There has been much consternation over the last 12 months at the exorbitant ground rent and charges affecting many purchasers of leasehold property. In this article, we answer some of the key questions being asked and, in so doing, explain the developments so far and the options available for those affected.

What is leasehold property?

Leasehold is a common form of home ownership in the UK, where the owner of the property is granted exclusive possession for a fixed period of time. The duration of the leasehold can vary from one lease to the next, although terms of 99 years, 125 years and even 999 years are not uncommon.

All leaseholds are derived from the freehold interest in the same property. Unlike the leasehold, the freehold is not time limited and will survive the expiry of the leasehold.

Usually, different legal entities own the freehold and leasehold interests in a property and their rights over and obligations to one another will be recorded in and governed by the terms of a lease. Such obligations invariably include the payment of ground rent by the leaseholder to the freeholder.

What issues have arisen?

A number of issues have arisen for leasehold owners. These derive from the onerous terms upon which many property leases have latterly been drafted and sold by freeholders. Such terms have been found to include:

• Significant periodic increases in the ground rent payable to the freeholder
• Excessive charges by the freeholder for consenting to alterations to the property
• High administration charges imposed by the freeholder for dealing with issues relating to the lease

In many cases, leaseholder owners were not made aware of the existence or effect of these terms, either by the vendor, the vendor’s estate agent or their own conveyancer. Further, these terms are often only discovered some time later, when the leaseholder wishes to alter or dispose of their property.

How has the problem occurred?

Many of these onerous terms have been introduced into leases by developers seeking to leverage further profit from their residential schemes. However, it appears that a number of factors have combined to make the inclusion of such terms all the more possible. These include:

• The failure by estate agents acting for developers to make clear whether the properties they are selling are leasehold or freehold
• The increasing use of inexperienced and low skilled conveyancers who fail to identify or appreciate the significance of discreet terms within lengthy conveyancing documents
• The failure by some conveyancers, frequently retained on the recommendation of the developer, to clearly report onerous terms to the leasehold purchaser
• A lack of understanding, particularly amongst first-time buyers, of the implications of buying a leasehold, rather than a freehold, property

What are the implications for leaseholders?

For many leasehold owners, the effects have been devastating.

In some of the worst cases, leaseholders have been unable to sell their properties. Indeed, this has become a reality for an increasing number of leasehold owners as news of the scandal has spread, putting more and more purchasers, conveyancers and lenders on their guard.

In such cases, leaseholders have been left with the prospect of grounds rents exceeding £100,000 per year before the expiry of the term of the lease. Frequently, this is combined with inflated demands from freeholders, for tens of thousands of pounds, for the acquisition of their interest.

The fact that many freeholds have been sold on by developers to speculators and investors seeking returns on their growing freehold portfolios, has only made the situation more upsetting for some and more difficult to resolve for others.

How many homeowners are affected?

The Department for Communities and Local Government has estimated that there were around 4 million leasehold homes in the private sector in England in 2014-15, about 21% of the total private-sector dwelling stock.

According to Land Registry data records, around 27% of all residential property transactions in England and Wales in 2016 were leasehold, up from around 20% in 1995. Significantly, the proportion of new build houses, where the issue of excessive ground rents has been particularly acute, sold as leasehold has also increased, from 7% in 1995 to 15% in 2016.

While not every leasehold property will be affected, the scale of the problem is worrying. An estimate provided by a parliamentary campaign group, the Leasehold Knowledge Partnership, suggests that around 100,000 homeowners may now be adversely affected.

What is being done to resolve matters?

In response to public criticism, vociferous media attention and, perhaps, rising concern over government intervention, some developers are taking steps to mitigate the impact of more onerous leasehold terms.

Taylor Wimpey has set up a Ground Rent Review Assistance Scheme, for which it has reportedly made a £130m provision. Under the scheme, which is entirely voluntary, the developer says it will help its customers convert their existing leases to alternative lease structures, incorporating materially less expensive ground rents. However, the scheme is only available to customers who own homes (houses or flats) which have a lease with a ten-year doubling ground rent clause and who purchased their home directly from the developer. In addition, Taylor Wimpey has committed to ensuring that, except in a small number of cases, all of its future property sales will be on a freehold basis.

Another large developer, Countryside Properties Plc, has recently announced that it is seeking to re-purchase a number of the freeholds that it sold to third party investors, with a view to releasing homeowners from ten-year doubling ground rents.

However, not all developers have committed to mitigating and/or eradicating the practice of selling new build properties on leaseholds and the government is now evaluating the situation. A consultation (Tackling unfair practices in the leasehold market) into the practice has been initiated by Sajid Javid, the Secretary of State for Communities, which required submissions from all interested parties by 19 September 2017. While this has been viewed as a positive development, the fear for those already affected is that any intervention by the government will be prospective, not retrospective.

