Conveyancer negligence in failing to advise on “obvious risks” of off-plan schemes

A solicitor has been fined £10,000 by the Solicitors Disciplinary Tribunal (SDT) after failing to advise a client on the “obvious risks” of off plan property development schemes, a common occurrence in cases of conveyancer negligence.

Conveyancer negligence in advising purchasers

Between 2014 and 2016, David Hayhurst of 174 Law Solicitors Limited, acted for buyers in relation to three ‘fractional’ development schemes where the purchasers paid deposits between 40 and 80% of the price for unbuilt units. This transaction was for the sale of 118 units for which nearly £2.9million was paid.

The property developers of the units subsequently entered into a company voluntary arrangement (“CVA”) and the developments were not completed. The SRA held the schemes were inherently risky with the investment being effectively worthless as contingent on the completion of the development.

Pursuant to his retainer with his clients, the solicitor accepted that he had a duty to make his client aware of any obvious risks which came to his attention. The solicitor claimed he had exercised his professional judgment in an honest and genuine way and his client care letter contained express reference to risk but he later accepted he had failed to advise his clients adequately.

In this case the clients had paid the reservation fees (small deposit for the properties), there were no complaints about the solicitors’ conduct and he did not charge unreasonable fees however the SDT found his advice was “so inadequate as to be incompetent”. Although the clients had paid reservation fees, the SRA held that these were paid as a result of the commercial pressure applied to investors in these schemes and commented:

“A solicitor ought to have seen through that and not allow it to get in the way of providing proper and adequate advice.”

Breach of Solicitors’ Code of Conduct

The SDT held that the solicitor had breached:

  • Principles 4 of the SRA Principles 2011: to act in the best interests of each client;
  • Principle 5 of the SRA Principles 2011: to provide a proper standard of service to your clients;
  • Principle 6 of the SRA Principles 2011: to behave in a way that maintains the trust the public places in you and in the provision of legal services; and
  • Outcome 1.5 of the SRA Code of Conduct 2011: advice provided and representations given were so inadequate as to be incompetent.

The SDT issued its decision against David Hayhurst on 19 May 2020. In addition to the fine of £10,000, the solicitor was ordered to pay £15,000 in costs.

What is off-plan property?

Buying off-plan means committing to purchasing a property prior to completion of the development. There are many advantages to buying off plan including that its cheaper as you are able to purchase the property at below market value and profitable if the buyer benefits from an increase in house pricing. Some off-plan investments also have the option of staged payments to spread the costs.

Buying off-plan is not for everyone and will be more suitable for certain purchasers and property developers with full understanding of the risks involved. In this particular case the SRA had commented that the investors were not obvious candidates for a high-risk investment scheme and this should have been taken into account by the solicitor.

What are the risks of purchasing off-plan?

There are various risks involved with purchasing off-plan which need to be considered including but not limited to:

  • Market prices may fall
  • The developer may go bust (so you should ensure your deposit is protected)
  • Difficulties obtaining a mortgage
  • Delays in the project completion
  • Suitability for your needs

Does my solicitor owe a duty of care?

A duty of care is a legal duty requiring the conveyancing solicitor to act with a standard of care and skill when dealing with their client. If you have a retainer with the professional i.e. a client care letter or letter of engagement, the duty that they have should be set out there or in the professional’s terms and conditions. If there is no contract, the conveyancer may have ‘assumed responsibility’ towards you as a client.

How do I prove that my conveyancing solicitor has been negligent?

Significant judgments in cases against property solicitors and licenced conveyancers all highlight that three essential elements are required to prove a successful allegation against a conveyancer.

The following three elements need to be proved to the civil standard of proof on a balance of probabilities i.e. it must be proven that the lawyer’s breach in the duty owed to its’ client, more likely than not caused the client to suffer loss.

1.Demonstrate that the conveyancer owed you a duty of care

The boundary lines between when a tortious duty of care is owed or not owed is subject to tests that are being continuously adapted by the courts. It is safe to say that a duty of care exists where the conveyancer can be shown to have objectively assumed responsibility (and the courts have demonstrated increasing willingness to find that a conveyancer is liable to whomever reasonably relies on their advice). Once a conveyancer accepts instructions and you have signed the client care letter, a contractual duty of care will likely be found within that document.

2. Establish that the conveyancer has breached the duty of care owed to you

Proving breach will obviously vary depending on the individual circumstances of the case. A claimant needs to demonstrate that the breach shows that the conveyancer fell below the standards of a reasonably competent property conveyancer. The particular level of experience of the coveyancer or property specialist solicitor (from newly qualified trainee solicitor to highly experienced partner) is not relevant- inexperience is no good argument to persuade the court to lower the standard of care. However, if a lawyer or firm hold themselves out as specialists in an area (for example solicitors specialising in conveyancing), then the court will hold them to standard of reasonably competent specialists of conveyancing law.

3. Prove that the conveyancer’s breach caused loss to you

You must prove both factual and legal causation. The test for factual causation is that “but for” the breach you would not have suffered loss, for example if a limitation date and as a result your claim becomes statute barred and you lose the chance to substantial damages in the substantive claim, factual causation is demonstrable because “but for” the solicitor’s negligence you would still have a claim that was not time-barred and still have a chance to achieving damages. Legal causation must also be proved i.e. the loss must be reasonably foreseeable at the time when the relevant duty was breached.

Who regulates property solicitors and licenced conveyancers?

Licenced conveyancers are specialist legal professionals that have been specifically trained to practice property law. Solicitors can also deal with property transactions.

Legal professionals such as solicitors and barristers are highly trained and rigorously regulated by the Solicitors Regulation Authority (SRA). A high level of trust is placed upon such lawyers by their clients. If a lawyer fails to deliver the service to the standard expected of a reasonable professional in the speciality field of conveyancing, then a client has every right to bring a complaint (and court proceedings) if financial or personal loss is suffered as a result.

Licenced conveyancers are also regulated by the Council for Licenced Conveyancers (CLC), which is the specialist property law regulator. The CLC provides regulation for those conveyancers who do not practice as solicitors, but instead are specialists, who have been trained only in conveyancing. The CLC investigates misconduct, takes disciplinary action and sets training standards for licensed conveyancers.

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