The death of simultaneous exchange and completion?

The time between exchange and completion has shortened considerably and more and more transactions are concluded through  simultaneous exchange of contracts and completion.

The recent Court of Appeal decision in Santander v R. A. Legal Solicitors has cast serious doubt on whether this practice is exposing conveyancing solicitors to the possibility of a breach of trust claim

The decision at first instance in Santander v R. A. Legal Solicitors  [2013] EWHC 1380 (QB)  confirmed and clarified the Court of Appeal's decision in Nationwide v Davison’s [2012] EWCA Civ 1626 as to when solicitors should be relieved from the consequences of their breach of trust.

The facts are as follows.  R A Legal Solicitors had acted for the purchaser of a property, for which Santander’s predecessor, Abbey National, had made mortgage funds available to the buyers solicitors to facility the buyers purchase.

Unknown to the buyer’s solicitors, those solicitors acting for the seller had been acting dishonestly, and the buyers solicitors had transferred the purchase sums before a first charge in favour of the lender had been acquired and an existing charge discharged.

The Queen's Bench Division held that, whilst the buyer’s solicitors had acted in breach of trust in releasing the funds advanced, the they were relieved of all liability in respect of that breach since the shortcomings of the solicitors handling in relation to the transaction were not an effective cause of the lender’s loss.

On appeal, the Court of Appeal did not agree and  found in favour of the lender finding:

“The failings of RAL ( buyers solicitors ) formed part of a larger picture of the shoddy performance of a conveyancing transaction from start to finish, which leaves me in no doubt that it would not be fair to excuse the firm from liability, in whole or in part.”

Significantly, and central to the success of the appeal  is the fact the Buyers solicitors  sent an unqualified certificate  of title to Abbey on the 13th July, even though they were waiting to inspect a copy of a 1986 Transfer. Their view was if the Transfer contained anything untoward Abbey’s money could be returned. This was done in order to speed up the eventual process of exchange and completion.

Condemning this practice the Court of Appeal stated:

“The appropriate way of dealing with delays is to persuade lenders to move faster or remit the funds to be held to order in advance of an unqualified CoT. To my mind the pretense that the investigation of title has been completed when it has not is a method of dealing with that difficulty which borders on dishonesty. The submission that unqualified CoTs are given frequently prematurely makes this misconduct all the more serious.”

This was one of many failings on the part of these solicitors and which viewed collectively pointed to a firm who had acted recklessly with the handing of money belonging to a third part to whom the solicitors owed a duty of care.   The other failings included the incomplete submission of requisitions, the submission of the mortgage monies to the seller’s solicitors in the absence of an undertaking to hold the monies to the order of the solicitors, failure to check the replies to requisitions and a total disregard of the completion code.

Rob Hailstone of the BOLD Group which represents a number of conveyancing practices today issued a very helpful note on the lessons to be learned from this decision and which act as a timely reminder to all practitioners to carry out an urgent review of processes.    I have set out these ‘lessons’ below.

More significantly however are the questions this decision leaves unanswered relating to the duty of care owed to a lender in circumstances where a simultaneous exchange and completion take place. 

The questions are as follows:

Is there a breach of our obligation to the lender to submit a COT in circumstances where we have certified that we are satisfied there is a good and marketable tile, but we have yet to exchange contracts?  Or putting it another way, should we only ever submit a COT once exchange has taken place?

If  a COT can be submitted before exchange, is it permissible given the CoA ruling to send mortgage funds over to the sellers lawyers (after making checks on the solicitors and checking carefully replies to requisitions) in readiness for completion providing we have a full and satisfactory undertaking from the sellers solicitors to hold the monies strictly to our order?

If is not then does it follow that simultaneous exchanges and completions on mortgage related transactions should no longer take place?

Here are Rob’s tips (rh@boldgroup.co.uk)

·         Raise your requisitions making sure that all relevant questions have been specifically highlighted and asked

·         Make sure that the replies to requisitions correspond to the correct questions, are specific, detailed and accurate

·         Do not submit your CoT until all title investigations have been completed to your satisfaction

·         Do not hold on to the mortgage advance if completion is delayed, without consent from the lender

·         Make sure that the Completion Code applies and it has been formally agreed to Complete by Post

·         Make sure that you receive all outstanding documentation by post immediately after completion, including any undertaking or form of discharge

·         Take correct and swift action if completion does not take place, outstanding documents are not received and/or vacant possession is not granted

·         In an ideal world (the judges seem to think we work and live in one), do not submit a CoT until exchange has taken place and do not agree a completion date that is less than five working days from exchange. Maybe we should get lenders to stipulate that this has to occur, thereby eliminating the dangerous and stressful practice of simultaneous exchange and completion?