Should I Be Worried About My Property Investment?

Definition of a Collective Investment Scheme

Investing your money into buying a portion of a property, such as a room in a care home or hotel, can be seen as a way of diversifying your investment portfolio. Dividing a large asset into smaller segments allows you to invest in something that would typically be beyond reach. An investment like this is called a Collective Investment Scheme (CIS).

These schemes are highly regulated by the Financial Conduct Association (FCA) which means that anyone advising, arranging or managing one of these must also be regulated by the FCA.

With many regulations in place, these schemes still come with a warning from the SRA to any solicitor conveying or providing advice to investors. This is due to their potential to collapse or turn out to be a scam. Moreover, due to their high risk, these schemes aren’t suitable for everyone; usually only promoted to individuals with assets of £200,000+ or an income of £100,0000+.

Mis-selling Collective Investment Schemes

A CIS can be unregulated but still sold to investors under a different guise. By not explicitly labelling an investment as a CIS, people can manoeuvre around the regulations and lead people to invest in something different from what they expect. If it is not properly labelled as a CIS then it can be considered unregulated – and therefore not protected by the usual red tape that is put in place.

If you use a trusted solicitor to do your conveyancing, they should be able to point out if a scheme or investment looks unsavoury and prevent you from entrusting your money into it. At a minimum they should inform you about the risks involved.

However, what happens if your solicitor fails to advise you on all the risks? Read the compelling case study below regarding the Qualia Care investment scheme that has recently garnered negative press due to their unscrupulous business practices.

Case Study – Qualia Care and Gaddes Noble Solicitors

Between 2016 and 2020, Qualia Care Properties Ltd and Qualia Care Developments Ltd offered investments in care homes managed by Qualia Care Limited. Investors purchased long-term leases for care home rooms and sub-let them back to the Qualia companies, with promises of returns ranging from 8% to 10% of the purchase price. 

The High Court, following a trial in May 2023, ruled in favour of the Financial Conduct Authority (FCA), declaring the scheme unlawful and unauthorised, classifying it as a CIS. The Court also found that the promised returns were unrealistic and that the company’s director had misled investors about the scheme’s sustainability.

The lawyers who dealt with the conveyancing were Gaddes Noble. In their engagement letter they stated that they would “advise on all risks”, however they failed to pick up on many vital warning signs, such as the risk that it could be unregulated or that its too-good-to-be-true returns suggested it was likely to be a Ponzi Scheme.

Moreover, they didn’t act on many of the SRA’s warning notices, which had warned most firms away from this type of investment.

Regarding the case study, the investors were not aware that these were CISs and therefore weren’t given adequate advice by the conveyors involved, Gaddes Noble. These solicitors had a duty of care towards their investors and failed to highlight the significant risks involved, including the likelihood that the Qualia schemes were illegal collective investments and Ponzi-like schemes. 

Regarding the case study, the investors were not aware that these were CISs and therefore weren’t given adequate advice by the conveyors involved, Gaddes Noble. These solicitors had a duty of care towards their clients and failed to highlight the significant risks involved, including the likelihood that the Qualia schemes were illegal collective investments and Ponzi-like schemes. 

Have I Invested in an Unregulated Collective Investment Scheme?

As with most large investments, it is important you seek the advice from a regulated financial advisor and check that these schemes are suitable for you and your finances. 

If you have taken out a CIS and feel as though you were not given appropriate advice by a financial advisor or solicitor, reach out to us as soon as possible. Our team will look into the situation and see if there has been mismanagement of your funds.

You can contact us on 01273 604 123, email us at enquire@bbc-law.co.uk or fill in our enquiry form.

References:

• Financial watchdog wins civil case against Ponzi-like care home investment scheme | FCA
• https://www.linkedin.com/feed/update/urn:li:activity:7099666910669103104?utm_source=share&utm_medium=member_desktop 
• Investors fight for cash lost in £57m Qualia Care ‘Ponzi’ scheme (thetimes.co.uk)