Leaseholders have been coerced into instructing conveyancing solicitors who are too cosy with developers, according to MPs.
In a report published today, the House of Commons housing, communities and local government select committee says the balance of power in leases, legislation and public policy was weighted too heavily against leaseholders. In its inquiry, the committee received 'considerable' evidence of developers 'incentivising and insisting' on specific solicitors being used.
Katie Kendrick, representing the National Leasehold Campaign, told the inquiry that members of her group were offered 'free carpets, free lawn in the back gardens...or a discount off other parts of the house if they were to use their panel of solicitors'.
One leaseholder said that he wanted to use the solicitor instructed for his previous house purchase. However, the developer 'held back information from them to the point that my solicitor told us if we didn't use [their] recommended [solicitor] there was no way we would complete within the eight-week deadline'.
The report says buyers' 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 interest first.'
The government is urged to ban financial incentives. MPs says such coercive practices are particularly concerning after hearing that some developer-recommended solicitors failed to draw clients' attention to the ownership structure or onerous lease terms. One leaseholder was told that the solicitor he had to use 'never warned us about permission fee to re-mortgage, build a conservatory and even change the colour of our front door. Also, we were never told that the ground rent was increasing with RPI every 10 years'.
MPs were also told that freeholders are recovering their legal costs of a tribunal challenge through the service charge, even when they lose. The committee's chair, Labour's Clive Betts, told the Gazette he was previously not aware of this 'completely outrageous' practice.
Housing specialist Giles Peaker, a partner at Anthony Gold Solicitors in London, told the committee that leaseholders can apply for a section 20C order under the Landlord and Tenant Act 1985 to stop the freeholder recovering tribunal costs in this way. However, the burden currently lies with the often-unrepresented leaseholder.
The report also calls for a mandatory 'key features' document to be provided at the start of the sales process. The Law Society, which has long called for developers and estate agents to share lease information with the purchaser at the beginning, welcomed the committee's acknowledgment. Christina Blacklaws, president, said key sales information 'is supposed to be set out at the start of the purchasing process' under consumer protections from the Unfair Trading Regulations 2008.
The government has pledged to tackle unfair practices in the leasehold sector. Its response to a consultation on reforms has yet to be published.