Negligence claims against property solicitors will continue to rise sharply as the issue of leasehold ground rents comes into focus, experts have predicted.
Defendant firm BLM today reported it had seen more than 400 potential claims in the past 12 months and expects that number to grow significantly in the next year. The claims are from purchasers of leasehold properties who have sought to recover compensation for ground rent charges which they say they were never told about. This follows a spate of publicity about new-build homes sold with ground rents which double after a set time. Some banks and building societies are refusing to lend on such leases, effectively making many properties unsaleable.
In the first of a series of reports on macroeconomic trends, BLM, working alongside economists from the Institute of Directors, estimates that 100,000 homes have been sold in the UK under this type of ownership.
Julian Smart, partner and head of professional indemnity at BLM said: ‘The issue for law firms is whether clear enough advice was given to the purchasers so they could understand the risk and impact of the increasing ground rents. Whilst the UK government has vowed to step in to resolve the issue, that is going to take time and is only likely to resolve future ground rent charges. Therefore, lawyers who have advised on property purchases in the last few years remain at risk of a claim.’
Smart said the claims may be ‘stored up’ during times of economic prosperity but are likely to be revisited once uncertainty returns.
The BLM report also notes the conveyancing sector is waiting on the outcome of appeals on vendor fraud, where imposters have conned solicitors into acting for them in the sale of a property.
Once the true owner arrives on the scene and successfully has ownership returned to them, the innocent purchaser is out of pocket and pursues their solicitors.
A judgment in January against City firm Mishcon de Reya found it to be liable for breach of trust and ordered it to pay £1m. The ruling is set to be challenged in the Court of Appeal next year.
The BLM report added: ’While scammers see there is still money to be made in this area we expect these scams to continue. It is up to the Court of Appeal to provide some much needed guidance on the state of the law and the impact on the profession can then be assessed.’