First claims launched against law firms who failed leaseholders

Of around 100,000 home owners who bought new builds between 2008 and mid 2016 but weren't advised by their lawyers that the leasehold costs would escalate, 50,000 face damagingly steep future costs. It's estimated that these leaseholds can wipe as much as 30% off the value of a house. On average, FS Legal estimates the claimants it represents are facing a £60,000 loss on what should have been a £200,000 home.

These leaseholds have made these properties almost unsaleable and remortgaging extremely difficult.  Homeowners have been ambushed by ground rents doubling every five, 10 or 15 years that not even mortgage companies had foreseen when working out borrowers' affordability.  Buying themselves out of this has proved equally difficult as freeholders have set high prices to let go of these lucrative rights.

House and flat owners caught in this leasehold trap should act now. Gareth Fatchett, partner at FS Legal, warns against trusting in the Government to fix the problem. He believes it's highly unlikely that the Government will pay and claims that insurers behind the original lawyers are preparing to stump up as much as £500 million.

Did you buy a new build house or flat with a leasehold between 2008 and 2016?  Does your ground rent double every five, 10 or 15 years? Does there seem to be next to no control on how much you could charged for service fees.  Did you discover all this only after you bought?  If you’ve answered yes, get legal advice NOW.

What should I do?

• This is not a DIY claim job. You'll need legal advice. This is about professional negligence.  Such claims are complex and easy to mess up.

• Choose your legal beagle carefully. If you go back to the law firm that originally did your conveyancing, chances are they'll say they did a good job at the time of advising you. But they might figure they can't wriggle out of liability, so their professional indemnity insurers may cough up.  There is no natural body people can turn to over poor conveyancing advice, according to Fatchett.  Nor can home owners easily turn to other lawyers.  Law firms that provide conveyancing - and many do - may be ruled out from claiming about shoddy conveyancing by their own insurers. 

• You're probably best off with a law firm that doesn't handle conveyancing. Birmingham and Manchester based FS Legal Solicitors don't so that's why they were able to be the first to lodge these claims. They plan to team up with four other non-conveyancing firms to handle the toxic leasehold hot spots: north west England, north east England, around Bristol and London to gear up to take on 5,000 claims.  Fatchett is predicting a dash by other solicitors once momentum builds in this campaign. 

• Get a move on.  You've only about 9 months to start a claim.  This is because you have only three years to bring a claim from the point at which you could have reasonably been expected to realise that you hadn't been given full and proper advice.  With costly leaseholds terms coming to public attention in mid-2016, that means claimants only have till next summer.

• Watch your neighbour!  If they've submitted a claim and the insurers have agreed on a common approach and are going to compensate, it's worth filing your claim.  F S Legal has submitted around 30 claims against one set alone of conveyancers in the Manchester area.  

• Be ready to spring in Spring.  FS Legal don't expect insurers behind the first 500 cases to respond until late March/early April 2019. That doesn't leave you long to follow suit before the cut off point in mid-2019.  

What if I bought a flat?

If you bought a flat, have one of these leases but weren’t told, you too may have a claim.  But because of the shared nature of flats, it’s more likely that the terms were pointed out pre-purchase.  Flat owners may not have such a strong claim but Fatchett is testing this out - some of the claims he’s lodged are for flats.

What if my ground rent goes up reasonably gently?

Of around 100,000 households with escalating ground rent leases, Fatchett cautions that not all will be able to make a viable claim. Fatchett says some people are 'stuck in leases that aren't great' but if the rises are fairly light touch or go up with inflation, they're unlikely to have a viable claim. 

What if my ground rent doubles up every 5, 10 or 15 years and I wasn't told?

If this is your predicament, you could be facing major problems selling or remortgaging. ‘About 50,000 households are stuck in leases facing losses,’ Fatchett told MSE. Surveyors on some of the 500 cases he's lodged have estimated as much as a 30% hit on property value. That means a price crash of £60,000 on a £200,000 home.  You should seriously consider making a claim.

Can't I just buy the freehold?

Yes but you might need much deeper pockets than you'd expected.  Because these freeholds represent a lucrative income stream, the freeholders may be reluctant to sell them except for a high sum and don't expect any previous offer you might have had to be anywhere near the mark.  One case that's been reported elsewhere showed the price rocket in two years from £2,600 to £32,000 well out of reach.

So what will I get?

If the conveyancers are found to be negligent, the home buyer has to be put back to where they should have been if all happened properly.  So the average claimant in F S Legal's first wave stands to gain £60,000 compensation. London claims are likely to be much higher. 

Fatchett's advice is to use that to buy out the freehold if they will sell and rid themselves for good of ground rent and management fees. The freeholder is paid off, possibly handsomely, but the home owner is worry free.

Next steps in campaign

If you have been left wondering how was this allowed to happen in the first place, this is exactly the question Fatchett wants the Solicitors Regulation Authority (SRA) ask.  With new home developers offering slick purchasing to high volumes of mainly inexperienced buyers aged 25 - 40, purchasers were often pointed in the direction of particular law firms.  The elephant in the room question is were the lawyers looking after the builders more than their customers?  Some developers he described as having ‘pet’ legal firms.  Fatchett intends submitting his findings to the SRA. 

What if I’ve bought since mid-2016?

You should be OK but check if unsure.  As these leasehold pitfalls came to light around mid-2016, mortgage companies and solicitors began to warn about them and terms improved. 

The Law Commission launched a push this autumn for sweeping legal changes to help leaseholders buy their freeholds or extend their leases but any changes to the law aren't likely until 2020 at the earliest.

The Communities Secretary at the Ministry of Housing, Communities & Local Government proposed in a six week consultation this week that most new build houses will be sold as freehold and new leases will be capped at just £10. Leaseholders pay over £300 ground rent on average with some paying £700. 

What if I bought in Wales or Scotland?

These leases weren't so widespread in Wales and Scotland enjoys its own legal system.