The regulator has issued guidance to help practitioners understand their obligations when advising on leasehold matters. Tracey Calvert considers the issues
The Solicitors Regulation Authority (SRA) has issued new guidance to support conveyancers who act in leasehold matters. This is an invaluable resource and can be used as the basis for your consideration of whether your conveyancers understand their regulatory obligations. It also supports the firm’s risk management and mitigation strategies.
The risks attached to non-compliance are numerous. Not only might there be the possibility of disciplinary action by the SRA, but the Legal Ombudsman (LeO) may also be concerned about poor service standards, and the lack of a proper service will often trigger adverse publicity and reputational damage. The wrong response might also have an impact of your firm’s accreditations.
Unfortunately, there are many examples of clients receiving inadequate or inappropriate advice from their legal representatives when buying leasehold properties. The most common issue arises in connection with failures to advise clients about onerous leasehold clauses, such as those which relate to ground rent increases. However, there have also been examples of other matters connected with leasehold conveyancing that have created negative publicity for conveyancers, their employers and the legal profession more widely. The SRA guidance mentions poor practices such as clients being told to read lease clauses themselves or conveyancers referring to clauses as ‘standard’ without offering advice or explanation. The guidance note highlights various concerns and provides a reminder about regulatory expectations.
The SRA’s interest stems from the professional behaviours that they expect of us and which they are required to supervise. A key regulatory concern is that we provide a competent level of service. Competency is a reference point often used by the SRA, which has defined it as “the ability to perform the roles and tasks required by one’s job to the expected standard”. This means having competency is not exclusively connected with the need to have the correct legal knowledge.
This is of course assumed to be the case. Competency also extends to having the skillset to be effective communicators of this knowledge and to understand and respond to a specific client’s needs and circumstances.
Standards and Regulations
The SRA has regulatory reach over all individuals within an authorised law firm and expects compliance with relevant sections of the SRA Standards and Regulations (STaRs). The guidance document reminds us that competency in service delivery requires a consideration of whether we are able to achieve the following objectives:
- principle 2 – you act in a way that upholds public trust and confidence in the profession and in legal services provided by authorised persons
- principle 5 – you act with integrity, and
- principle 7 – you act in the best interests of each client.
The SRA Codes of Conduct (CoC) add substance to these principles by describing regulatory standards when we provide legal services. We must comply with service and competence standards as described in chapter 3 of the SRA CoC for Solicitors, RELs and RFLs and repeated in chapter 4 of the SRA CoC for Firms, so that we must:
- ensure that service provision is competent
- maintain our competence to carry out our roles and keep our professional knowledge up to date, and
- consider and take account of each client’s attributes, needs and circumstances.
Personal responsibilities are underpinned by compliance and business management responsibilities. For solicitor-supervisors, this is a personal obligation found at paragraphs 3.5 and 3.6 of their CoC in the duty that their supervision is effective and that they ensure that colleagues they manage are competent. For the authorised firm, there are regulatory duties in the CoC for Firms that sets effective governance standards.
The guidance makes the point that regulatory standards must be applied in practice. Take, for example, the point about onerous leasehold terms. The guidance reminds us that our clients expect to receive our advice on these and that risks should be brought to their attention and in a way that suits the particular client’s attributes. It should not be assumed that clients will have the same level of understanding about risk as us, or that what we regard as a standard clause does not need explaining. It also should not be assumed that all clients have the same level of understanding – a first-time buyer of a leasehold property will be in a different position to a commercial client or a more experienced buyer of property. It is our duty to adapt to the needs of our clients.
The guidance also flags up related regulatory concerns, and complicating compliance considerations. This includes issues such as conflicts of interests, and the need to manage relationships with landlords and developers which may impact on our duty to act in the best interests of each client and so on.
The guidance is essential reading for managers, the compliance officer for legal practice (COLP) and anyone involved in compliance and risk management in a firm which offers conveyancing services. As with all guidance issued by the regulator, it is sensible to use it to sense-test the firm’s compliance position. If the SRA undertook a supervisory exercise, would it find evidence of the correct compliance response to this topic?
Benchmarking your firm
Key benchmarking questions you should ask will include the following.
- Which staff need training on leasehold matters and/or training to be more effective communicators? Do you, for example, need to upskill your conveyancers so that they develop their skills to provide clear written advice on complex leasehold topics?
- If training is needed, how will your firm ensure that this is effective and leads to improvements in service delivery?
- Apart from the managers and those with compliance responsibilities, who else needs to read the guidance so that they understand SRA expectations? Which of your fee-earners and supervisory staff need to know about this? Which support staff need to know about this specific topic and the SRA’s interests more generally?
- Have you made your service standard expectations clear to your fee-earners?
- Do you have the tools to be adaptable? Do staff understand, for example, that there needs to be an assessment of an individual client’s attributes so that service delivery can be modified? We left the ‘one size fits all’ era a long time ago, but does everyone know this?
- Do business support staff understand the consequences of poor communication and what their next steps should be if they are of the view that the client does not understand what is happening in their transaction? Do they understand the SRA’s regulatory reach over them? Are there procedures so that their intelligence can be fed into the fee-earner’s understanding of the client?
- Does your firm have effective supervisory oversight and are you confident that this is a way in which you will be able to check that clients have been given all appropriate information in a style that meets their needs?
- Are you considering vulnerability issues when acting for clients? The SRA and LeO acknowledge that vulnerability comes in many guises and includes inexperience on the part of the client, which might be a characteristic of a client buying leasehold property and/or a first-time buyer.
- Have you considered relationships with developers and landlords, and the impact that this must not have if you are acting for the buyer of leasehold property. Do you identify the conflicts that might arise? Have you considered whether any relationship with the lessor etc fetters your ability to be independent and act in the best interests of another client? Again, is training needed and/or supervisors reminded to oversee professional behaviours?
- Are you looking at complaints data? If clients are complaining about lack of communication, or surprises, then this may indicate a competency failure which must be addressed.
- Does the compliance function in your firm, whether this is the COLP alone or with the support of risk and compliance colleagues, have confidence that colleagues are delivering competent services?
Leasehold property work attracts a number of risks. This guidance is an indicator that the SRA has this on its regulatory radar. Is it on your radar too?