Law firms face disciplinary action over leasehold failings

Law firms face disciplinary action over leasehold failings
Gareth Fuller/PA

Six law firms are facing disciplinary action by the Solicitors Regulation Authority (SRA) for their involvement in the recent leasehold debacle.

In its 72-page report Residential conveyancing thematic report out in April, the regulator found almost a quarter of conveyance firms had failed to properly explain the term ‘leasehold’ to homebuyers, as they assumed their clients already knew the difference between that and freehold.

The review, conducted in 2018, included a sample of 40 law firms who offer residential conveyancing services and a detailed review of 80 case files.

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It led to six law firms being referred to the regulator’s internal disciplinary process for a number of failings including anti-money laundering issues, due diligence and fee transparency.

In recent years an increasing number of new build properties have been sold on a leasehold basis, with unsuspecting buyers subsequently being caught out by clauses which led to large bills and a rise in ground rent.

In many cases, the developers then sold the freehold on to third parties without the knowledge of the homeowner.

According to the SRA, more than 100,000 people have been affected and are unable to sell their homes as a result.

The review found while all firms gave clients quotes before agreeing to work with them, in one third of cases (34 per cent) they failed to include fees for additional work, which should have been anticipated at the outset.

The missing fees related to processing bank transfers, accessing online portals, mortgage administration fees, electronic ID checks or administering gifted deposits. 

The SRA alleged this could indicate some firms were providing unrealistic initial quotes in order to win business.

The SRA also found 37 per cent of firms failed to be transparent about the management fees they added to the fee a bank charged for making a money transfer. In some cases, this led to clients being charged as much as 10 times the fee set by the bank.

The legal watchdog warned the conveyance firms could have breached their duty to act in the best interests of the clients and could be subject to future professional negligence claims.

Anna Bradley, chairwoman of the SRA, said it was disappointing to see examples of poor practice in conveyancing.

She said: "People should be able to rely on their solicitors to be open about what their services will cost, and to explain the potential financial and legal implications of any transaction.

"When solicitors fail to do this, for example in relation to long term leasehold charges, they may be leaving their clients open to ever increasing and potentially unaffordable financial liabilities.  

"We will now be looking closely at how firms are publishing their pricing for conveyancing through our programme of monitoring firms’ websites.

"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."