Government Respond To Select Committee Leasehold Review
The Government has issued a clear warning shot to solicitors putting their own needs in front of their client’s best interests.
In the Government’s response to the Housing, Communities and Local Government Select Committee Report on Leasehold Reform, an issue was lodged concerning the relationship between conveyancers and developers constituting a conflict of interest.
The report claimed that clients ‘interests cannot be served where they are coerced into using developer-recommended conveyancing solicitors, who rely on repeat business from developers and may not be inclined to put their client’s interests first’.
In order to ensure the buyer receives the best advice possible, the report suggested a ban on financial incentives being offered to persuade a buyer to use the services of a particular solicitor.
The report also claimed that all costs pertaining to the sale of the property should be provided up front in a standardised key features document.
The Government were in staunch agreement with the importance of consumers gaining access to independent and reliable legal advice when purchasing a property but were reluctant to take further action until further research is released.
The Response focused on the recent National Trading Standards regulations and the fact that all stakeholders in the sales process including estate agents, conveyancers and developers should be transparent about referral fee arrangements. The government will await the findings of a Trading Standards review in 2020 before taking further action.
The report response also cited the Solicitors Regulation Authority (SRA) code of conduct as a regulated piece of legislation prompting conveyancers to make fee-sharing practices clear.
Historically, leasehold property has cut estate agents out of the selling process, with developers increasingly selling direct to the buyer. An NAEA Propertymark report from last year found that 78% bought their properties directly from a developer.
More worrying is the fact that 65% used the solicitor their developer recommended, losing the element of impartiality. Despite the link to the developers, conveyancers or legal service providers have an obligation to ensure that the buyer is clear on what they are purchasing; a consideration that may be overlooked if conveyancers continue to be controlled by developers.
Clive Betts, Chair of the HCLG Committee, commented:
“Our report into Leasehold Reform set out the serious imbalance against leaseholders in the current system.
“We are pleased that the Government has recognised this and has accepted many of our recommendations, including to cap future ground rents at zero financial value. However, much more needs to be done for those leaseholders already subject to onerous terms, such as escalating ground rents and permission fees.
“We are pleased that the CMA accepted our call for an investigation into the sector, but we believe that the Government need to do more to intervene on behalf of leaseholders who continue to be trapped in leasehold properties they cannot re-mortgage or sell.”
John Midgley, ALEP Director, said:
“It is encouraging to read that the Government’s response focuses on improving clarity, fairness and transparency for leaseholders and freeholders. We await to see the Government’s approach to the whole leasehold enfranchisement process once the Law Commission has concluded its detailed review.
“ALEP’s member organisations work with freeholders, leaseholders and managing agents. Members await and will generally welcome reforms that make the whole leasehold enfranchisement process smoother for all concerned.”