Thursday, 18 December 2014

Advice to a selling client on a request for a reduced deposit

Accepting a reduced deposit on a sale transaction without explaining the risks and seeking a client’s explicit instructions could expose you to a costly professional negligence action if the transaction fails to complete ( see Morris v Duke Cohan ( 1975) 119 SJ 826) . 

The question all practitioners should be asking is whether the seller will be adequately compensated for any loss on an aborted transaction post exchange of contracts.

So what sort of advice should in these circumstances be given?

The advice we give is in the following terms and is designed as can be seen to ensure that the seller client has been given written advice on the risks in the hope that the client can then make an informed decision on the request.

‘Your buyer(s) is asking to pay a deposit on exchange of contracts which is lower than the sum normally payable, that is 10% of the purchase price. 

The deposit is either paid to us (for us to hold) on exchange of contracts, or is held by the seller solicitors to our order.  That is to say, the seller’s solicitors would be required to pay the deposit to us if and when requested.  They would not be able to refuse or release the deposit to the seller.

We are under a duty to bring this to your attention and to seek your written instructions on the request before proceeding.

The main reason why a deposit is paid is because, if your buyer fails to complete the transaction  ( which is rare but not unknown) , you can forfeit the deposit ( that is keep it) which can then be used to cover your abortive sale costs, the cost of re-sale, and also if necessary the cost of  interest on a bridging loan if you have a related purchase and wish to continue with that transaction. 

For this reason we always advise that the full 10% deposit should be paid so as to ensure that if the transaction does not complete you will not be out of pocket. 

If you were to accept a 5% deposit for example, then if the transaction did not proceed to a completion you would still be able to claim the other 5%,  but as this is not held by us or by the buyers solicitors to our order, you would have the inconvenience and cost of having to take the buyer to court to collect the unpaid part of the deposit.  You may also find that the sum which you do have access too is wholly inadequate to compensate you for your loss.

The purpose of this note is to explain the consequences of accepting a reduced deposit so that you can make an informed decision on the request before providing us with your written instructions.  For this reason if you would like us to explain the above in any further detail please feel free to contact us.

We now await your written instruction’.


David Pett – Director and Solicitor with MJP  Conveyancing 

You must not rely on the information on this website as an alternative to legal advice from your solicitor or other professional legal services provider.   If you have any specific questions about any legal matter you should consult your solicitor or other professional legal services provider. You should never delay seeking legal advice, disregard legal advice, or commence or discontinue any legal action because of information on this website.

Friday, 12 December 2014

There is more to a joined up relationship between estate agents and conveyancers than better communication

It was interesting to see and read the Conveyancing Association’s Conveyancer/Estate Agent Practice Guide launched in the hope it might help to improve communication between conveyancers and estate agents, and in the process, provide clients with greater confidence in the conveyancing process.  I applaud the initiative and wish it well.

As to whether I consider it will succeed, I am I must say highly sceptical.  

The Guide makes some obvious recommendations such as agreed timings for regular phone calls and updates, giving estate agents access to online case tracking and monthly predicted exchanges dates.  Not rocket science, and for a well organised and paid businesses with time and resources to devote I can see practices of this type helping to ensure a transaction can proceed quickly and efficiently.

I question however whether with such a complete difference in culture between how a conveyancer and agent work it is in fact possible for these measures to  succeed.  

My business operates a sophisticated case management system which not only provides clients with 24/7 access to progress, but also, on sale transactions, the sale agent.  I say sophisticated because the agent does not need to sign in on each individual transaction, but has one log in which lists all transactions to which the agent is tagged.  Moreover, the access provides the agent with a full picture of all activity on the file, file notes, correspondence etc.  Despite having desktop access to progress, guess what, yes we still receive daily telephone calls from agents.

The reason for this is that most agents have a deep rooted obsession with using the telephone to seek updates and are not remotely interested in taking a few seconds to log in to find out what is happening.  Why is this?  My theory is that it has a connection with the constant pressure some agents are under to hit targets, and it seems to me that the use of the telephone in the office is how certain agents demonstrate to their superiors that they are working hard to ensure those targets are attained.   

This is also highlights a failing with some agents, that is the apparent reluctance to do anything to seek a better understanding of the conveyancing process. It’s all well and good setting time aside each week to talk and update, but if the agent in question, who can often be quite young and inexperienced, has no idea what you are talking about or the pressures you are under, it’s a complete waste of time and effort.   It’s clear that there can only be effective communication if there is a complete understanding of the process on both sides.