What can you do if you’re affected?

If you are the owner of leasehold property and adversely affected by onerous terms within your lease, there are a number of options potentially open to you. Which will be most appropriate is likely to depend on a range of factors, including the type of property you own, the nature and severity of the issues affecting it and, as is often the case, your own personal circumstances. The options include:

• If you qualify, participating in any remedial scheme offered by the property developer
• Campaigning, individually or collectively with other affected residents, against the developer who sold you your property in the hope of securing its agreement to a variation of your lease
• Initiating legal proceedings in the first-Tier Tribunal (Property Chamber)
• Exercising your right to buy the freehold interest (a process called ‘enfranchisement’) under the Leasehold Reform Act 1967 (for houses) or the Leasehold Reform, Housing and Urban Development Act 1993 (for flats)
• Pursuing a professional negligence claim for damages against the conveyancer who acted for you on the purchase of your property
• Doing nothing and awaiting the outcome of any government reform

In considering your options, you should bear in mind that there are strict time limits for pursuing a professional negligence claim and that your right to do so may be lost as a consequence of delay.

You should also bear in mind that as a claimant in any professional negligence claim, you are under a duty to take reasonable steps to mitigate any loss you have suffered. While the precise scope of this duty will depend on the circumstances of your case, it may well include, for example, participating in any voluntary scheme offered by the original property developer if you qualify.

Where can you turn to for more specific legal advice?

We would be happy to advise you on the legal options available in your particular case and to pursue any appropriate mitigatory or compensatory action on your behalf.

With PNC Legal you benefit not only from our extensive experience of acting on professional negligence claims, but also from the support we enjoy from specialist property solicitors, through our association with Keystone Law.

In the recent professional negligence case of Graham Thomas v Hugh James Ford Simey Solicitors, the Court of Appeal had to determine whether a firm of solicitors was negligent in following its client’s express instructions, rather than challenging them.

Background

The claimant was a coal miner who had instructed the defendant firm of solicitors to pursue a personal injury claim on his behalf, for damages for vibration white finger (VWF). Having secured a settlement offer for the claimant’s pain and suffering, the defendant informed the claimant that he may be entitled to claim for certain out of pocket expenses. However, the claimant advised the defendant that he was not interested in pursuing this aspect of his claim as, although he had incurred such expenses, he could produce no evidence of them.

Seven years later, and after seeing an advertisement about the under-settlement of VWF claims, the claimant instructed new solicitors to pursue a claim against the defendant.

Allegations

The Claimant alleged that the defendant had been negligent in:

• Failing to provide him with an approximate valuation of his expenses claim;
• Failing to inform him of the availability of an interim payment;
• Treating his instructions as conclusive of the matter.

Decision

While noting that the defendant had not provided an approximate valuation or advised on the availability of an interim payment, the Court of Appeal nevertheless rejected the claimant’s claim. In so doing, it observed that the claimant was an intelligent and articulate man with whom the defendant had discussed the possibility of claiming for any out of pocket expenses. It further held that in these circumstances, the defendant was not negligent in following instructions and had not been under any duty to probe the matter, in the hope of changing the claimant’s mind.

Comment

While this might not seem like a surprising outcome given the circumstances of the case, it is not hard to envisage a different outcome where, for example, there is no obvious justification or explanation for a client’s decision not to pursue a particular head of loss, or where the loss in question is large and/or very clearly apparent. A different outcome might also occur where a client’s instructions are not entirely clear, are conditional or are perhaps in some way ambiguous. In such situations, a solicitor might well be found to have acted negligently and/or in breach of retainer by following a client’s instructions and taking steps which cause a client’s legal rights or remedies to be abandoned or prejudiced.

Ultimately therefore, and while solicitors will ordinarily be expected to respect and follow instructions received from their clients, each case will need to be examined carefully to determine whether it is reasonable to do so and, if it is not, whether the solicitors should bear any liability for the loss of any rights or remedies sustained by their client.

Further legal assistance

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals, including claims against other solicitors.

If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.

At PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.

The Civil Justice Statistics Quarterly recently published by the Ministry of Justice (MoJ), has identified yet further increases in the level of County Court claims activity across England and Wales.

As previously reported, figures for January to March 2017 (Q1) were already the highest since 2009. However, April to June 2017 (Q2) has proved to be busier still for the County Courts.

According to the MoJ:

• A total of 564,711 County Court claims were commenced in Q2, an increase of 40% on the same quarter of 2016;
• Specified money claims (where the claim is for a set amount of money and which are often issued in large numbers by credit card, utility and debt collection companies), increased to 457,000 in Q2, up 54% on the same period last year; and
• Unspecified money claims (which are likely to include many professional negligence claims), decreased slightly, from 37,700 in Q1 to 35,000 in Q2.

