Competition watchdog attacks conveyancer-developer tie-ups

The government could get tough on conveyancers who develop cosy relationships with developers after the Competition watchdog, the Competition and Markets Authority, expressed serious concerns.

In an update report the CMA outlines its current thinking in its probe on whether consumer protection laws have been breached in the leasehold housing market. Developers’ relationship with panel solicitors is one of several concerns.

The CMA states:

‘Developers often recommend solicitors – termed “panel solicitors” – to purchasers on the basis of the panellist’s familiarity with the developer’s sales processes and the legal aspects of the development in question. This practice has been the subject of criticism. It is permitted under professional conduct rules and there are obvious advantages in principle.

‘However, the solicitor’s duty is to act in the best interests of their client, with independence, honesty and integrity. There is a risk that this may be compromised if solicitors are concerned to avoid losing the recommendation that comes from the developer. This is a matter of concern and goes together with concerns about the effect of some inducements offered to purchasers to move to speedy exchange of contracts.’

The CMA is not the first to express concern about the relationship. Last year the House of Commons housing, communities and local government select committee said it received considerable evidence of developers incentivising and insisting on specific solicitors being used.

Also, in its report, the CMA calls for a ‘clear statement’ of information such as the form of tenure and estimated annual costs to be provided when the leasehold property goes on the market. It acknowledges that the solicitor’s job is not to advise potential buyers on the merits of the purchase.

However, the CMA says:

‘The decision whether to purchase is for the consumer, and a key check and balance in a well-functioning market flows from the decisions of well-informed consumers, able to make choices that are in their interests. Prospective buyers therefore need to be in a better position to make choices, particularly early in the process, than they are at present.’

The Law Society said it has long called for homebuyers to be given more information earlier in the process about key terms of the lease.

Simon Davis, president, said:

‘Developers and estate agents should be making the terms explicit from the outset – this is what they are required to do already under consumer protection law. We want the leasehold system to operate fairly for leaseholders and for it not to cause delays in the home buying and selling process. We also want it to be easier and cheaper for leaseholders to extend their lease, buy their freehold and take over management of their block.’

Kindly shared by The Law Society Gazette