Building on past experience
25 August 1998
20 May 2013
9 September 2013
30 July 2013
28 November 2013
11 November 2013
Liz Taylor discusses whether another property boom could see a new flood of claims against conveyancing solicitors. Liz Taylor heads the professional indemnity team at James Chapman & Co.
The explosion in professional negligence claims that followed the collapse of the property market in the late 1980s was driven by lending institutions attempting to recover their losses from professional advisers. Faced with a shortfall of many millions of pounds as a result of negative equity, lenders looked to solicitors and surveyors to make up the lost money.
The vast majority of lawyers who faced claims had largely become victims of circumstance. Most solicitors are competent professionals who want to deliver a professional service. Despite this, a number of unique factors in the mid to late 1980s caused a boom in litigation which we are unlikely to see again.
First, the value of property had been rising at a phenomenal rate for a sustained period. There was a feeling of panic on the part of home owners that if they did not progress up the housing ladder they would be left behind, which in turn led to a tremendous pressure to buy. This meant that the volume of transactions dealt with by solicitors was greater than ever before.
This buying frenzy was fuelled further by building societies and banks, who had millions of pounds that they wanted people to borrow. In a competitive market they were eager to lend.
As a result of the subsequent pressure that solicitors and surveyors found themselves under from both house buyers and lenders, there is no doubt that many solicitors became over familiar and, ultimately, too comfortable with mortgage instructions. Acting in a high-volume market with fee constraints, professionals were under pressure to take short cuts. Less attention than necessary was given to the specific terms and the detailed wording of instructions from lenders.
In addition, on the back of the rapid boom, some solicitors were also caught out by fraudsters - individuals who artificially inflated house prices safe in the knowledge that solicitors would probably not look twice at a rapidly escalating property valuation. It was not unusual at the time for prices to almost double in a matter of months.
But when the market crashed and institutions found that the money they had lent could never be repaid by the borrower they sought a scapegoat and a means of recouping the lost cash.
In the litigious 1990s, with millions of pounds at stake, the massive volume of claims that followed the property crash was hardly surprising. Whenever anything goes wrong we are all keen to point the finger - particularly when there are significant sums of money involved.
It was argued that solicitors actually were to blame (and the ensuing litigation has clearly shown that in many cases the lenders played a significant role in contributory liability) in that they failed to appreciate that they owed an equal duty of care to each party and preferred the interests of the borrower over the interests of the lender.
But despite all these factors, if the same circumstances were to arise again it is hard to imagine that the mistakes would be repeated.
So far there is little evidence, certainly in the North West, that we are witnessing a second property boom. While in some regions prices have been rising in the past six months, the strength of the market cannot be compared with the phenomenal boom of the 1980s.
Additionally, there has been a significant effort to change the working practices of conveyancing solicitors. Lenders have sought to put their own house in order and have produced detailed packages of instructions which were not in use in the 1980s.
The Law Society and the Solicitors' Indemnity Fund have both gone to great lengths to provide practical advice and guidance to help solicitors avoid making similar mistakes.
Further, the case law that has developed as claims have been pursued has resulted in legal arguments that were raised in the past no longer being pursued.
Should there ever be a similar boom and bust in the property sector the lessons that have been learned should prevent the high street lawyer from the litigation frenzy that has had such widespread repercussions for us all.