Property scandal driving new wave of solicitors PI claims

A scandal in the property market could unleash a new wave of solicitors professional indemnity (PI) claims, law firm BLM and the Institute of Directors have warned.

The scandal centres on ground rents – annual payments that leaseholders of a property have to pay to freeholders.

Many of these payments double after a set period of time. This has prompted banks and building societies to refuse to lend on such properties, making them unmortgagable and so potentially worthless.

The issue for lawyers is whether they gave clear enough advice to purchasers of such properties about the potential for increasing ground rents.

The government has proposed a total ban on new-build leaseholds, but the Leasehold Knowledge Partnership estimates that 100,000 homes are already under leaseholder ownership, providing a lot of scope for potential solicitors PI claims.

BLM said it had seen more than 400 potential claims against lawyers in less than 12 months as purchasers looked to their legal advisers to reclaim costs for ground rent charges they were unaware of.

BLM partner Julian Smart said: Whilst the UK government has vowed to step in to resolve the issue, that is going to take time and is only likely to resolve future ground rent charges. Therefore, lawyers who have advised on property purchases in the last few years remain at risk of a claim.”

He added: “When an economy is in rude health we tend to see fewer professional negligence claims. Unfortunately this doesn’t mean they will never arise. Instead they are simply stored up, and are often realised when the economic pendulum swings the other way.

“While we remain in a period of economic uncertainty, there are certain new claims types coming down the road that insurers must prepare for.”