The concerning aspect is that there does not seem to be an appetite to learn and to obtain a better understanding.  It was not too long ago that we sent a circular out to local agents inviting them along to a free seminar designed to provide an overview of the conveyancing process and of the main reasons for delay.  It may not come as a surprise to learn that not one agent had the courtesy of replying let alone attending.

The difference in agendas between an agent and a conveyancer also present a hurdle for better communication.    The agent’s first objective is to find a buyer and once found to make sure the transaction proceeds quickly so there is no delay in collecting the agent’s large and not insignificant fee.  Some agents are more active than others and do assist in helping to obtain documents and to help with the fixing of completion dates.  The agenda even with the help some provide,  still remains the same, the transaction must complete as early as possible so that payment can be collected to enable a target to be reached.   I accept the bi-product of this is that the agent’s input helps the client to ensure the transaction is progressed quickly.  The sceptic I am suspects however this is a secondary rather than primary motive.

Compare this agenda with that of the conveyancer.  The conveyancer’s duty to the client on the sale is to make sure the contract is issued quickly and there is a prompt response to inquiries.  If there is a purchase the conveyancer is under a duty to the client and if there is a mortgage to the lender to ensure the title to the property is good and marketable.  Yes, it is also helpful to be paid for the service supplied, but unlike the agent this is a secondary and not primary objective and one that cannot always be achieved as quickly as some agents demand. 

I also believe there is some resentfulness between a conveyancer and agent due to the massive gulf between the fees each can charge.   If this gap could be bridged then this I am sure communication and cooperation would improve instantly. Most agents’ fees run into thousands whereas the average fee for a conveyancer could be around £500.  I wonder how many agents would refrain from chasing a conveyancer if their budget for the transaction was £500 and not £5000.  I also wonder how many agents actually realise and appreciate how much a call a day can eat into the profit margin of the conveyancer.    

So in conclusion I do support the idea of looking at measures for improving communication, but I do challenge the belief that this can be achieved without first bringing about a major shift of understanding on the part of the agent.    The agent needs to understand and acknowledge that agendas are different and that the time the agent expects the conveyancer to devote to the agent for updates is often difficult to justify in relation to the fee the conveyancer is able to charge.  Dare I suggest that if the agent was prepared to pay the conveyancer an extra fee for the updates and for collecting the agent’s fee whether this would be a step in the right direction?


David Pett  - Solicitor and Director with MJPConveyancing 

Tuesday, 2 December 2014

How does my lender affect my leasehold purchase?



Article by Katie Easter -  Trainee Solicitor with MJP Conveyancing 


Conveyancers acting for mortgage advisers are under the same obligations to the lender as they are to their purchasing clients. 

These obligations include adhering in the main to the CML Handbook, a set of rules written by the Council of Mortgage Lenders which must be followed when acting for mortgage providers.

How does the CML Handbook affect Leasehold property?

The nature of leasehold property means that there are more factors that can lead to it diminishing in value compared to freehold property.  Mortgage providers therefore seek to protect themselves should they need to repossess a leasehold property by imposing strict requirements. Solicitors are obliged to ensure that leasehold property meets these requirements.

One of the biggest factors affecting the value of leasehold property is the term of years remaining on the lease following completion. Each mortgage provider that subscribes to the CML has their own minimum term of years requirements. If the term of years remaining is predicted by the valuer incorrectly, it is important for solicitors to notify their mortgage provider clients accordingly. This is one of the reasons that we must have sight of the Mortgage Valuation Report prior to exchange.

There are also requirements for particular terms to be included in leases. These include the need for other leasehold properties in the block to provide support and shelter to the flats around them. When we review leases we are ensuring that they contain rights to support and shelter from the neighbouring properties. Without these rights, purchasers of leasehold property could face expensive repairs should neighbouring properties fail to support and shelter their own. This could affect a borrower’s ability to pay their mortgage and is therefore a concern of mortgage providers.

Ground rent should also be checked to ensure that there will not be any sharp increases which could affect a borrower financially. We will check the lease and may raise further enquiries with the Vendor’s solicitors regarding this point.

It is also important to gather information about any management companies. The following items must be obtained and checked by solicitors:

1.       The lease or another agreement with the management company must give the company a right to enter the property to carry out repairs or other works.

2.       The last three years accounts of the management company should be obtained.

3.       Any details of major works that will be paid for with service charge should be obtained. It will be necessary to notify a mortgage provider if these cannot be satisfactorily obtained.