Should this trend continue, it is likely to put further pressure on court operating budgets, which have already been significantly squeezed as part of the government’s austerity drive. For court users, and without additional funding from central government, the wheels of justice could well slow, increasing the time it takes them to resolve their claims and recover the losses they seek. In this event, litigants may become increasingly inclined to turn to such alternative forms of dispute resolution as mediation, adjudication and arbitration.

You can view the full MoJ report here.

As the professional services market has become more fluid, clients are changing advisers with greater frequency than ever before. In this context, we examine the recent case of Paul Denning v Greenhalgh Financial Services Ltd and the duty on professional advisers to review the advice of their predecessors.

Background

In August 2000 Mr Denning authorised the transfer of the deferred benefits from his final salary pension scheme to a personal pension plan with Scottish Equitable (the First Transfer). This was on the recommendation of Alexander Forbes Financial Services Ltd (AF), who advised that such a transfer was likely to produce a higher pension for him at retirement age.

Regrettably, however, the personal pension plan did not perform as anticipated. Therefore, in February 2007, on the further recommendation of AF and in preparation for his imminent retirement, Mr Denning transferred to a phased retirement plan with Standard Life (the Second Transfer).

In August 2008 and dissatisfied with the service being provided by AF, Mr Denning retained Greenhalgh Financial Services Ltd (GFS) in its place. At this time, it was agreed that GFS would undertake a review of Mr Denning’s existent arrangements and GFS was not instructed to review the First Transfer.

In November 2010, and of his volition, Mr Denning complained to the Financial Ombudsman Service (FOS) about the advice he had received from GFS in relation to the First Transfer. However, this complaint was rejected in 2012 by the FOS on the grounds that it was out of time.

In January 2013 Mr Denning issued legal proceedings against AF, although these were later abandoned on the basis that his claim for compensation was likely to fail as it too was time-barred.

Finally, in December 2014, Mr Denning issued legal proceedings for professional negligence against GFS.

Allegations

Mr Denning alleged that GFS had been negligent in failing to review the advice that AF had given in 2000 in relation to the First Transfer and in failing to advise him of the potential to make a claim against AF. Had GFS done so, Mr Denning alleged that he would have issued proceedings against AF in late 2008 and that he would have recovered substantial compensation.

Decision

On an application to strike out and/or summarily dismiss the claim, the court determined that the facts and circumstances surrounding the First Transfer were far too distant in time and remote in subject matter from the instructions given to GFS in 2008 to give rise to a duty on GFS to review it. In doing so it observed, amongst other matters, that the information required to provide the omitted advice had not been available to GFS and that the errors allegedly made by AF were not obvious ones.

Comments

While the court had little difficulty concluding on the facts of Mr Denning’s case that a successor adviser was under no duty to review and advise upon the recommendations of its predecessor, there will inevitably be other cases where a positive obligation does arise. This seems more likely where, for example, the successor adviser was expressly instructed to review previous advice and/or where it was reasonable or necessary to review advice previously given in order to provide any further advice. It also seems more likely where the preceding advice remained in effect and/or falls within the sphere of competence of the successor adviser.

Although it is not uncommon for professional advisers to review the actions of their predecessors, particularly where a new client has expressed dissatisfaction, the decision in Denning indicates that it cannot safely be assumed that they will always do so.

Therefore, as a client, if you do have concerns about the actions or advice of your previous adviser, or if you would simply like piece of mind, the safest course will be to specifically request a review and agree the ambit of it. At the same time, you might also consider taking legal advice, not least because of the potential for any claim that you may have to become time-barred. If you do not, you run the risk that any actionable mistakes committed by your previous adviser will not be heeded but will, instead, be consigned to history.

Further legal assistance

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals, including claims against other solicitors.

If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.

At PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.

According to the latest statistics released by the Ministry of Justice (MoJ), mortgage possession claims and orders both rose in the period from April to June 2017 (Q2).

The MoJ’s quarterly report advises that:

• There were a total of 5,186 mortgage possession claims issued in the County Court, an increase of 17% on the same quarter last year;
• There were a total of 3,343 orders for possession made, an increase on the previous quarter and an 8% increase on the same quarter last year.

The introduction of the Pre-Action Protocol for Possession Claims, which was introduced amid concerns over the effect of the credit crunch and which came into force on 19 November 2008, has undoubtedly helped limit such claims. It is also the case that claim levels remain some way off their peak of 26,419 in 2009.

However, the increasing trend might well spark concern for conveyancing solicitors and valuers, who are often a target for lenders seeking to recover any shortfall suffered following the re-possession and disposal of mortgage property.

You can view the full MoJ report here.

The Bar Standards Board (BSB) has published its annual Enforcement Report this month. The report provides an overview of the BSB’s work enforcing the professional obligations of barristers, as set out in the BSB Handbook.

