Ground rent scandal sends claims against law firms soaring

Date: Wednesday, November 15th, 2017 by Michaela Hickson.

Claims against law firms will continue to soar in the coming months due to the growing ground rent scandal, according to Global Insurance Law Connect member firm BLM and the Institute of Directors (IoD).

The risk and insurance law firm has already seen over 400 potential claims in less than 12 months, with purchasers of leasehold properties looking to their legal advisers to reclaim costs for ground rent charges they were unaware of.

The assertion is amongst many released today in the volume one of BLM’s Macroeconomic Trends Series, a suite a research papers created with economists at the IoD. The papers look at macroeconomic forces and how they will shape the insurance claims landscape in the London Market, with the first paper covering professional and financial risks.

Ground rents are the annual payments leaseholders have to make to a freeholder, but many payments double after a set time. This has led to banks and building societies refusing to lend on such properties, effectively making the properties unmortgagable and therefore potentially worthless.

The government has now proposed a total ban on new-build leaseholds, but the Leasehold Knowledge Partnership estimates 100,000 homes in the UK are already under this type of ownership – providing a deep pool of potential claims which will likely become active as charges grow or there is another significant economic downturn.

Julian Smart, partner and head of professional indemnity at BLM said: “The issue for law firms is whether clear enough advice was given to the purchasers so they could understand the risk and impact of the increasing ground rents. Whilst the UK government has vowed to step in to resolve the issue, that is going to take time and is only likely to resolve future ground rent charges. Therefore, lawyers who have advised on property purchases in the last few years remain at risk of a claim.”

This first paper of the Macroeconomic Trends Series analyses professional and financial risks and covers likely claims trends for a range of different sectors, including financial, construction, property and law.

Julian continued: “When an economy is in rude health we tend to see fewer professional negligence claims. Unfortunately this doesn’t mean they
will never arise. Instead they are simply stored up, and are often realised when the economic pendulum swings the other way. While we remain in a period of economic uncertainty, there are certain new claims types coming down the road that insurers must prepare for.”

Click here to download a copy of the whitepaper addressing the macroeconomic claims affecting the London Market. The first in the series is entitled Professional and Financial Risks.

The Macroeconomic Trends Series will cover other other key claims categories for the London Market in the coming months, including casualty, technology, cyber and fraud. This is the second time BLM has run this research with the IoD and these papers build on the trends and reflections identified last time in 2015/16.

Jennette Newman, Partner and head of London office at BLM

Julian Smart, Partner at BLM

See original article here.