The obligations that MJP Conveyancing owe to their clients’ mortgage providers therefore govern some of the leasehold enquiries that we raise with Vendor’s solicitors. Regrettably, this can lead to some delays when purchasing leasehold property but it is important to retrieve these answers for both our clients and their mortgage providers. 

This is also why we always ensure that leasehold packs are ordered from management companies as early as possible when we are acting for clients that are selling their leasehold properties. 

Lender and client relationship and the potential for conflict



Article by Georgie Harrington - Trainee Lawyer 

Where a client seeks the aid of a mortgage, they are no longer the only party legally represented. Where the same firm of solicitors represents the client and lender, there are many scenarios in which a conflict of interest may arise.

This article will focus on the unusual, yet extremely important scenario whereby the client creates a charge in the property in favour of the lender for the purpose of providing financial support and benefit to another party. This scenario is known to the conveyancing industry as “third party security”.

What is third party security?

A modern example is that of a second mortgage against a property to create a source of capital to finance the start-up of a new business. It is obvious to assume this arrangement may be between a married couple or partnership, but this is not always the case.

The potential for conflict

(1) The danger within such an arrangement is largely associated with the right the lender has to reclaim possession of the property from the third party for default in payment.

(2) Furthermore, a “client conflict” may arise if a solicitor opts to act for the third part, borrower and the lender.  Chapter 3 of the SRA handbook describes client conflict as: “any situation where you owe separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict”.


Case Law

The topic of third party security cannot be discussed further without reference to the leading judgment of Royal Bank of Scotland plc v Etridge (No.2). The House of Lords declared how lenders are to operate under these circumstances as well as steps to be satisfied by the acting legal representative.

The case involved a wife acting as the third party, who sought her property for security to account for her husband’s debts. The loan was not repaid to the lender and repossession was claimed on the property. The wife attempted to sue the solicitors for professional negligence on the grounds that they had not acted within their duty to advise accordingly. The question considered by the Court of Appeal was: Had the wife been properly advised, would she have signed the necessary documents to enter into such a transaction? The Court of Appeal held that the solicitors firm were in breach of their duty as they has failed to evaluate and advise the wife of the risks.


Judgment requirements

Lender responsibility
Solicitor responsibility
Write to the third party informing that for their own protection, the lender will require written confirmation from the solicitors that the nature of the charge will be explained.
Explain to the client that the lender may rely on the written confirmation from them that the nature of the transaction and charge has been sufficiently explained.
Ask that the third party instruct a solicitor. It is for the solicitor to decide whether there is a potential conflict of interest in taking on the instruction for the third party, borrower and lender and whether this is in the best interests of the client.
Seek confirmation that the third party is happy for legal representation under the circumstances and advise accordingly thereafter of the legal and practical implications.
Provide the third party with the financial information necessary for advice to be provided accordingly.
Check that no earlier lending is secured under the third party’s guarantee.
Provide the solicitors with any information that is reasonably considered may evidence the fact that the third party has been mislead in coming to such a decision.
Explain the nature of the documents to be executed by the client and the consequences of entering into the transaction. The solicitor must obtain consent from the client to write to the lender confirming this has been explained to the client.
Do not proceed on the transaction without written confirmation from the solicitor.
Discuss the client’s financial means and whether any other assets may be the subject of repayment in place of third party security. The solicitor can at this point offer to negotiate the terms of the transaction with the lender under instruction of the client.

Meet with the client face to face without the borrower present. An attendance note of the meeting is necessary.


Decision in Etridge

The consideration of Lord Neuberger M.R. was that the length of the client meeting in relation to third party security did not necessary satisfy the duty the solicitor has in advising the client. Mere advice to proceed was simply not sufficient: “…she should have been told in clear terms that a hurried short meeting was simply inappropriate, bearing in mind the importance, riskiness and probable pointlessness of the transaction she was about to enter into…”. The solicitor acting on behalf of the wife did not recall the meeting with her and therefore was not able to give any real evidence that the advice provided was satisfactory for the purposes of his duty to the client. All the solicitor was able to offer was that of what his usual practice with clients would be. The court founds that, had the wife been properly advised, the wife would not have signed the documents to the transaction.

Conclusion

The requirements listed within the table above were considered to bet he core minimum to be obliged by the lender and solicitor in their relationship and capacity to the third party, to ensure they enter into the transaction with realistic understanding of the implications and risks involved. Equally allowing the lender the comfort to make the necessary loan without fear that the transaction will be set-aside in the future. The solicitor must exercise their due skill and judgment in every individual case of such a nature and whether to act on the matter. It is a modern day requirement of a solicitors firm, acting in this capacity, to check their insurer’s conditions that they may even be covered to proceed in doing so.

