Lawyers could face £500m bill over leasehold scandal

‘In the pocket of two different parties’

LAWYERS could be forced to pay more than £500million compensation for leaving clients stranded in leasehold homes they cannot sell. Developers have faced criticism for selling houses on long leases rather than freehold.

The buyers – often first-time owners, some using the Government’s Help to Buy scheme – are then hit with ground rents that can make it impossible to sell the homes on.

In some cases these rents double every decade, meaning costs soar to tens of thousands of pounds a year. Buyers are supposed to be protected from toxic contracts by solicitors handling conveyancing for a fee, typically more than £1,000. But a string of customers claim their lawyers failed to spot problems with soaring ground rents.

Many used lawyers recommended by the firm that built their homes and, in some cases, buyers are even given a discount on legal fees.

This is useful for builders because it means they have to deal with only one or two solicitors if most buyers use the recommended firms.

But louie Burns, of leasehold Solutions, a law firm which helps those caught out, said: ‘I wonder whether these companies have really told their customers if they’re facing a bad deal. They have been handed several hundreds of thousands of pounds in fees thanks to developers.’

More than 42,500 new leasehold properties were sold in 2015 – and Mr Burns says payouts for negligence could hit £578million for that year alone. A survey of buyers by campaign group leasehold Knowledge Partnership found Taylor Wimpey was one of the worst examples.

The housebuilder has been criticised for clauses that double ground rent every decade, so families paying £500 a year if they bought a home now would be charged £8,000 a year in 40 years’ time.

Sebastian O’Kelly, of leasehold Knowledge Partnership, said: ‘Now some of these properties are coming on to the market as resales, and other solicitors are looking askance at these lease terms and advising buyers to pull out.’

Taylor Wimpey is reviewing leaseholds sold between 2007 and 2011. The £6.4billion firm stopped the policy of doubling ground rents every decade in 2011 and now does not sell leasehold homes.

A spokesman said it has pledged to update customers stuck with doubling rents by the end of this month, and its recommended legal firms were all completely independent.

Some 4million private homes – one in five – are leasehold, Government statistics say. And that figure includes 1.2million houses.

The HomeOwners Alliance campaign group believes almost one in four of these homes have less than 80 years left on leases before full ownership resorts to the freeholder, making them extremely hard to sell. Paula Higgins, of the HomeOwners Alliance, said: ‘A buyer’s solicitor should be acting solely on the buyer’s behalf during the transaction, but allowing developers or estate agents to recommend solicitors means they are in the pocket of two different parties.’

Beth Rudolf, of trade body Conveyancing Association, said buyers were often under pressure to purchase and leasehold information arrived late in the process, which might bounce them into purchasing a property against their lawyer’s advice.

She said: ‘No conveyancer would deliberately put themselves in a position where they weren’t acting in clients’ best interests because they’re regulated and could be sued or struck off.’