Survey reveals extent of leasehold advice

A survey conducted by a conveyancing network has revealed how firms inform their buyer when entering into a leasehold arrangement.

65 member firms responded to the survey held by Bold Legal Group (BLG), providing an insight into the extent at which firms explain the content of a lease and how this impacts the transaction.

At the centre of an ongoing dispute, leasehold homes have rarely left the headlines over recent months, with some residents reporting that they have been left with properties that are difficult to sell.

The inclusion of certain onerous terms meant that in some cases, ground rent was doubling every decade, with the cause of the outrage largely stemming from what buyers knew, or didn’t know, about the lease terms.

In light of this, questions were then raised as to the responsibility of the conveyancers involved, with the possibility of group litigation against the firms being proposed.

The survey conducted by BLG (and summarised by new BLG Associate Director Darren Cox) explored the way in which firms explain leaseholds to the buyer and the observed effect that this explanation then has on the transaction.

Of those that responded, 100% stated that they explain the contents of a lease before exchange, with just 8% not providing an explanation in writing.

Whilst all firms confirmed that they provide an explanation, the survey found that the point in the process at which they do so varies. The majority (42%) stated that they explained within the Report on Title, whilst 28% stated that they explained upon receipt of the contract pack in a separate report. Just under one in ten stated that the time at which they explain the leasehold contents is dependent on the case itself and varies as a result.

When detailing what’s included in the contents of the explanations themselves, all respondent firms stated that they now cover how the rent will increase. Although the majority (94%) stated that they had always done so, the report found that 6% had just begun to, having previously not included it.

There was more of a significant difference when it came to explaining the impact of rent increases on the value and saleability of property in the future. Whilst over half (60%) stated that they did provide the buyer with this information, 15% stated that they didn’t. A further 17% of respondents claimed that whilst they previously hadn’t, they would do so going forward. Of the majority that did respond positively, many felt that this information should always be given; a view that contrasts with the respondents who didn’t. Instead of something which a lawyer should assess, many believed that it fell into the remit of a surveyor or valuer.

Where the impact on the transaction was concerned, just over half (55%) claimed that they had seen a buyer withdraw after mentioning onerous contract terms or a future rise in rent. The survey also revealed that 2 in 5 of the respondent firms inform lender clients about rent increases on a routine basis, with 36% working on a discretionary basis to establish whether the lender should know. 18% of firms that responded choose not to routinely inform lender clients of rises in rent in the past, but are reviewing their position now.

Whilst the results of the survey indicate varying approaches in how leasehold terms are explained to clients, it also suggests that firms are now more alert to the risks of failing to inform clients.

However, it also seems to suggest that despite the appropriate warnings, clients may choose not to read or act upon the explanation of their conveyancer where leaseholds are concerned. Reinforcing this point, BLG Founder and CEO Rob Hailstone said he received this email from a BLG member recently:

“A new client told me they were instructing me because her previous solicitor had not told her there were restrictive covenants affecting the property.  As I looked through her deeds pack, I came across a letter from the previous solicitor – carefully explaining all the covenants!“

As mentioned by BLG Founder, Rob Hailstone, it will be interesting to see how this issue progresses.

“The issue of new build leasehold and ground rent advice isn’t going to go away; there seems too much Parliamentary and media momentum now for that to happen.  On the one hand, MPs and journalists have not had any difficulty in gathering home buyers who say, on the face of it, that they were not “fully informed”.  On the other hand, the BLG members’ survey gives confidence that conveyancers (respondent firms at least) point out the situation regarding ground rent.

“The issue is likely to be how buyers were informed.  Might it be that, some time on from the purchase, they simply can’t remember being informed.  However, that isn’t the same as not being informed.  Might documentary evidence from the conveyancer, such as the report on title, prove that full information was given?  If so, this could yet turn out to be a storm in a teacup.  However, conveyancers can’t afford to be complacent.  Many are now, sensibly, reviewing their procedures.”

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