Implications for conveyancers of the draft Consumer Rights Bill

Introduction

The UK Government has announced plans to merge all existing UK consumer protection laws and regulations. On 23 January 2014 the draft Consumer Rights Bill (the “Draft Bill”) was introduced into Parliament and is currently under review. It is likely that the Draft Bill will come into force during late 2015/early 2016.

There are four distinct sections of the Draft Bill relating to Goods, Digital Content, Services and Unfair Terms, that will impact retailers and their dealings with consumers.

The implications of some of these changes for conveyancing lawyers and their relationship with their clients are likely to be far reaching and will clearly need to be made the subject of early consideration.

Here are details of the main proposals in so far as they impact on the supply of conveyancing services.

Pre-contractual Information

The Draft Bill seeks to provide clarity on what representations and statements will be incorporated into the contract as terms, giving contractual force to any spoken or written representations and anything that is taken into account by the consumer when deciding to enter into the contract or when making any decision about the service after entering into the contract.

Those working in new business and who speak with potential clients when supplying a quote and securing business will clearly need to exercise care following these changes.  Representations about price, about fixing a price and later altering it, the likely duration of a transaction and the status of the fee earner who will be dealing with the work will all  become the subject of scrutiny and could unless due care is exercised automatically become terms within the client care agreement.

Representations within websites could be treated and viewed similarly.

A review of website content and pre establishment of client care processes will be essential to avoid future problems should issues with the client and the delivery of the service arise.

Statutory Guarantees

The Draft Bill sets out statutory guarantees that services will need to be performed with reasonable care and skill, within a reasonable time, and for a reasonable price, if this has not been expressly agreed.

This begs the question of what amounts to a reasonable time for the delivery of the service. How long should it take a conveyancer to complete a transaction is like asking how long is a piece of string.  Conveyancers will tell you that they can only go as fast as the slowest party in the chain permits. So what will happen if despite best effort a delay occurs due to the failing of a third party which places the conveyancer in breach of the statutory guarantee as to time?   

Will the legislation expect conveyancers to become ‘whistle blowers’ on the failings of their counterparts, lenders, search providers and other suppliers? 

Clearly to avoid all of these possible ramifications client care agreements and agreements with suppliers will need to be re drawn to ensure the inclusion of express terms on not only the timing of the completion of the transaction but also price. 

If there is any uncertainty over the price for the job it is clear this legislation will give the courts to impute a ‘reasonable’ price for the job. It will be interesting to see what bench mark will be used to determine the reasonableness or otherwise of a conveyancing charge.   Interestingly what is reasonable could excess what many conveyancers routinely charge for the work!

Statutory Remedies

Under the Draft Bill, two tiers of statutory remedy in relation to services are proposed. The Tier 1 remedy provides that the retailer should either redo the element of the service which is inadequate, or perform the whole service again. The Tier 2 remedy allows the retailer to provide a reduction in the charge to cover the element of the service that has not been provided with reasonable care and skill.

It appears at this stage that a disgruntled client will have two options - either to make a complaint about the solicitor to the Legal Ombudsman or to take the solicitor to the small claims court and allege breach of the terms of the statutory guarantee.  It is unclear as to whether the client would first have to exhaust the solicitor’s complaint process and the Legal Ombudsman procedure before going to court, but what is certain the introduction of these changes will undoubtedly fuel more complaints than are presently pursued.

Once again the solicitor faced with an unjustified complaint will be left with the dilemma of either fighting the complaint or settling it knowing that if it proceeds it will result in loss of time and expense.   

Fairness Test

The existing fairness test would continue to apply to all terms of the contract other than the price or subject matter, both of which can be excluded from the application of the fairness test provided they are “transparent and prominent”. The prominence test proposed by the Draft Bill is whether the term has been brought to the consumer’s attention in such a way that the average consumer would be aware of it.

This may mean that if as is often the case the client care letter/agreement runs to several pages it will be necessary for the client to be presented with a one page summary of the main terms and conditions as well as exclusions.

Transparency Test

Under the Draft Bill, all written terms offered to a consumer must be “transparent”, which is a change from the current test of “plain and intelligible”. Transparent is deemed to mean plain, intelligible language and, if in writing, legible. The Competition and Markets Authority is expected to prepare guidance on this new requirement.

