The dangers of ground rent clauses

Recent media coverage has raised the potential for litigation against conveyancing solicitors for allegedly failing properly to advise large numbers of clients about onerous ground rent clauses contained in leasehold contracts.

The leases in question are said to relate to properties built since 2007 with high ground rents which can double every ten or 25 years, or are linked to the rate of inflation. These expensive ground rent clauses are said to render the properties difficult to sell.

Leasehold Law, an alternative business structure, is understood to be seeking to sign up potential claimants for ‘group litigation’ against the conveyancing solicitors involved, with one report alleging that solicitors’ liability could exceed £500m.

This is not the first time that concerns about onerous ground rents have been raised. In recent years, there has been criticism of a number of major developers, one of which has apparently made a considerable provision in its accounts to compensate customers.

Group litigation orders

In terms of the likelihood of the court granting a group litigation order (GLO), the procedural rules are covered by part 19 of the Civil Procedure Rules. Under this rule, claimants must actively choose to take part in the group litigation proceedings on an opt-in basis should they wish to receive a share of any damages recovered.

The court has discretion whether or not to grant a GLO and would only do so to provide for the effective case management of claims which give rise to ‘common or related issues of fact or law’ (CPR 19.10).

Until the facts and details of the claims and parties are known, there is no certainty that litigation would proceed under a GLO, assuming that the professional negligence pre-action protocol did not resolve the issues first.

One of the issues the court will consider is whether there is a preferable alternative means of resolving the dispute. Applications for a GLO in Hobson v Ashton Morton Slack Solicitors [2006] EWHC 1134 (Admin) and Schmitt v DePuy International Ltd [2016] EWHC 638 (QB) were dismissed. In both cases the court expressed a preference for a test case or for the claims to be consolidated.

Clearly, the prospect of any type of group litigation, or claims, involving common facts, parties, or practice can present unique challenges for solicitors and their insurers. Depending on the case, these can include issues of notification, aggregation, and the coordination of claims among multiple or individual insureds.

Defendants’ position

From our experience of advising on the defence of multiple claims, although publicity is inevitable, effective case management through a GLO, or other group litigation procedure, can be beneficial for defendants and insurers, particularly in relation to coordination, outcomes, and issues of costs.

They offer defendants the opportunity to be proactive at an early stage in the dispute resolution process, which could enable large numbersof claims to be dealt with far more efficiently.

Many claimant law firms or ABSs periodically seek to bring large numbers of very similar claims, arising from similar facts, where the alleged negligence arises from a common or repeated error.

Whether such claims are of sufficient merit to overcome initial scrutiny and justify the pursuit of formal group litigation is always uncertain. Some potential actions fail fast, others might not be dismissed until much later, even if a primary risk of a finding of, for example, breach of duty can be identified. Claimants must establish all the elements of their cause of action in order to recover damages and, as a result, many test or lead cases fail.

In relation to recently reported matters, some of the potential claims may now be statute-barred given the passage of almost a decade in some cases. Others may turn on the extent of the advice received, which parties were involved, and whether the purchasers would have gone ahead anyway, even before questions of actual loss come into play.

In the immediate term, affected firms may have to deal with requests by former clients, or claims companies, for the release of files and will need to consider the nature of those requests carefully. Something more nuanced than a bland rejection of the request, or the wholesale provision of the file, is likely to be necessary and more prudent in current circumstances.

We will continue to monitor the situation and recommend that all those involved in property conveyancing regarding this type of lease do the same.

Sarah Clover and Tony Nurse-Marsh are partners at Clyde & Co

@ClydeCoNews www.clydeco.com