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It is an increasingly common requirement that new home buyers are compelled or coerced to use a solicitor nominated or suggested by the house builder. House builder’s restrictions on free choice can result in buyers using the same solicitor as the house builder. This practice brings doubt to the independence and integrity of the solicitor and which interest is being represented in the conveyancing transaction.
A spokesman for the Law Society said:
"We believe that it is right that consumers should be free to choose their own solicitors in all transactions and that there are dangers of a conflict of interest where the same solicitor is acting for both sides in a transaction. However, whether there is a problem will depend upon the facts of each case. The rules relating to conflict of interest are contained in the Solicitors Regulation Authority (SRA) Handbook. Any concerns about solicitors’ conduct should be raised with the SRA as the regulatory body responsible for investigating complaints"
The legal professional recognises the potential for a conflict of interest. Such is the risk, the SRA include specific "standards and requirements expected of the legal regulated community to achieve and observe for the benefit of the clients they serve" in their SRA Handbook (Chapter 3). The Legal Services Board (LSB) approved the Handbook on 17 June 2011.
Even the question of "recommending" a firm of solicitors goes far deeper than the referral commission builders and their employees receive. Oftentimes it is suggested to purchasers that it makes things easier, quicker or that this firm has already carried out searches for the plots on the developments, making delays less likely when trying to meet a house builder’s 28-day 'exchange of contracts' deadline. How can buyers be absolutely certain there will be not be any conflict of interest? Specifically, the SRA Handbook requires the solicitor to have:
"systems and controls for identifying client conflicts……." that enable them to:
"assess all relevant circumstances whether:-
Clearly each could be considered a "relevant circumstance" and a solicitor should not act for both buyer and house builder during the transfer of the legal title of a property as this would contravene SRA standards.
But the practice of requiring a specific house builder nominated solicitor is directly against the requirements of the Consumer Code for Home Builders which clearly states:
If any house builder compulsory requires buyers to use a particular solicitor they are actually breaking the law under the Consumer Protection from Unfair Trading Regulations 2008 and the Business Protection from Misleading Marketing Regulations 2008. The OFT has published two short consumer advice sheets as a guide to help those buying or selling residential property. In the buyer's guide it clearly states:
The requirement demanded by house builders for their customers to use a specified solicitor rather than having a free open-market choice, is publicly stated in several house builder’s Terms and Conditions, especially when a new home purchase involves a part-exchange, NewBuy or legal fees paid deal. House builders are also breaching FirstBuy rules.
We found these examples on house builder's websites in January 2013, despite these builders signing up to abide by the Consumer Code:
The brand-newhomes.co.uk website has found that many of the problems experienced by new home buyers can often be traced back to errors, incorrect advice and outright false declarations made by the buyer’s builder-appointed solicitor. All too often it appears that the buyer’s solicitor has been acting in the house builder’s interests, perhaps even taking their instruction, rather than in the best interests of his other client, the new home buyer.
This has resulted in the following issues:
The Consumer Code for House builders was created following the OFT review on house building with the NHBC, along with other warranty providers being associated with the Code. The NHBC provided the following comment when asked about the breach of Code requirements by some of their registered house builders:
Requirements exist within the Consumer Code for Home builders that prohibit making it compulsory to force buyers to use a solicitor nominated by a house builder. House builders have signed up to abide by these rules and unless the stakeholders of the Code actively enforce them, house builders will continue to view Code requirements as "optional." The legal profession recognises the potential for a conflict of interest, but does not prohibit both sides in a transaction from using the same solicitor, provided the solicitor strictly follows the rules in Chapter 3 of the SRA handbook. The Consumer Code, OFT, and NHBC all suggest individual buyers have a right to raise this as a complaint under the Code. The house builders know that most will not, even when they have just cause to do so.
House building is big business. Lobby groups such as the HBF protect house builder’s interests. All to often rules and regulations are ignored. The requirements in the Consumer Code and consumer laws such as the Consumer Protection from Unfair Trading Regulations (2008) and the Business Protection from Misleading Marketing Regulations (2008) are in force to give buyers protection from various underhand business practices.