No more legal jargon!  Most conveyancers already produce client friendly client care agreements; however it is clear that if a term or condition is not clear any ambiguity will be construed in favour of the client.  Moreover there will be little scope for attempting to hide terms or argue that terms were implied through custom or oral representation.  There will need to be complete transparency on fees and on added fees if a fixed quote is given.

The “Grey” List

The Draft Bill proposes to add three new terms to the current “Grey List” of terms presumed to be unfair. These include:

• disproportionately high charges in the event that a consumer decides not to conclude or perform the contract, or for services which have not been supplied;

Greater care and clear terms on what fees will be charged in the event of an abortive sale/purchase will need to added to the client care agreement if not already present and it is clear that punitive charges will not be permitted.  

• terms allowing the retailer to determine the characteristics of the subject matter after the contract has been formed; and

• terms which allow the retailer to determine the price after the contract has been formed.
There should be care taken when looking to include provision for additional charges for the work since if the terms are not made clear and there is absolute transparency the terms could be held to be unfair and unenforceable.

Conclusion

Practitioners should be prepared to review and update their procedures, both online and in-house, in order to comply with the new changes when they come into force.

There is scope for conveyancers to use these changes to introduce more realistic pricing for the supply of their services bearing in mind that when looking at the delivery of terms of the statutory guarantees and requirement for reasonableness it may mean that for the first time for a long while both the Courts and the client will be required to look more carefully at the vast amount of work and car and skill and  which goes into conveying a property.  

By David Pett - Director and Solicitor with MJP Conveyancing - Residential conveyancers 

Friday, 21 November 2014

Veyo - Raising more questions than its answering

Heather Cameron of Today’s Conveyancer recently interviewed Veyo’s Chief Executive, Elliott Vigar, in an effort to learn more about Veyo’s product which is scheduled for release in Spring 2015. 

Despite a recent statement to the contrary, Mr Vigar has now placed on record his company’s intention to release (into an already congested market), an online system which will essentially provide conveyancers with a case management portal.

On being asked what exactly makes Veyo unique from other similar conveyancing systems, Mr Vigar stated:

"Veyo not only covers the entire chain comprehensively, securely and quickly, but most importantly it’s unique because it allows conveyancers on both sides of the transaction to communicate in real time with each other, their clients and other stakeholders in the transaction. It has been designed with considerable input from licensed conveyancers as well as solicitors to ensure it meets the needs of the industry.”

Interesting comment.  

To begin with its difficult to see how the system can monitor the ‘entire chain’ without first ensuring every conveyancer in the chain is part of the Veyo system.  Mr Vigar does not explain how Veyo is looking to achieve this especially when Veyo  as far as we know is not going to be a compulsory product. 

Secondly, it seem strange for Mr Vigar to suggest that conveyancers do not already speak with each other in ‘real time’.  Speaking on the telephone and communicating via email must clearly, must it not, constitute ‘real time’ communication. Furthermore, most case management systems already provide collaboration tools and to claim that Veyo will be unique in this area is simply disingenuous. 

On being pushed on the subject of Veyo’s USP Mr Vigar stated:

"Conveyancing professionals have been in real need of a solution that improves communication and collaboration between everyone involved in the home buying transaction process for a long time now. Veyo is being designed as a complete, end-to-end, transactional solution and unlike any other on the market.”

He added:

"Veyo provides the perfect solution by streamlining the process, reducing the administrative burden, enabling seamless communication and thereby both saving conveyancers time and money, but also speeding up and increasing confidence in the home-buying and selling process for consumers.”


It will be interesting to see what other legal software suppliers make of these remarks bearing in mind many of the competitors in this areas have been up and running and providing good, solid and well tested products for many years.  These competitors know the market inside and out and already have systems which provide an ‘end to end’ solution as well as communication and collaboration hubs.   

Most good solutions help conveyancers to streamline processes and reduce administrative burdens.  Those systems also help conveyancers to save time and money as well as to keep  clients informed of progress. 

There still therefore seems to be nothing new on offer. 


Turning now to the consultation process we are again being told that Veyo has come about due to ‘considerable input from licensed conveyancers as well as solicitors’.  Despite being asked the question several times Veyo has still not disclosed which conveyancers were consulted during the focus group phase of development.  

On this subject Mr Vigar explaining the process in more detail stated:

"The Society conducted a rigorous nine month tendering process and talked to more than 20 potential partners to ensure we got this decision right. Mastek was successfully selected because it takes such an agile and collaborative approach to technology. Its overwhelming expertise, experience and pedigree in developing enterprise class solutions with an emphasis on security, robustness and handling sensitive information make it the perfect partner.”

