn’t explain the difference between freehold and leasehold

The SRA says this could amount to a breach in the solicitor’s duty of care to a client.

On top of this, if this happened while the conveyancer was acting for the developer at the same time, it could have broken regulations by breaching its duty to act in its client’s best interests, the SRA confirmed.

Some 65 per cent of conveyancers advising leasehold homebuyers were recommended by the property developers.

This could potentially leave these firms open to professional negligence claims further down the road.

Anna Bradley, SRA chair, said: ‘It is disappointing to see examples of poor practice in conveyancing, which is so important to so many people.

‘We have already published information for the public on the issue of leaseholds and we will be sharing this report with the Government as it considers leasehold reform.’

As a result of the SRA’s review, six law firms have been referred to the regulator’s internal disciplinary processes.

Almost all leaseholders regret buying, while many feel they were mis-sold to

Last year estate agent trade body NAEA Propertymark surveyed more than 1,000 people in new leasehold houses and found two-thirds felt they had been mis-sold.

The vast majority, 94 per cent, said they regretted buying a leasehold property.

The survey revealed that when it came to completing the purchase, 65 per cent used the solicitor their house builder recommended, and some 15 per cent of those say they weren’t told they weren’t buying the freehold by a professional.

In addition, nearly half didn’t know they were only buying the lease until it was too late, and 57 per cent didn’t understand what being a ‘leaseholder’ meant until they had already purchased the property.

Almost half were unaware of escalating ground rents until it was too late, and as a result a third are now struggling to attract a buyer because of the onerous terms in the lease.

The report is the latest chapter in a scandal which has left as many as 100,000 families trapped in unsellable homes.

The leasehold scandal came to light in 2017 after it emerged that property developers had been flogging leasehold properties with extortionate fees and spiralling ground rents attached.

Some developers included punitive ‘doubling clauses’ in sales contracts that hike ground rents at an alarming rate, ultimately trapping people in homes they cannot sell.

Once the purchases were complete, in many cases property developers then sold on freeholds to third party companies without informing the homeowners.

In some of the worst cases, freeholders were slapping homeowners with fees to make elementary amendments to their own homes – £252 to own a pet or £60 to put up a doorbell.

Ministers have taken an interest in the scandal and recently called for the Competition and Markets Authority to get involved.

A number of property developers and freeholders last week pledged to free leaseholders from unfair and costly deals – but this has been met with anger by some MPs.

As for the solicitors implicated, regulations state that they must always act in the home buyer’s best interests, which includes not omitting material information that could affect future value.

This rule still applies in cases where the conveyancing firm has been recommended to the buyer by the developer.

Breaking the regulator’s code of conduct can carry fines of up to £2,000 and in the most serious cases, lead to suspensions or solicitors being struck off.

If you believe your developer mis-sold your leasehold new build property, you can take them to task via National Trading Standards.

The SRA says you should make a complaint if a solicitor did not fully inform you of the nature of your lease. For This is Money’s guide to leasehold property, click here.

If you are stuck in the leasehold trap, get in touch: will.kirkman@thisismoney.co.uk

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