SRA: Low risk of repetition
A solicitor who failed to advise clients on the risks of off-plan, buyer-led investment schemes has been fined £17,000 by the Solicitors Regulation Authority (SRA).
Ming Fai Tam, also known as Matthew Tam, accepted too that he had breached various rules by failing to train or supervise a barrister who was working for him on the schemes.
Although many cases involving misconduct around investment schemes have been referred to the Solicitors Disciplinary Tribunal, Mr Tam’s case was dealt with by a regulatory settlement agreement.
The SRA said Mr Tam, who was a partner and then sole practitioner at Batchford Solicitors in London, latterly MFT Solicitors, acted on behalf of numerous overseas buyers in respect of their purchase of around 312 properties within 10 development projects between 2017 and 2020.
These were developed by ‘Company A’ and its associated special purpose vehicles, which promised to construct or refurbish buildings which were to be divided into units such as flats, student or hotel rooms, serviced offices or mews houses.
They were marketed to buyers mainly in Asia as buy-to-let investment properties with guaranteed income and buy-back incentives.
The SRA said the scope of Batchford’s retainers was “very wide and included ‘acting on your behalf and dealing with all legal requirements’”. Clients paid fees of around £1,295 per property, excluding disbursements, and paid deposits of between 30% to 100%.
Ultimately, the developments failed, the regulator said. “Either the construction works were not carried out at all or to any significant extent, or the works were completed (after long delays) but the rental and capital returns were not paid.”
The SRA investigation identified a failure to advise on the risks of purchasing a property from a special purchase vehicle with no trading accounts, that the deposits were higher than would normally be expected for a typical conveyancing transaction and there was a risk of losing the entire deposit, and the buy-back provisions were only of use if the company had the necessary funds.
Further, the rental assurance provision would only be effective if the requisite development completed and an appropriate insurance policy put in place, while rental agreements entered into at the time of purchase would be unenforceable if the lessee company failed.
Mr Tam admitted that he was not aware of the warning notices in relation to investment schemes that the SRA had published. He failed to give adequate advice to clients on the risks inherent in off-plan, buyer-led investment schemes and failing to ensure that clients fully understood those risks.
In doing the work, Mr Tam was assisted by ‘Person A’, a barrister and part-time “consultant/locum/paralegal” but failed to provide them with adequate training or supervision.
In mitigation, Mr Tam said he had undertaken training and kept abreast of legal developments, while his files were reviewed by partners in his current firm, City-based Chan Neill.
Mr Tam added that he no longer took on work involving the sale of fractional units and only handled new-build transactions where deposits were protected and no greater than 10%.
He pointed out too that there was no referral or any other fee-sharing arrangements with Company A.
The SRA said Mr Tam “had a duty to advise clients of the obvious inherent risks that had come or ought to have come to his attention”, while members of the public “would not expect solicitors to engage staff with limited experience and allow them to act without adequate training and supervision”.
But it acknowledged his mitigation – saying there was a low risk of repetition as a result – while Mr Tam had assisted the SRA during the investigation.
The SRA went on: “A fine is appropriate to uphold public confidence in the solicitors’ profession and in legal services provided by authorised persons because clients lost money following their investments in the development schemes which they may have reconsidered had they received proper and adequate advice.
“Issuing a fine to solicitors who give inadequate advice demonstrates to the public that the SRA takes such matters seriously and expects solicitors to maintain appropriate standards.”
Application of the SRA’s fining guidance led to a figure of £17,083, 49% of Mr Tam’s gross annual income.
He also agreed to pay the SRA costs of £1,350.