It is clear there was a form of tendering process and that several suppliers of case management systems were invited to attend the Law Society and demonstrate their offerings.  Looking back I wonder how many of those suppliers ( who will soon be competing with Veyo ) now regret taking part in this exercise.  

The choice of Mastek is surprising not because of any question mark over its pedigree but more to do with its  lack of track record in the legal technology market.  It is equally puzzling to note that it has only been within the last 4 weeks that Veyo has established contact with  The Legal Software Suppliers Association (LSSA), the UK industry body for legal systems developers and vendors.  

At the recent user group meeting of the BT legal software suppler Tikit users if the technology were told that Veyo had no contact with Tikit until very recently and that when the call came  it transpired that Veyo was asking for help!  Tikit made it clear that it views Veyo as a competitor though it will be happy to integrate its system with Veyo but only if the customer is prepared to pay for the installation. 

Despite the product being promoted as  ‘designed by the industry, for the industry’ it seems Mr Vigar does not possess a background in conveyancing.  In his defence he explained:

‘’Whilst not at the coal face, however, having trained as a barrister and having amongst other roles, previously run the Law Society’s regulatory policy function for a number of years, I have strong legal experience." 


As for pricing there is still no news according to Mr Vigar:


"At this point it is still too early to confirm, as we are still considering a couple of different pricing models and variations and discussing possible options." said Elliott.

"What is likely to be the case though is that Veyo will be based on an annual, per license fee coupled with an individual transaction fee. We believe that using Veyo will actually save conveyancers money by making the entire conveyancing process quicker and more efficient."

"Currently, we’re working to ensure that our pricing structure works for law firms of all sizes. This is because one of the benefits of Veyo is that smaller firms will have access to the kind of advanced technological system that normally only larger, more technically able firms have, bringing improved efficiencies for all and greater financial rewards. We are clear that Veyo should not adopt a pricing model that prices any firm out of its use."

So where does this leave us?

In short, no further forward, though we do now know that Veyo is a conveyancing case management system meaning that only those conveyancers who do not have an existing system or on that needs to be replaced will be interested in the product.  This must be correct since why would a conveyancer already running a good and reliable case management system wish to spend more money on purchasing Veyo?

I have no doubt that Veyo will provide the Law Society with a good and sophisticated piece of kit and that they will secure some business, but as I have previously written I do believe that they have in their haste to get this product to market, missed a trick or two.


Heather Cameron’s full article can be found here: 

Thursday, 20 November 2014

New duty to warn other conveyancers of client's suspected fraud?

Scotland’s supreme civil court’s decision in Frank Houlgate Investment Company Ltd v Biggart Baillie LLP [2014] CSIH 79 has raised some interesting questions about transactional fraud and could have an important impact on conveyancer’s liability when they act for a dishonest client. 

The facts involve an investment company, the plaintiff, which lent money to the client of  the solicitor, the defendant.  The security for the loan was not owned by the client  and was in fact worthless.  During the course of the transaction the solicitor became aware of he client’s attempt to defraud but nonetheless continued to act and as a consequence of the fraud the investment company suffered a loss. Acting on the instruction of the client the solicitor did not warn the representative of the investment company of the fraud.

The three judges of the CSIH all agreed that the client’s solicitor was liable to the investment company for the losses , although they were not unanimous regarding the basis for that liability.

Lord Menzies held that the solicitor was under an obligation immediately to disclose to the investment company’s representative,  the that the client had admitted fraud and that the security was worthless. That obligation flowed from a continuing implied representation to the other party to the transaction that they are not aware of any fundamental dishonesty or fraud which might make the security for the transaction worthless. Notwithstanding the duty of confidentiality the solicitor was incumbent on a solicitor to act honestly at all times.  Not surprisingly Lord Menzies further held on the facts that he would have found the solicitor liable as an accessory to fraud in any event.

Lord Malcolm  relying  instead on Donoghue v Stevenson held that the solicitor was liable in negligence. He held that it was ‘preferable simply to rely upon the broad concept of culpa [fault], in the sense of failure by a professional to use the care and skill required in the circumstances’. He added: ‘In the present case the actionable negligence arises because [the defendant] came to learn of the fraud and knew, or should have foreseen, that further harm to the pursuers could ensue if he did not take care to protect them.’

There remains a question mark about the soundness of Lord Malcolm’s reasoning since there appears to  little authority around to support the existence of a duty of care by a solicitor to a third party, though the more interesting aspect to this decision is the obligation  to override the duty of confidentiality once a solicitor becomes aware of fraud. 

