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