It would appear that the various regulatory bodies set up to protect house buyer’s interests, are only prepared to adjudicate in disputes if and when an individual issue is formally reported to them. Brand-newhomes.co.uk reported the practice of the compulsory use of builder nominated solicitors in January 2013. We hope action is taken by the OFT and NHBC to force house builders to comply with the statutory Consumer Protection Regulations and abide by the requirements of the Consumer Code they signed up to.
"....................of the market value of the property at the time the property is sold or remortgaged. No interest is payable unless there is a default. Applicants will need to use a Mortgage Broker and Solicitor from Taylor Wimpey's panel, who will act solely for the applicant. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT."
"All David Wilson offers are subject to the use of a David Wilson nominated Independent Mortgage Adviser and Solicitor. David Wilson will not be liable for the refusal of a mortgage based on the borrower’s................"
"All Barratt offers are subject to the use of a Barratt nominated Independent Mortgage Advisor and Solicitor. Barratt will not be liable for the refusal of a mortgage based on the borrower’s................."
"....................available on selected plots and developments and not to be used in conjunction with any other offer. Subject to status, terms and conditions and using a Persimmon-nominated solicitor and/or financial adviser as necessary. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS..................."
"NewBuy scheme is available subject to status, terms and conditions and using a Persimmon-nominated solicitor and/or financial adviser as necessary…. "
Secretariat for the Consumer Code for Home Builders said: "The Consumer Code Guidance for Builders this appears on the face of it to be a breach of the Code. The consumer would have a right to raise this as a complaint under the Code."
A spokesman for the Home Builders Federation (HBF) commented:
"HBF is not a regulatory or standards body so we cannot place requirements on home builders. However the industry has a Code of Conduct. Section 2.5 is relevant. My understanding is that house builders often supply buyers with a list of several solicitors and allow them to select. It is helpful if the buyer uses one of the solicitors on the list because they will be familiar with new build and should therefore be able to process the sale quickly and efficiently."
2.5 Pre-contract information
Home Builders must advise Home Buyers to appoint a professional legal adviser to carry out the legal formalities of buying the Home and to represent their interests.
The Guidance for house builders using the Code says about 2.5:
You should advise Home Buyers to choose and appoint an independent professional legal adviser when they Reserve a Home, to look after their interests in all aspects of the transaction. You should not restrict the Home Buyer’s choice of legal representative.
"Do not rush or be pressured into a decision you are not comfortable with.
For example, an agent cannot force you to meet or use a particular financial advisor, legal representative, or building surveyor"
"The NHBC’s main role is to raise standards and provide protection for new homeowners in relation to the construction of a new home. The Consumer Code for Homebuilders, which was established by a group of stakeholders including NHBC, was established to help improve customer service across the house building industry."
"The Code requires builders to advise homebuyers to appoint a professional legal advisor to carry out the legal formalities of buying a home and to represent their interests. Under the Code, a builder should not therefore restrict the homebuyer’s choice of a legal representative. If a homebuyer believes that a builder is not complying with the requirements of the Code, they can pursue their dispute through the Code’s independent resolution scheme. In addition, warranty providers associated with the Consumer Code can take action against one of its registered builders if it has been proven, via the adjudication scheme, that a builder did not comply with the Code’s requirements."
"The Consumer Code for Homebuilders has an independent Dispute Resolution Scheme to deal with any complaints from buyers who believe they may have been disadvantaged by a breach of the Code’s requirements. Under the dispute scheme a homebuyer can be awarded up to £15,000 for their losses. Whether there is a breach of the Code will be dependent upon the facts of the case."
The Office of Fair Trading has said:
"The OFT launched a study in 2007 on home-building in the UK, the mystery shopping exercise we conducted noted 44% of homebuilder’s sales advisers referred purchasers to the homebuilder's recommended solicitor, there is no line on the legality of the practice within the market study. Nonetheless, it should be noted that sometime after the study, much of the industry adopted a code (not approved by the OFT) the Consumer Code for Housebuilders."
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