The bearing of a Scottish decision on practice in England may not be direct, but the case does give rise to some interesting questions.  If these circumstances were to happen in England it is clear the  solicitor  once knowing of the fraud should have immediately desisted from undertaking any further work ( without doing anything to ‘tip’ the client off ) and to then report the incident to the Solicitor Regulation Authority and the National Crime Agency   If there was then no intervention by the SRA/NCA the solicitor should have then terminated the retainer.  The question is whether in the light of the case of Frank Houlgate there would also be a duty once the retainer came to an end to bring the matter to the attention of the other parties in the transaction remains unclear.  How far would that duty extend?  Would the solicitor need to alert another solicitor appointed by the client when approached for the release of the file following the termination of the retainer?

The other question of interest which emerges from this case is that if a solicitor comes across  information, if considered properly and in line with SRA and Law Society obligations,  would show that the client could be acting dishonestly, but the solicitor fails to read or to appreciate the importance of that evidence, would that be sufficient for a lender of other third party to rely on the decision of Houlgate and seek redress for loss. Could this now present a lender with an alternative route to the solicitor’s insurers when loss is sustained due to fraud?


Only time will tell though one thing is for certain it is an argument which I am sure a lender will look to run sometime in the very near future. 

Article by David Pett Director/Solicitor - MJP Conveyancing

Monday, 17 November 2014

Veyo's Fundamental Flaws

The Law Society’s joint venture with Maestek UK has become a hot topic of conversation within the Legal Community and has in the main courted a great deal of  negative press from property practitioners.  The product to be delivered by Veyo is described on Veyo’s website as a ‘revolutionary home conveyancing portal’ offering to save practitioners ‘time and money’.  Speaking at a recent conveyancing conference Veyo’s Chief Executive, Elliott Vigar, announced that the launch of the product is still on schedule for spring of next year.

In this article I look to examine and discuss those areas of Veyo’s business model in which there is I believe some fundamental, and perhaps fatal, errors.

I must begin however with a disclaimer as well as a declaration of self-interest. I am not an expert in legal technology; though I must disclose that in 2011 I designed and built a risk and case management system (Quick Conveyance) with the help of one full time programmer.  The system was built on a ‘shoestring’ but has proved largely successful and has helped my business process around 30,000 transactions since it was launched.  The cost of building the developing the system (which boasts the majority of the features of Veyo) has been no more than the salary of a full time programmer.  Contrast this with the news that Veyo has and continues to consume millions of pounds of investment, not only in relation to build but also in marketing and promotion.

The first feature of the business model to consider, and an aspect which is pretty fundamental to any new business venture, is the question of identity.   Is Veyo a communication and compliance hub for the benefit of those who subscribe to the Law Society’s national Conveyancing Protocol, or is it a case management system for those undertaking conveyancing. Or is it both?  For any product to achieve successful traction in the market for which it is designed and promoted, it must be capable of being clearly understood by the target market.   Unfortunately from what has been disclosed and presented to date the message is far from clear.   At the recent Society of Licensed Conveyancer’s Conference held in Derby those representing Veyo (Des Hudson, former Law Society Chairman and Mr Vigar) were clearly confused.   In response to questions from practitioners it was clear that they themselves do not know whether they are entering the highly competitive market of legal case management systems, or whether they have a system which is designed to supplement existing case management systems.  From reading the literature and despite a clear statement from Veyo to the contrary, it seems obvious to everybody other than Veyo that they are offering nothing unique or different.  Veyo is a case management system which is no different from most of the other case management products out there and which are far better established.

So what would have I done differently?   To begin with I would have consulted with both the practitioners and the legal technology industry at an early stage and looked to see what I could have done to supplement rather than compete with existing offerings.  Why re-invent the wheel?  Veyo swears blindly that it has consulted and carried out extensive focus group exercises.   I am no business guru, but even a candidate from the BBC show the Apprentice could see that there is very little evidence that if this did take place, little if any reliance has been given to the feedback.    The case management market is saturated with similar products and products with lengthy and successful track records.  Why do we need another case management system?   For a practitioner who has already invested a significant sum of money in a case management system there is little incentive to switch or spend money on integrating with Veyo. It simply does not make any commercial sense.
Keep in mind that Veyo claims its system will speed up the conveyancing process and help to save cost.   This strap line simply does not inspire confidence.   It is reported that Veyo will need to charge a license fee and also a transaction fee.  It is not clear how much these fees will be, but based say on a license fee of £2000 per user and a transaction fee of £15, a business which handles 2400 transactions each year and has 20 fee earners would be looking to pay Veyo £76,000 per annum.  If the business already operated a case management system then it would be looking to pay this on top of its existing commitment without any apparent additional benefit.   This hardly demonstrates a saving.

