For the fourth year in a row, the Legal Ombudsman received more complaints about conveyancing than any other practice area [1]. Poor standards have become widespread amongst property lawyers as demonstrated by two recent issues.
1. Clients and lenders are not being advised about increasing ground rent clauses
Property lawyers acting for the purchaser and the lender have a duty of care to report any matters affecting title or the value of the property to their clients [2]. The title to the property must be free of any restrictions which might, at the time of completion, adversely affect the value of the property or its future marketability [3].
This means property lawyers have a duty to report any unpaid ground rents or any clauses that provide for the increase of ground rents to the purchaser and lender on leasehold properties. However, many firms do not report these matters [4]. It has been well reported about the growing trend of property developers including ground rent escalation clauses in the sale agreements [5]. Such a clause will, in extreme cases, result in an annual ground rent of over £9,500 in 50 years and £69 Trillion by the end of the leasehold term of 999 years[6]. Such clauses can have an adverse effect on the value of the property. Lenders are already refusing mortgages because the excessive ground rent provisions make the properties unsellable [7].
A further consequence of this is that the landlord can claim possession of the property if the purchaser fails to pay ground rent of £250 or more (£1,000 or more in London) and they are two months in arrears [8].
So why are firms neglecting to inform their purchaser clients about these clauses? Sometimes the lawyers act for the purchaser and yet simultaneously sit on a panel for the developers (the seller). In such circumstances it may be that the property lawyer is torn between robustly advising the purchaser about an onerous clause and keeping the developer happy to continue receiving work from them. Neglecting to tell their purchaser clients about the clause will ensure the deal doesn’t fall through.
Going forward, property lawyers must warn the purchaser about any ground rent and exponential increases of the ground rent or face sanctions for negligence and breaching rules relating to conflicts of interest.
2. The quality of Land Registry registration applications is not good enough
The Land Registry was forced to announce wider rejection criteria to registration applications following the diminishing quality of applications submitted by law firms. An application may be rejected if it:
Does not meet the execution requirement for deeds.
Does not include evidence for power of attorney.
Does not contain the correct fee for a new title application.
Is a First Registration and is not on the correct form (FR1).
Is a First Registration and form FR1 does not contain adequate information in panels 3,5,12 and 17.
Poor quality applications increase the time it takes for a property to be formally registered to the purchaser. It can also increase the cost to the client.
[1] Legal Ombudsman 2015/2016 Residential Conveyancing complaints Data (January 2017).
[2] Part One of the CML Handbook
[3] Clause 5.6.1 of the CML Handbook
[4] 24% of complaints about conveyancers to the Legal Ombudsman were due to a failure to advise as stated in the Legal Ombudsman 2015/2016 Residential Conveyancing complaints data (January 2017).
[5] See for example: http://www.bbc.co.uk/news/business-38827661
[6] http://www.telegraph.co.uk/property/house-prices/leasehold-scandal-ground-rent-that-starts-at-250-then-rockets-to/
[7] https://www.theguardian.com/money/2016/nov/05/ground-rent-scandal-engulfing-new-home-buyers-leasehold
[8] The Housing Act 1988, Section 1, Schedule 1 & 2 and Arnold v Brittain [2015] UKSC 36