Conveyancers Warned Over Lack Of Leasehold Advice

A National Leasehold Campaign (NLC) report warns conveyancers that 89% of leaseholders were not properly advised by their solicitor on what they were buying.

The report reveals that nine out of 10 leaseholders were not explained the difference between freehold and leasehold properly by their conveyancing solicitor when they purchased their new homes.

While the Competitions and Marketing Authority are already in the midst of investigating the sale of leasehold themselves, the findings of the report reveal tens of thousands of leaseholders may not have been properly advised.

Furthermore, 96% of the 1,486 respondents to the NLC’s survey confirmed they were not told of the long-term financial implications of purchasing a leasehold property.

There has been a lot written about the ‘leasehold homes scandal’ over the past two years which has resulted in the Government announcing proposals to seek legislation which would ensure that all new-build houses are sold freehold and ground rents on flats would be removed in June this year.

This is good news for future homebuyers but gives little comfort to the current 4.2 million residential leaseholders in England alone, with 2.9 million of these being for flats, according to official statistics.

The news that the Government may seek to effectively outlaw leasehold ownership for new build property has come too late for current leaseholders.

An NLC spokeswoman who led the report said: For far too long leaseholders have been told that it is their own fault for signing these toxic agreements.”

This report shows how little information they were actually given meaning they were not able to make an informed choice when deciding to buy or not. The acid test has to be that almost all would not buy their property again on the same basis.”

At the recent LFS Conveyancing Conference, Stephen Ward, director of strategy and external relations for the specialist property law regulator, Council For licensed Conveyancers (CLC) stated that 40% of leaseholders did not know they were buying a leasehold property. Earlier this year the Solicitors Regulation Authority also released a report revealing 23% of leaseholders were not properly advised too. The SRA report was smaller in scale than NLC and the evidence was derived from legal professionals rather than leaseholders.

NLC’s report found that the majority of respondents were not informed of the financial consequences of a leasehold by their solicitor and 92% said if they had known about the legal conditions beforehand, they would not have bought the property.

Beth Rudolf, Director of Delivery at the Conveyancing Association commented:

“The big issue is that buyers are not provided with the material facts at the time that they are making their decision whether the property is right for them.  You would never put an offer in to buy a car without knowing whether or not it had an MOT and yet over 90% of home buyers in our survey said they received no information prior to making an offer.

“By the time contract papers arrive buyers are financially and emotionally committed to the property.

“By law, anyone marketing property is legally obliged to provide a disclosure of all facts material to an average consumers decision making process.

“We are working hard with the industry to try to ensure that not only will this information be collected and available at point of viewing but also made available to the conveyancers, valuers, and lenders to reduce additional enquiries and post valuation queries and therefore also speed up the home moving process.”

Historically, freehold has always been the preferred method of buying as the homeowner owns the property and the land it sits on and does not have to pay any ground rent or service charges. Since the leasehold scandal, the price premium being paid for a freehold property by homebuyers in England is now at its highest since 2011.

In 2011 the price gap between a leasehold and freehold property was 14.3% which dropped consistently year on year to just 5% in 2014. However, in 2015 it increased to 6.9% and plateaued around this level but rose dramatically following the leasehold scandal in 2018 – with the gap widening from 8.3% to 12.3% this year.

As a conveyancer, do you think NLC’s report is justified? Do you explain to homebuyers the difference between freehold and leasehold and the financial implications?

9 Comments

  • test

    A bit more info please NLC:

    What advice was given and how?

    What does “properly advised” actually mean?

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  • test

    Reminds me that a letter is due to my solicitors pointing out that I have claims awaiting a final decision on help from the government

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  • test

    I think we need to be really clear here. The “leasehold scandal” refers specifically to leasehold houses. However as reported across the media, al leasehold are lumped in together. I have no firm stats on proportions but I suspect that the vast majority of these cases are in fact flats maisonettes and other arrangements which have not only been in place for years and years but also have to be in place unless and until Common Hold or a replacement is put forward.

    Finally it is possible to advise a client that what they are buying is leasehold without explaining the difference between the two. If I advise a client on a flat purchase, I would not explain the difference between that and a freehold as there is no realistic alternative (and of course a freehold flat would be virtually unsalable anyway and so we would advise accordingly).

    I am all for highlighting issues and making things better but inaccurate and spun headline grabbing reporting does not assist anyone or make anyone’s life easier…

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  • test

    “Historically, freehold has always been the preferred method of buying as the homeowner owns the property and the land it sits on and does not have to pay any ground rent or service charges” Not true though, now Developers, and Estate Agents are selling Freehold which is actually Fleecehold (subjected to charges and covenants) … solicitors fail to explain the implications to their clients. It needs to be investigated and addressed urgently!

    Reply
  • test

    NLC are well known for their works of fiction, has anybody interrogated the data? One would guess it has been sourced from their own ranks (ie people with leasehold issues) and therefore misrepresentative of the market as a whole. I recall them publishing something around mental health where the results were so exaggerated that it was impossible to take it seriously (ie high proportion of leaseholders contemplating suicide)

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  • test

    I bought in 1999, complained of mis-selling to the SRA three months ago. All paperwork provided, they agreed there was a case to answer but the solicitor I used now retired.

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  • test

    My complaint was based on that the difference between freehold and leasehold was never explained, fee paying covenants were not pointed out and what having a 999 years actually meant.

    The only advice I received was to ensure that theground rent was paid.

    Reply
  • test

    Surely all purchasers’ solicitors advise the client as to tenure and the obligations by which the client will become bound?

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  • test

    Being from Scotland I didn’t even know what a leasehold was! Bought a flat – paid full price. Was shocked a few years later when realised exactly what it was… had bought flat with very low lease under 80 years. I learnt then about the dangers and huge costs associated with “marriage value”.

    Reply

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