An Englishman’s home is his castle. Or so the saying goes. Certainly the British have a penchant for the stone-wall permanence of owning, rather than renting, a property. Whereas around just half of Germans own their home, nearly 70% of people this side of the Channel own theirs.
This predilection for home ownership means that whenever the market allows it, people will inevitably start buying – the latest housing boom will testify to that. And it is all great news for conveyancers. Goodness knows it has been a hard few years for lawyers practising this area of law. Redundancies and closures resulted from the housing market crash in 2009, so we should celebrate the resurgence.
But while lawyers may be understandably quick to cash in on this new-found optimism, there could be implications for the housebuying public. Earlier this year the Gazette reported the existence of a skills gap in the aftermath of the recession and it is only now becoming visible as the upturn kicks in. This idea is supported by our figures, which show an increase in the number of complaints we are receiving from disgruntled housebuyers and homeowners.
There has been an overall increase in residential conveyancing complaints from around 1,200 in 2012-13 to 1,500 in the last financial year. One in five legal complaints now made to our scheme is about residential conveyancing; making it the most-complained-about area of law. If that wasn’t evidence enough, in the last year we have helped people recover more than £800,000 to put things right.
As ever, the people most affected by poor-quality service are clients. This is illustrated perfectly by many of the cases requiring high-remedy values to put them right; particularly the harrowing experiences of people being chased by HMRC for not paying their stamp duty. A number of distressed people have contacted our scheme in the past year after receiving demands from HMRC for thousands of pounds in unpaid fees plus interest because their lawyer had not made the necessary payments.
The problem has prompted us to act now by sharing some of the worst examples in our latest case study report. Although some of the issues behind stamp duty complaints may have been created before the recent housing boom, it is the kind of problem that a lack of resources, combined with outside pressures, could exacerbate. That is because it can come down to something as innocuous as missing payment deadlines through forgetfulness or a simple failure to prioritise work. So, we want to make sure the profession gets on top of things now.
As the case studies show, the impact on homeowners can be awful. Imagine people’s upset after receiving a letter completely out of the blue demanding thousands of pounds plus penalties and interest when they have already given that money to their lawyer in good faith. That is exactly what has happened to the people featured in the report.
Fortunately, we were able to help; but that is beside the point. These people needlessly suffered months of distress while waiting for the mess to be sorted out.
And do not underestimate the consequences for law firms. In each case the lawyers responsible had to pay the outstanding stamp duty, any associated penalties and interest, plus compensation for the distress and inconvenience caused. Where the firm was still in business, what kind of impact must this have had on its cashflow and reputation? In some cases, following conduct referrals, regulators also had to intervene and close their operations down.
As the following case studies show, so much unnecessary damage, as well as use of time and resources, is created when all it takes is a little preparation.
Mr and Mrs X received a letter from HMRC sometime after moving into their new home stating that they owed £15,000 in stamp duty plus interest. This came as a major surprise to the couple since they had paid a lawyer to settle the stamp duty payment on their behalf.
At the time of making the purchase Mr and Mrs X received confirmation from their lawyer that, including fees and stamp duty, £38,000 was required to complete the transaction. They promptly transferred this money into the firm’s account. They were relieved that everything had gone through and excitedly moved in as soon as they received the keys.
However, the firm did not pay the stamp duty on completion and nor did they contact Mr and Mrs X to explain that they had not done so. When we investigated we found that the service provided was below standard.
An ombudsman decided that the firm should repay Mr and Mrs X the £14,700 in unpaid stamp duty together with any costs to cover penalties or interest arising as a result of the failure to pay this on completion. They were also ordered to pay £150 compensation for the distress and inconvenience caused.
Decade in the dark
Ms Y had instructed a law firm 10 years previously to help her purchase a property. In particular, she had wanted the firm to take care of paying her stamp duty and to complete the Land Registry forms. Her lawyer seemed helpful enough and shortly after starting proceedings Ms Y received a completion statement, confirming that everything was in order.
Ms Y moved into her home and lived there unaware of any problems until she was eventually contacted by HMRC. They confirmed that her stamp duty, amounting to £6,000, had not been paid. They wanted the initial payment plus interest, which had accrued over 10 years. In total, she was being asked to pay back £22,000. When Ms Y looked into the matter further she also discovered that her property had not been registered with Land Registry.
Ms Y was extremely distressed and contacted the firm immediately to see what had gone wrong. However, the firm was unhelpful at first, failing to return calls or accept any responsibility for the problems she was facing.
Eventually Ms D brought her complaint to the Legal Ombudsman. An investigator looked at all of the facts of the case and concluded that the firm had not fulfilled its duties; neither paying the stamp duty nor processing the Land Registry forms.
Once the firm knew that the Legal Ombudsman was involved it was easier for Ms D to broker an agreement on how to resolve the issue. The firm accepted our suggestion of an informal resolution, and agreed to pay Ms D the stamp duty costs plus penalties. HMRC agreed to waive the interest charges once it became aware of Ms D’s situation but we also sought assurances that should the money be required after all, the firm would cover the shortfall.
Finally, we recommended that the firm pay Ms D £1,000 in compensation for the distress and inconvenience caused by its poor service.
We have put together some tips, based on our experience of resolving these kinds of disputes, which could help to ensure clients are not being hit with any nasty surprises. You can download this information from our website at www.legalombudsman.org.uk.
Though it might appear to be an exercise in sucking eggs to the majority of legal professionals out there already doing a great job, we know from experience that some simple things are being overlooked. To draw on the key points from our guide, just bearing the following in mind will inevitably help things go more smoothly:
- Tell your client early in the process how much stamp duty they will have to pay;
- Aim to give comprehensive quotes without any hidden costs;
- Remember that stamp duty is payable no later than 30 days from completion;
- If you are planning to close your practice, make sure that stamp duty payments aren’t overlooked; and
- Avoid the temptation to cut corners – make sure your clients know their legal obligations when it comes to paying stamp duty or any other third-party costs.
The aspiration for regulators, the ombudsman and legal professionals should be to make buying a house as stress-free as possible. After all, it is often a life-defining moment; a memory to be cherished rather than a time to forget.
Adam Sampson is chief legal ombudsman