Ombudsman report

Business Secretary, Vince Cable, has warned of a “raging housing boom”, particularly in London and the South East1. In one sense this is great news for conveyancing lawyers who, having suffered a difficult few years of slow market activity, are now finally getting customers through the door again.

However, this emerging housing “bubble” may have some less positive implications for the legal profession and its customers. It seems the increase in demand for legal services is placing pressure on firms’ resources and being manifest in mistakes and poor service. Earlier this year the Law Gazette reported the existence of a skills gap in the aftermath of the recession, and it could be that the recent upturn is now exposing it 2.

Ombudsman figures support the idea that the housing boom is affecting complaint levels: we have seen, for example, an overall increase in residential conveyancing complaints from 1189 in 2012-13 to 1476 in 2013-14. One in five (1 in 5) legal complaints now made to the Ombudsman is about residential conveyancing; a recent increase which makes it the most complained about area of law. And in the last year we have helped people recover around £800,000 to put right complaints.

More pertinently, the regions with the highest percentage of complaints about conveyancing lawyers made in the last financial year were London (22%) and the South East (17%); with the number of complaints increasing by around 24% compared to the previous year.

Issues with stamp duty

As ever, the people most affected by these worrying statistics are the house buying public. And having scrutinised the details of cases in which we have had to order some of the largest financial remedies, we have noticed a potentially alarming trend regarding lawyers failing to pay Stamp Duty Land Tax. A number of distressed people have contacted our scheme in the past year after receiving demands from HMRC for thousands of pounds in unpaid fees plus interest because their lawyer hadn’t made the necessary payments.

The problem has prompted this scheme, which resolves around 8,000 disputes each year, to share some of the worst examples so that we can highlight the issues, while urging lawyers to do better. In so doing, we hope to prevent the recent increase in complaints from escalating further. At the same time we want to alert consumers to the fact that their house purchase isn’t necessarily complete when they get the keys.

As the case studies show, the impact on home owners, some of whom may have completed their house purchase many years ago, can be significant. Imagine opening a letter from HMRC one day to discover that you are being chased for thousands of pounds plus penalties and interest and then consider the stress, anger and upset – not to mention confusion – you would feel when you have already given that money to your lawyer in good faith. That is exactly what has happened to the people featured in this report. Fortunately, we were able to help. Nevertheless, they needlessly suffered months of distress while waiting for the mess to be sorted out.

The consequences can be severe for law firms too. In all of the case studies included in this report the lawyers ultimately had to pay the outstanding stamp duty, any associated penalties and interest, plus compensation for the distress and inconvenience caused. For those still trading it will have inevitably impacted on their cash flow and reputation, particularly those firms where we found multiple examples of poor service. And in some cases, following conduct referrals, regulators have also intervened and closed their operations down.

The reasons behind these non-payments are varied. In Mr A’s case, for example, we found that the firm had stated no stamp duty was required since it had declared a lower buying price to HMRC than the amount actually paid. Similarly, in Mr F’s case the firm registered an incorrect house value, leaving him to pick up the mess some time later when HMRC spotted the mistake.

We wouldn’t, and haven’t, speculated as to the reasons why the firms acted in this way. Our role is simply to decide whether or not the client received a poor service and to put things right if they did. If we suspect the firm may have also been guilty of misconduct, we refer the matter on to the relevant regulatory body. Having said that; cases like these do raise eyebrows. It is possible that a small minority of lawyers are willing to defy their code of conduct in order to pocket the stamp duty themselves. Since it sometimes takes HMRC years to catch up, they may think they have a good chance of getting away with it.

Mr and Mrs B, on the other hand, were simply unlucky. They used a firm that had ceased trading before it could get its house in order. And the firm used by Mr and Mrs E became insolvent. Many firms have been struggling to survive amidst challenging economic conditions; these closures may well be a symptom of that struggle. But difficult as it must be in the face of an imminent closure, it is paramount that lawyers remain professional to the end and see outstanding legal issues through to fruition. If not, they risk further damage to their profession’s reputation, while potentially ruining the lives of the people they desert.

Even where imminent closure isn’t on the cards, we see examples of lawyers failing to fulfil their duties. Once a purchase has completed, there are likely to be many more cases that need a lawyer’s attention to get them to completion. It is all too easy to focus on those cases and forget about post-completion issues, such as paying stamp duty. That was behind Mr and Mrs C’s and Ms D’s complaint. In each of these examples the firm also exacerbated the problem by refusing to take their complaint seriously. Admitting when a mistake has been made is a fundamental part of good customer service, and we recently published a convincing business case for good complaint handling; but still we see examples of firms failing to recognise the added value this brings.

Conclusion

We work closely with regulators to share data, which has helped sustain a two-tiered safety net for consumers: 1) by offering individual redress through our scheme and 2) by also addressing systemic issues via regulatory interventions. But clearly, as the figures show, there is more to do. As a starting point we have published two guides; one for consumers and one for lawyers. Both guides focus specifically on stamp duty. Hopefully, they, alongside a closer working relationship with regulators, can help us nip the problem in the bud. Meanwhile, we will continue to roll out our CPD courses and share data to address more general concerns around legal service provision.

Anecdotal evidence from stamp duty related complaints suggests that a level of confusion still exists among consumers who are desperately trying to get their money back. So we also need to ensure, along with regulators, that there is more effective signposting to the correct compensation fund or indemnity insurance provider where a firm has ceased trading.

Finally, there is room for a debate around the legal responsibilities of lawyers, and who should, ideally, be held accountable by HMRC for the non-payment of stamp duty. It is logical to argue that if a client has paid their stamp duty money to a lawyer, and they have signed a contract under which the lawyer agrees to pay this money onto HMRC, then the lawyer should be the one who answers to them when the payment isn’t made. Of course, this could tempt lawyers to relinquish responsibility for stamp duty payments altogether – creating further issues for consumers.

We don’t have all the answers in this report, but it is important that we raise the issues. One thing is for certain, at the moment some consumers are getting a raw deal through no fault of their own. This can’t continue.

1 David Cameron rejects Help to Buy housing bubble fears: http://www.bbc.co.uk/news/uk-25572757

2 Conveyancing boom exposes skills ‘gap’ - http://www.lawgazette.co.uk/practice/conveyancing-boom-exposes-skills-gap/5039886.article