The lack of identity caused by flawed business development investigation was avoidable.   The Law Society could have looked to introduce for example a system which acted as communication hub to bridge existing case management systems and offer a ‘negotiation room’ and or a ‘chain matrix’.   An idea that would not have competed against existing and established systems but which brought something new and innovative to the table.  One question which springs to mind is why the Law Society not look to reviving the Land Registry’s failed at a chain matrix. The idea of the system was to reduce the uncertainties of house buying by allowing all parties in a chain to see what stage of the process had been reached by everyone else. It was to be the centrepiece and public face of a scheme to computerise the entire conveyancing process. However, the scheme was postponed at the end of 2007 after a pilot showed little interest from conveyancers or their clients.  I am sure that with full and proper consultation with conveyancers and the legal technology industry there could have been some merit in looking to resurrect this project particularly if there was some appetite evident from private investors.

The other significant failing has been the lack of engagement with the target market.  Veyo is either naive or extremely arrogant in its approach to the presentation and marketing of its product.  This is not a current issue but goes back in time to when the product was first devised.    Veyo claims it held focus groups and consulted with grass root conveyancers but has up until now failed to disclose details of that consultation.   The legal sector is a difficult market place at the best of times.  Those selling to lawyers find it difficult to engage interest and to earn sufficient trust to then sell.   Veyo seems to be oblivious to these factors and seems to believe that conveyancers will come forward in sufficient numbers and sign up.  I suspect this is a highly optimistic view and indeed the recent announcement by Myhomemove might suggest that conveyancers have already turned their back on Veyo.  Myhomemove, the UK’s largest provider of mover conveyancing services, recently selected Lexis Visual files 2014 as the firm’s next generation workflow and case management system.

To succeed in the legal sector there needs to be a sense of belonging and unfortunately this has been lacking in the approach adopted by the Law Society in the development of Veyo.  I am sure if there had been effective and extensive consultation with conveyancers in its development conveyancers would have been warmer and more receptive to Veyo’s introduction.

It may not be too late to save Veyo providing those behind it begin to listen to the feedback and perhaps look to redesign the product.   It needs a unique selling feature and to demonstrate that for the money it will demand that it is actually adding to and improving the conveyancing experience for the conveyancer and client.

Veyo - Raising more questions than it is answering : http://bit.ly/1p5U1t3 

By David Pett Director of MJP Conveyancing 

Thursday, 30 October 2014

EPC Changes - Are you advising your buy to let clients about these?

The Energy Act 2011 contains a number of provisions which will affect owners and occupiers of property. 

Probably most significant are the proposed minimum energy standards. 

These changes will have a significant impact on the buy to let market and need to be considered now by not only investors, but also lawyers acting for those purchasing buy to let property.

From April 2018, the proposed legislative changes would make it unlawful to let residential or commercial properties with an EPC Rating of F or G (i.e. the lowest 2 grades of energy efficiency).

The significance of this which cannot be under estimated could mean that the marketability of certain properties would become impossible unless they were upgraded to meet the  minimum standards. It is estimated that approximately 20% of non-domestic properties could be in the F & G  rating brackets.

Although not clear at this stage the new minimum standards could apply to all lettings and re-lettings, including sub-lettings & assignments.

Valuations of such properties could be affected if their marketability is diminished and rent reviews for properties in this situation could also be affected. Š

Given this risk to property owners and occupiers it is clear that a full understanding of the energy efficiency of current and future acquisitions of buy to let property assets should be attained.

Thereafter owners and occupiers will need to assess the costs and viability of undertaking retrofits or refurbishments, and possibly bringing forward properties for marketing prior to 2018 or re-gearing leases.

Property owners and occupiers should also seek advice on how property values may be impacted. 

This could lead to a renewed interest in the currently doomed “Green Deal” Scheme.   This may provide a financial solution to support energy efficiency refurbishment and retro-fit projects. Landlords and sub-letting occupiers will need to achieve an EPC “E” rating or have implemented the maximum package of works allowable under the Green Deal (even if they fall short of the “E” rating required).

Those acting for purchasers of buy to let should be aware of these changes and ensure clients are advised accordingly.

The situation is likely to become worse than better given the Government’s aim to see by 2030 a minimum rating of C.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk