At the start of the year the SRA published guidance on what Standards and Regulations are required when acting for clients who are buying leasehold properties and to avoid possible breaches of the requirements.
The regulator asserted their concern that clients are not receiving appropriate advice on “onerous clauses in leases” with ground rent clauses for newbuild properties being one of the most common issues. The SRA stated:
“Depending on their wording, such clauses can result in an increase in the ground rent payable by the lessee from a few hundred pounds a year to more than, for example, £70,000 a year, over the course of the first hundred years of a lease. Such clauses can have a significant impact on the lessee due to the unexpectedly high costs and impact on the future value and saleability of the leasehold.”
Providing competent advice
Under the codes of conduct, the regulator expects you to act in accordance with your professional obligations and to provide a competent level of service when dealing with leasehold conveyancing.
Failure to provide competent and independent advice may put you in breach of one or more of the SRA Principles or Code provisions. The SRA Principles require you to:
- Principle 2: Uphold public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.
- Principle 3: Act with independence.
- Principle 5: Act with integrity.
- Principle 7: Act in the best interests of each client.
The guidance reminds firms that where the regulator receives complaints about a failure to advise appropriately on lease clauses, they will apply their enforcement strategy. Generally, rather than penalising a single negligent act or an omission, the SRA will be focusing on cases “where there is evidence of seriously or persistently poor levels of competence demonstrating a pattern of behaviour; an example of which might be an overly mechanical ‘copy-and-paste’ approach to advising”.
However, the SRA stressed that single cases could attract action too, particularly “where a firm or an individual has knowingly acted outside their competence or has failed to take reasonable steps to update their knowledge and skills, or those of their employees.”
You can read the article and guidance in full HERE.
Handling Advice for Leasehold Properties
With the regulator maintaining a particular focus on this area of potential negligence, it is important to ensure that all firms take the necessary precautions to ensure that there is sufficient knowledge of this area of property law and the appropriate actions are taken when this is a feature.
Advising on Ground Rent is a standard part of the reporting on title and should be seen as the same as advising on the need to pay Stamp Duty or any restrictions on the property. Missing it is simply not acceptable as it is there to be seen in the draft lease. Furthermore, the calculations are not difficult either. They usually escalate by a % or amount at time intervals and basic excel skills (or a calculator) can set out the position.
Overall, this comes down to three things
- The quality of the title reports (particularly when using a template)
- The quality of supervision (many firms will require title reports to be approved by a supervisor)
- The quality of training dealing with the pitfalls of advising on property transactions. This along with other topics such as off plan purchases or multiple dwelling relief etc.
The role of the law firm is to spot onerous terms in leases and not just escalating ground rent. This is, after all, part of the reason why firms charge a higher fee for advising on leasehold properties.
Effective Risk Management and Control – Solutions & Actions
The Strategic Partner is a law firm knowledge hub. We work with both law firms and professional indemnity insurers, advising and guiding on risk management techniques to assist and reduce instances of claims or regulatory breaches.
Our risk and compliance solutions provide guidance and support to firms on a range of topics and include: –
- Our Risk, Regulation and Compliance Service (including AML), provides firms with the necessary Policies Control and Procedures (PCP’s) alongside training, supervision structure, an annual independent assessment and reporting. This solution ensures firms, and their staff are compliant and remain there. It also clarifies what to do in the event of a mistake and/or a breach occurs.
- Our extended service, Risk, Compliance, AML Guidance and Register Administration, provides an outsource solution for firms where The Strategic Partner not only manage and maintain the risk registers and provide guidance to all staff (inc Partners) we also produce monthly risk and compliance report.
The combination of these two solutions provides a law firm with a robust and cost-effective risk and compliance strategy that ensures staff have access to expert guidance as it is needed.
Accreditation and Quality Marks – CQS
In much the same way as for Lexcel, WIQS and SQM, The Strategic Partner can work with firms to provide the needed resources and expertise to maintain and renew the CQS kitemark, including the management of any assessments, completion of applications and updates to applications.
We are fully aware of the requirements of each of these kitemarks and how firms should act to ensure they maintain them throughout the provision of legal services.
Our focus is to provide firms with the necessary resources and expertise to control and maintain all regulatory requirements and quality kitemark
Our services are all charged on either fixed fees or on a timely basis, all of which will be agreed upfront for the service required.
All services we provide will include:
- Completion of any application, be that a new application or for renewal
- Development and maintenance of policies and procedures that are in line with the firm’s requirements and the Standard of the relevant quality mark.
- Preparation for audits and assessments on an annual basis
- Provision of auditing solutions and reporting on such audits
- Liaison with the body to oversee assessments
- Reporting to the Partners/Directors on any issues as they arise
- Provision of solutions to overcome the issues.
The solutions we provide are either a complete outsource and maintenance programme or project-based assistance, as required.
How we can help