MPs have urged the Government to ban financial incentives between Estate Agents and Solicitors in their latest report on leasehold reform. The House of Commons Housing, Communities and Local Government Select Committee said it had received evidence of developers and agents “incentivising and insisting” that specific solicitors be used.
The Committee found that leasehold buyers were incentivised with offers of free carpets, lawns and other furnishings if they went with the preferred solicitors. In one case a buyer alleged that the developer withheld information from their preferred solicitor whom they had instructed on a previous matter, insisting that the use of their preferred solicitor was the only means by which they could complete within the 8 week contractual requirement.
The Committee of MPs stated that many of the complaints focused on the fact that the ‘recommended solicitors’ withheld, or failed to report key parts of the Lease agreement including the ownership structure, permission fees or the Ground Rent Review clause relating to when the ground rent would increase.
Beth Rudolf, representing the Conveyancing Association, stated that conveyancing solicitors should have refused the instruction where clients have been unethically acquired saying “I am not here to defend developers. That all sounds very wrong if people are being coerced into doing something that is not in their best interests. As we have said, as conveyancers we are heavily regulated and we should not be accepting instructions from clients where they have been acquired through something that is in breach of our regulations. If any conveyancer was aware of that, they should have refused the instruction”.
In response to the complaints Jonathan Smithers, representing the Law Society, highlighted that such was the power of the individual developers now that the ability to argue for onerous clauses to be excluded on behalf of clients was far harder. He explained “I think that the number of developers getting much smaller and the power that they now have to effectively impose their conditions – because the buyer cannot go anywhere else to buy a house; they have to buy it from them – means they have much greater market power to say, “These are the papers. Take it or leave it.”
In the Committee’s report they concluded that it was imperative that “Consumers must be able to access independent and reliable legal advice when purchasing a property. Their interests cannot be served where they are coerced into using developer recommended conveyancing solicitors, who rely on repeat business from developers”.
Here at Pinney Talfourd we do not pay referral fees to estate agents or developers and if we are contacted by a developer who would like to recommend us to clients we insist that clients are informed that they are under no obligation to instruct us and that any preferred referral is based entirely upon merit and not upon financial incentive.
There are a number of procedures and processes specifically related to new build purchases which requires a specialist conveyancer. The Residential Team at Pinney Talfourd are proud to be recommended by a number of developers based solely on the quality of our work and expertise.
Make sure that when you are recommended a solicitor in your home buying process that you ask the agent specifically if they will receive a payment for referring a particular firm.
We are happy to provide a free no-obligation quote and advise on any other issues relating to new build purchases and sales. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of April 2019.