PLAG Submits Written Evidence to the Levelling Up Committee
To: The Levelling Up, Housing and Communities Committee (Committee)
Inquiry: ‘Improving the home buying and selling process’ (Homebuying).
My name is Stephen John Larcombe. I wish to submit the following evidence to the Committee.
Introduction
1 I am a commercial property, planning and residential property solicitor. I am also Chair of The Property Lawyers Action Group (PLAG).
2 My evidence is submitted on behalf of PLAG.
Digitisation of Homebuying
3 There are several references in the terms of reference for evidence to ‘digitisation’ So, I will deal with this aspect first.
4 ‘Digitisation’ is a ‘catch-all’ expression, which seeks to describe everything provided by the sellers of ‘Law Tech’ (LTS).
5 ‘Law Tech’ is a term used to describe technologies that LTS wish to sell to lawyers to oust existing methods for delivering legal services such as Homebuying.
6 LTS are part of a sector that has, in PLAG’s opinion, become over-powerful, saturated by greed and uses considerable hyperbole in marketing products when they engage with the public, solicitors, Parliament, and others. LawtechUK, a government initiative, reports inward investment of £2.2 bn by 2026.
7 However, evidence has emerged from the Inquiry into the Post Office Horizon IT scandal, which, in PLAG’s opinion, is relevant to Homebuying.
8 PLAG considers the myth of the infallibility of computer data has been shattered by the fallout from the biggest miscarriage of justice in British legal history.
9 Post Office victims, according to Mr Bates, giving evidence at the Inquiry, ‘were drowning in data.’
10 Data was according to Bates ‘weaponised’, to intimidate the victims of the Post Office Scandal. Mr Bates described the members of the Post Office management as ‘thugs in suits’.
11 The Post Office scandal shows, that unless such data is always openly accessible/verifiable by all persons who must rely on the integrity of such information at law, then, it is contrary to the public interest to conclude, that such data, can automatically support the demands of justice or any other legal work, such as Homebuying or probate, without the close involvement of lawyers to assess its accuracy and relevance. The Commons Justice Committee has recently launched an inquiry into serious delays in obtaining probate despite it being digitised.
12 No data produced by law tech justifies the abandonment of the detailed due diligence normally carried out by property lawyers.
13 Lawyers alone must decide what weight should be attached (if any) to the data/information produced via AI or legal databases. Computer-generated ‘Climate Change’ reports for instance represent little more than digitised ‘crystal ball gazing’ and neither lawyers nor the public should be compelled or expected to rely upon them.
14 AI involves ‘large language models’ (LLMs). There are widespread misunderstandings over the use of AI in the law. LLMs do not function similarly to legal databases where the contents are curated and verified by lawyers.
15 Under the rule of law, Parliament should not be mandating independent lawyers as to how they practice law in the context of Homebuying.
Homebuying as a legal process or transaction
16 The conduct of property transactions is significantly affected by legislation.
17 So, if Parliament decides that climate change is important, or the fight against money laundering is critical, then Parliament passes appropriate legislation. The problem then is that ironically it is Parliament that has inadvertently created obstacles to Homebuying.
18 Analysis of Land Registry data shows that the total value of all property sales in 2023 was £154.7 billion. PLAG submits that because of the critical importance of the property market to the UK economy, nothing should occur to undermine the confidence provided by highly trained lawyers who have been intimately involved in conveyancing for centuries.
19 Homebuying is a complex process, made up of many different elements. But for most property lawyers, the word ‘process’ is a misnomer. The word connotes a real estate transaction which is commoditised. Most property lawyers don’t act for clients on that basis.
What are the obstacles to improving Homebuying?
20 PLAG perceives the current obstacles as follows:
- Draconian AML controls on lawyers
- Extra due diligence because of ‘bad’ legislation
- Poor standards in ‘conveyancing factories’
- Extra due diligence because of Parliament ‘over-legislating.’ like in the case of the Building Safety Act 2022 passed in the wake of the Grenfell Tower Fire tragedy
- A dysfunctional Land Registry
- Underperforming local authorities
- Prevarication by lenders
What are ‘Conveyancing Factories’?
21 Conveyancing factories ( Conveyancing Factories) are law firms that have set themselves up to quote the vernacular ‘to pile it high and do it cheap’. As a result, they have ‘deconstructed’ each part of Homebuying to be handled by separate ‘case handlers’ (who may not be qualified lawyers) to do specific tasks. They rely on a significant amount of law tech to enable them to do this. This results in the client being passed from ‘pillar to post’ as they are not able to reach the same person twice to obtain updates, their matter is being handled by a ‘team’ instead of a named specified individual. To draw people in, prices are not transparent – potential clients are drawn in by a low figure with many things that are deemed as being a standard element of the conveyancing process by experienced conveyancers are charged as an added extra.
The Land Registry
22 The Land Registry is a significant obstacle to Homebuying.
23 It claims to be a ‘world-class’ land registry. However, very large numbers of applications to register legal titles to newly acquired development sites, newly constructed homes, or the grants of new flats, are taking over two years. The Land Registry is still reporting serious delays in its processing times.
24 The impact of these unacceptable delays is detrimental to Homebuying and the wider economy.
25 The cumulative effect of the above factors is that some sellers cannot sell their properties or mortgage them.
Local Searches
26 The government’s target for returning local searches in 2024 is a maximum of 10 working days. However, the reality is vastly different, with councils returning searches in times ranging from 48 hours to several weeks or even several months!
27 London Borough of Hackney cannot even deliver a full service until next Winter.
Anti-money laundering rules and regulations
28 One of the biggest obstacles to improving the Process is the imposition on property lawyers of draconian anti-money laundering regulations (AML Controls).
29 The rules and guidance notices, which property lawyers must consider on every transaction, are circa 1500 pages long.
30 No amount of ‘digitisation’ can significantly reduce the severe effects of AML Controls on the efficiency of Homebuying.
31 ‘Source of funds’ checks can take weeks to complete. No law tech exists to enable property lawyers to discharge their professional obligations expeditiously.
32 Parliament has got this very wrong, both in terms of the complexity of AML Controls and the enormous size of the fines that can be levied on property lawyers merely for failing to have AML controls in place.
33 The size of the fines recently levied has made lawyers fearful of suffering career-ending penalties.
34 AML controls are based on the fundamental premise that solicitors in the United Kingdom “facilitate money laundering.” There is no evidence for this premise the source of huge regulatory overkill is ‘suffocating’ Homebuying.
Lenders
35 Lenders have a pivotal role in Homebuying.
36 UK Finance is an organisation representing UK mortgage lenders such as banks, building societies, and specialist lenders.
37 It has issued a ‘mortgage lenders handbook’ to provide instructions for Homebuying.
38 Because of the significant problems caused by the Building Safety Act, lenders have issued instructions which are too risky for most property lawyers to accept.
39 If a legal title is imperfect sometimes a commercial lending decision must be made. But instead of cooperating, the lender will often just prevaricate when asked for such a decision. Moreover, individual lenders are forever unilaterally changing their versions of the above handbook.
Things Parliament Could Do to Improve Homebuying
40 Improvements to Homebuying could be achieved by Parliament collaborating with lawyers working at the ‘coal face’ of conveyancing.
41 So, Parliament could pass legislation that:
a Automatically exempted dwellings from the ‘clean up’ liability provisions of environmental legislation – this would diminish the need for envirosearches.
b Ensured that if developers were to renege on planning agreements these agreements could not be enforced as local land charges against the owners of individual dwellings – this would reduce the need for lawyers to spend so much time investigating planning.
c Simplified Stamp Duty Land Tax – this would save significant time and boost Homebuying
d Mandated the Land Registry to process applications within prescribed time limits- this would remove a significant problem for the housing market.
e created a permanent leasehold property forum, made up of leaseholders, freeholders, surveyors and lawyers to fix (1) the many legal problems of the Building Safety Act 2022, which are crippling the sale of leasehold apartments/flats in buildings caught by the legislation and (2) other leasehold issues such as the challenges of a commonhold instead of leaseholds.
f banned referral fees; and
g removed any responsibility on lawyers to investigate climate change as part of Homebuying.
Gazumping
42 The idea that legislation can be passed to prohibit ‘gazumping’ or ‘gazundering’ is based on the premise that legislation is the answer to every problem. Historically it has been the ethical training of property lawyers which has minimised this problem.
43 As a property locum helping other law firms, the members of PLAG have seen little evidence of gazumping over the years.
44 Passing legislation to mitigate against such practices would in PLAG’s view be counterproductive. Moreover, speed isn’t everything, and clients sometimes give instructions that a deal should be dealt with at a modest pace to suit their circumstances.
Reservation Agreements
45 Should reservation agreements be more widely used: in short, the answer is no.
46 Such agreements are used for instance by estate agents in so-called “modern auctions.” Buyers will pay several thousand pounds before they have even obtained any legal advice. The agent will prepare some form of “legal pack” but often, to keep costs low and secure a sale, these packs are riddled with issues which only come out following proper due diligence. At that point, the buyers are then on the ‘back foot,’ attempting to see if they can persuade the seller to attempt to rectify the issues. The seller, conversely, sees no tangible benefit, as the agent retains the entire reservation fee should the buyer then withdraw.
47 Such agreements are rarely for the benefit of either party and are there simply to ensure that the agent, who would normally only be paid at completion, is instead paid in full and upfront.
What’s blocking the greater use of reservation agreements:
48 Reservation Agreements have the potential to generate litigation no matter how well drafted they appear.
49 Reservation Agreements also do not provide the ‘certainty’ that people are looking for to ensure that the transaction will go through, as there are external factors such as mortgage lenders being able to withdraw offers, even if an exchange of contracts has taken place. They also generate extra legal costs.
Information provision.
50 Do buyers have the right information at the right time?
51 The psychology for example of a young couple wanting to buy their first home is a good example of the general attitude of the public as a whole:
52 They are disinterested in the legal issues but have more mundane concerns such as the size of rooms and the date when they can have the keys.
53 his issue is linked with the issues mentioned in the next paragraph.
“Set” or Material Information
54 The idea of sellers being required by law to provide “set information” about the property (also known as Material Information or MI) when it is marketed is controversial, has caused a storm in the legal profession and is, in PLAG’s view, a deeply flawed concept.
55 MI is based on guidance given by National Trading Standards to estate agents. There are significant doubts as to the lawfulness of such guidance.
What is MI?
56 MI is a bundle of data, legal title, searches, and other material, including answers to a questionnaire, which masquerades as a ‘single source of truth’.
57 The contents of the core questionnaire at MI’s heart completed by the seller, are verging on the absurd, and have been heavily criticised as exposing sellers and estate agents to numerous legal liabilities.
58 Moreover, the concept has already been entirely discredited, by the disastrous HIPs (Home Information Packs) project abandoned in 2010. However, due to its potential as a vehicle for illicit profiteering, the myth of the advantages of ‘Up-Front Information’ still somehow endures. Indeed, its fanatical proponents have managed to restore and rebrand it, despite the evidence that it does not work and in direct defiance of Parliament’s wishes, in the guise of ‘consumer protection.’
Further Digitisation
59 How much data associated with Homebuying still needs to be digitised?
60 The idea of ‘end-to-end’ digitisation of Homebuying is again a flawed one. It is based on a confected narrative on the part of LTS that to improve Homebuying you must digitise Homebuying from start to finish. But this ignores the reality of the true obstacles to improving Homebuying identified earlier in this submission.
61 If the idea of a single platform with endless ‘data’ available was implemented – this would leave many sellers open to fraud and other criminal activity.
62 The LTS have also not addressed the issue of ‘deepfake AI’, which can fool electronic verification of identity systems.
Public’s Choice of Conveyancers
63 Different conveyancing bodies have different, ethical rules governing their conduct of the Process. There is a considerable amount of information about the several different types of lawyers on the web and elsewhere.
64 However, the ‘Elephant in the Room’ is the payment of referral fees.
Should there be mandatory professional qualifications for estate agents?
65 No. This would not be a good idea. The primary expertise of an estate agent is to sell, Formal qualifications are not necessary to discharge this primary function.
66 Some groups lobbying on behalf of LTS are trying to blur the distinction between what estate agents do and what lawyers do. There is no sensible policy justification to confuse the public by turning agents into ‘quasi-lawyers’ because of controversial MI.
Should there be a single legally enforceable Code of Practice for property agents?
67 Yes.
68 Conditional selling should be forbidden – there is still much of this practice happening, which is NOT being enforced by National Trading Standards.
69 Regulations should be extended to include sales teams acting in-house for Landlords and developers.
Impact of Referral Fees
70 Estate agent’s offices were once a risk-free environment for buyers. However, members of the public buying a home (Buyers) increasingly face multiple conflicts of interest. These conflicts of interest have arisen because of the payment of referral fees (RF) to estate agents by several different parties.
71 Buyers are often inexperienced, and so, navigate Homebuying hesitantly. Estate agents often work for a business, which has close links with a Conveyancing Factory .’ So, an agent will push buyers hard, to use the legal services of that factory. Estate agents are then rewarded, by Conveyancing Factories with payment to them of RF.
72 However, Conveyancing Factories, to make such conveyancing profitable because of the payment of RF, achieve significant cost savings by employing large numbers of poorly trained, unqualified staff, to deal with a dramatically increased workload.
73 PLAG considers the combination of too much work and lack of training to be toxic in terms of the public interest. This means that Homebuying takes far longer than it should.
74 There are other risks for the public because Buyers often ask estate agents for guidance on finance, and so estate agents refer Buyers to mortgage brokers who have also paid RF to estate agents. So, what guarantees do Buyers have that any mortgage product obtained by a broker is the best obtainable on the open market?
75 Buyers ask estate agents to recommend competent surveyors. They too often pay RF to estate agents. Will defects in properties be highlighted to Buyers notwithstanding the payment of RF?
Ethics
76 How can the payment of RF be reconciled with the duties to act ethically, imposed on solicitors for example by the SRA? These ethical issues include :
- solicitors or their clients in effect, ceding control of Homebuying to the beneficiary of RF;
- the fundamental objection that no degree of transparency can compensate for the conflicts of interest generated by the payment of RF;
- a lack of sophistication by the public to understand the conflicts of interest which can arise because of the payment of RF?
77 It should also be noted that there is an abundance of evidence that the conflicts identified above have led to significant harm even when no RF is involved. Some firms rely on referrals (paid or otherwise) to predict future income.
Closing Comments
78 Lawyers being at the heart of Homebuying is something which has been respected for centuries. So radical changes to that position cannot be justified especially as current obstacles to Homebuying are not of their making.
79 Estate agents should not be obligated by potentially unlawful guidance, to become ‘quasi-lawyers’ merely to make it easier for the law tech sector to dumb down Homebuying.
80 The Post Office scandal has shown what happens when IT breaks down, or the use of data is abused, resulting in lives being ruined. The Committee may also recall in this context the NHS being debilitated by a cyber-attack.
81 The last word on whether a client should sell or buy a property must be that of the lawyer, exercising his or her professional judgment. The law tech sector’s role is to support the role of the lawyer not to supplant it.
Dated 15th April 2024
S J Larcombe
