In recent weeks there has been a deal of press and public indignation over ground rents that can double or more overnight. It is an issue that may be harbouring an avalanche of negligence claims against solicitors, according to Joshua Munro, a barrister at Hailsham Chambers.
He writes: “Purchasers of long-leasehold interests in property may regard themselves as the ‘owners’ of the property. However, many thousands have discovered that they are subject to covenants in favour of freeholders.
“When the true position is found out as to increasing ground rent liabilities, it is very likely that the long-leasehold owners will want to make claims. The problems are often remediable, via leasehold enfranchaisement and acquisition of a share of freehold, or an extension of the long lease’s term with reduction of ground rent to a peppercorn.
However, the remedies come at a cost of professional fees, the monies payable to the freeholder, and also the time and hassle of going through the necessary legal processes, and if appropriate garnering the support of sufficient numbers of fellow long-leaseholders.”
The conveyancing solicitor may be the ‘first in the firing line for claims’. Mr Munro quotes the handbook of the Council of Mortgage Lenders, which requires conveyancers to check any specific conditions relating to ground rent in a lease.
He continues: “Conveyancers, also of course, will be liable unless they have given sufficient advice to the purchaser clients and many may not have given any advice on ground rent clauses. The relevant leases also often have other clauses which may be considered unreasonable and in respect of which inadequate advice may have been given, for example fees for remortgaging or making structural changes.
“Furthermore, there are potential claims that are more complex as to the adequacy of advice in respect of leaseholds with short terms that will need to be extended, often at high cost.”
Other professionals may also find themselves caught up in the storm. “Valuers may find themselves in the cross-hairs,” says Munro, “although many will not have been properly instructed as to the tenants’ covenants and therefore will escape liability.”
He councils: “Obtaining careful and considered expert evidence is of course necessary to make a claim for diminution in value. The expert should consider the availability of mortgages for the next purchase of the property and how that affects value. If leasehold enfranchaisement is available it may well be more straightforward to claim the cost of cure and consequential losses.”
He offers a lifeline to conveyancers in the form of limitation, adding: “Claimants in many cases will struggle to make out s14A Limitation Act 1980 arguments, deliberate concealment, or other attempts to extend the six-year period.”
His conclusion is gloomy, however: “Historically, residential conveyancing has generated the largest number of claims on solicitors’ professional indemnity policies. That number is likely to swell as claims arising from leasehold issues come to light.”