Growing numbers of UK leaseholders are taking legal action against conveyancers over legal advice they received when purchasing their leasehold house.
Leaseholders who believe they were not clearly informed of the risks of leasehold ownership or that they were buying a leasehold property at the point of purchase are now seeking compensation from their legal advisers.
Leasehold houses became popular in recent years as they enabled people to purchase a house at a lower price than if on a freehold basis. While the house is bought by the leaseholder, the land it stands on remains the property of the freeholder. An obligation is placed on the leaseholder to pay fees to the landowner, usually in the form of ground rent and maintenance or service charges.
Leaseholders are citing issues such as solicitors failing to highlight terms of the lease that could present risks. This includes common terms such as significant increases in ground rent, the impact of this on future property value, and incorrectly calculating the ground rent figure or even simply sending the lease document without highlighting specific risks.
Leaseholders are also finding they have to pay fees to the freeholder if they want to make any changes, whether big or small, to their properties. Whether the concept of permission fees is right or wrong, there are undoubtedly questions to be raised about how they vary in both cost and breadth, and why no regulation is in place over the maximum amounts that freeholders can charge.
Concerns are now being raised that the absence of rules or legislation governing leasehold properties is leaving leaseholders struggling under unfavourable terms of leases including increasing ground rents and other financial liabilities.
While solicitors did not create the leases, their role in communicating the risks of the terms are being scrutinised as leaseholders face increasing financial liabilities and in many cases, are struggling to sell their house due to the terms of the leasehold.
While not every leaseholder will have a valid claim or grievance against their legal adviser, the scale of the issue shouldn’t be underestimated. There are more than 1.4 million leasehold houses in England, according to government figures. While no proceedings have been issued to date on this issue, it is likely to be a matter of time before a claim comes before court.
With concerns about the transparency of freehold sales to third parties, the lack of protection against unreasonable permission fees, and of potential failures in advising leaseholders about the terms of their contracts, the Ministry of Housing, Communities and Local Government has consulted on leasehold reform, including looking at capping ground rents at £10 a year. Reform of residential leasehold is also under consideration by the Law Commission.