While warning that some the report’s findings have been skewed by an unprecedented number of complaints against a single barrister, it advises that for the period 2016/17:

• There were 960 pre-complaints (being instances where information is received – other than from the public – which may indicate a breach of the Handbook), a 9% increase on the previous period;
• There were 110 reports of serious misconduct received from barristers, a rise of 38% on the previous period;
• The total number of external complaints (from members of the public, solicitors and other professionals) and internal complaints (those raised by the BSB on its own motion) actually fell to 366, the lowest level for five years;
• Of the external complaints made, 49 (19%) were received from civil law litigants, while 35 (14%) were received from family law litigants;
• Of the external complaints made, 48 concerned an allegation of misleading the court, while 41 related to making misleading submissions or statements.

It is important to note that misconduct by a barrister will not, by itself, guarantee the success of a professional negligence claim. However, it can certainly be a material factor and one that justifies making further enquiries where financial loss has been suffered.

You can view the full BSB report here.

This month the Financial Reporting Council (FRC) has published the fifteenth edition of its annual report on the accountancy profession. Based on information obtained from various accountancy bodies (including the ACCA, ICAEW and CIMA), it makes for interesting reading.

The main highlights include:

• Membership of accountancy bodies in the UK and Republic of Ireland (RoI) continues to grow, with the total number of members hitting 350,912, a 10% increase since December 2012;
• The ICAEW continues to have the largest number of members in the UK and RoI, with a total of 125,087 as at 31 December 2016;
• The ACCA continues to have the largest number of members worldwide, with a total of 193,976 as at 31 December 2016;
• The number of audit firms registered with Recognised Supervisory Bodies (RSBs) was 6,010, a fall of 17% since December 2012;
• Of the firms registered for audit, 49% had only one principal, while 95% had six principals or less;
• For the year ending 2016, PricewaterhouseCoopers enjoyed the single largest concentration of FTSE100  audit clients (numbering 33), followed by KPMG, Deloitte, EY and BDO;
• Audit fee income for the Big Four increased by 2.7% in 2015/16 and for those outside the Big Four, by 5.4% in 2015/16;
• There was a fall in the number of new complaints received by RSBs, from 120 in 2015 to 107 in 2016.

The report should be received positively by the accountancy profession. However, from a professional negligence claim perspective, a growing profession could lead to an increase in the overall number of claims made against it. Equally, the potential for members to explore new and less familiar area of practice, where risk management protocols are less established, in response to the pressure of increased competition, could also be a factor.

You can view the full FRC report here.

The Law Society of England and Wales has published its annual statistics report for 2016 this month. The report advises that as at 31 July 2016:

• There were 175,160 individuals on the Roll of solicitors, an increase of 4.1% on the previous year;
• There were 136,176 solicitors with practising certificates and therefore entitled to act as a solicitor within the definition of the Solicitors Act 1974, an increase of 2.1% on the previous year;
• The number of solicitors with practising certificates has increased dramatically over the last two decades, from 68,037 in 1996 and from 104,543 in 2006;
• In growth terms, the number of practising certificate holders working in-house exceeded those in private practice and accounted for 22% of all certificate holders;
• There were 91,166 solicitors working in private practice, 57.8% more than in 1996 when there were 55,673 solicitors and 13.1% more than in 2006 when there were 80,575 solicitors in private practice;
•  There were 9,430 private practice firms registered in England & Wales, an increase of 0.3% on the previous year;
• The number of Black, Asian and minority ethnic groups amongst practising certificate holders has risen to 16%.

While there have been some high profile casualties in recent times and a number of new entrants retracting from the market, the report suggests that the profession as a whole remains on a firm footing.

A copy of the full report is available from the Law Society, priced at £99.

Statistics published at the start of this month by the Ministry of Justice (MoJ) show a dramatic rise in the level of claims activity in the County Courts across England and Wales in the period January to March (Q1) of 2017.

Of particular note, is the finding that:

• A total of 508,711 County Court claims were commenced in Q1, more than in any other quarter since 2009;
• Specified money claims (where the claim is for a set amount of money and which are often issued in large numbers by credit card, utility and debt collection companies), increased to 392,800 in Q1, a rise of 22% on the same period last year; and
• Unspecified money claims (which are likely to include many professional negligence claims), increased to 37,700 in Q1, up 3,200 on the same period last year.

The volume of County Court claims has been increasing gradually since Q2 of 2012, although it had fallen back at the end of 2016. However, it is now sitting well above its previous peak in 2009.

Whether this trend will continue longer term remains to be seen. However, it would suggest that the changes to litigation funding brought about by the Legal Aid Sentencing and Punishment of Offenders Act 2013 have not arrested access to justice as some had previously feared. It may also show that lender forbearance is waning and that instances of personal insolvency could become more prevalent.

You can view the full MoJ report here.