Conveyancing Panels - Marketing heaven or unwanted slavery?

Love them or hate them conveyancing panels continue to remain a predominant feature within the conveyancing industry.   The majority of these work on a model whereby a company operates and manages an electronic platform on which it allows third party associates such as a broker or an estate agent or lender to introduce a client to a solicitor who has become a member of the conveyancing panel.

The panel manager allows the broker or agent or lender to access a national network of conveyancers and provides the broker or agent to make a financial gain from steering the client to one of the panel’s chosen conveyancing firms.  This means that in addition to raising a commission for the work the broker or agent has undertaken, the third party is able to make some extra money through making the referral.  In many cases the client is oblivious to such an arrangement often following the agents/brokers recommendation  blindly.

In addition to this the panel manager is also able to secure a slice of the cake for managing and allowing the third party to access via online software a network of preferred conveyancers.

So what does this mean for the consumer?

For the consumer it will normally mean higher prices since when receiving a quote for conveyancing services from the agent or broker it is in the majority of cases probable that the consumer will be paying a higher price than that had the consumer gone direct to the conveyancer.  The consumer is in these cases paying the broker’s commission, the panel’s management fee and also a higher fee for searches and other incidentals. 

Here is how it works.  The consumer is encouraged to use a solicitor which the broker is able to access through the panel.  The consumer is quoted a fee of say £800 plus VAT.  The consumer accepts and the panel solicitor who invariably will not be local, is instructed.  On completion the client pays the £800  to the panel solicitor.  Out of the £800 paid by the client the solicitor will be required to pay the panel manager company £500, which the panel manager will then share with the broker/agent/lender for making the referral.   The net effect of this is that the consumer has paid 100% more than he or she would have paid if she had gone to the solicitor direct.

On top of this the consumer will also be paying more for identity checks and searches.  This is because the panel manager has arrangements with the third party suppliers of these services under which the panel manager will receive a cut of the fee paid bu the consumer for those services.

In addition to higher prices, the consumer is often introduced to a conveyancing company out of the area and one which may not have the best of reputation.   It must be kept in mind that many of the panel solicitors will be forced due to the low amount of the fee it retains to facilitate the work with the minimum of resources.  The client is expecting a £800 service whereas the conveyancer may be only due to the low return be able to offer a service more commensurate  with the low legal fee retained.

The question to which this gives rise is whether the broker or agent is acting in the best interests of the consumer in not in some cases making it clear that the client may be paying more for their conveyancing services.  Don’t get me wrong as there are some brokers and agents are up front about the arrangement  and do offer to set off the commission received against their fees.

So how does this work for the conveyancer.

The upside is that the conveyancer receives work on a regular basis and has no direct marketing costs to pay.  The conveyancer only pays for the ‘lead’ on completion so this helps with cash flow.  Providing the conveyancer discloses the introduction fee there is no professional objection to the arrangement per se.  The problem lies more with the restraints the Panel Manager may apply.   Most Panel Managers have ‘pet’ suppliers such as search companies and insist that as a condition of panel membership the panel solicitor must purchase the searches from that supplier.  This extends to money laundering checks, indemnity insurance and solicitor account checkers.  This means the conveyancer is deprived of the freedom to choose and work with his or her own preferred supplier.  It also means that the client is often paying more for these items given the Panel Manager is receiving a slice of the charge from the suppliers of these services. At the end of the day the conveyancer is left with a small fee for the work and left with no opportunity to share in the financial benefits of third party arrangements.

Panel work for some conveyancers clearly works and provides savings on marketing costs.  Balancing this however with the shortcomings of the arrangement one is forced to raise questions about the economics of undertaking 'Panel' work.  There is also the question of whether the sharing of fees both legal and those hidden in the supply of third party searches has now reached a level whereby the panel solicitor may be so compromised that a conflict of interest should be considered and indeed acted upon.

So what has gone wrong? 

The decision of accepting and working for a client on a reduced fee was when considering the high cost of marketing is per se a reasonable one to take.  The problem now is that the some panel mangers have become too greedy by looking to reduce fees further ( so as to increase their slice of the cake ) and to also prevent the conveyancer from operating any commercial third party relationships other than those permitted by the panel manager.   There is now a major imbalance between looking after the interests of the client and the panel conveyancer and meeting the financial demands of the panel manager’s shareholders. To the extent some panel managers are witnessing a mass drop in the number of conveyancing firms willing to participate in their schemes.

So what can conveyancing firms do?

The model operated is not unique, nor difficult to establish. Its open to conveyancers to look to set up their own networks and third party relationships.  Surely this must be a more preferable option to the slavery some panel managers now expect from their panel solicitors.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Impact of Brexit on conveyancing and the need for a strategy

Love it or hate it we are now destined to leave the European Union.  

Personally I consider this to be a reckless move and one which will impact on the lives of not only those close to retirement like myself but also our children and grandchildren.  There is much talk of democracy and of how the people have spoken and made their voice known.  

I do get that but if every major decision in the governing of our country was left to the lottery of a referendum I am not sure we would still be living in a democracy. The risk of anarchy through ill-informed and disconnected decision making would be heightened.  Isn’t this why we elect people to Parliament to take these major decisions on our behalf?  Surely when the leader (former) of the Government (which the majority of the country voted in) is saying its best to stay in Europe and the people decide its best to leave, does this not in itself undermine the whole democratic process and the sovereignty of Parliament?

Notwithstanding some tricky and so far unanswered constitutional questions, the fact is we are leaving and as I have been told so many times recently – I need to accept it and get on with planning my business accordingly.

Even though I initially pushed back when being told this, the fact is, it is when looking at the situation rationally, good advice.  The time for moping and reflecting on what might have been should be viewed as over.  As business people we need to look at this as yet another hurdle in life and one which needs a strategy to make sure we are able to survive, continue to grow and more importantly preserve jobs of those who work for us.

So what’s going to happen to the property market?  Who knows! Not even the experts are able to speculate on what might and might not happen.  So what do we know for certain?  The pound is weak and continues to fall in the currency market.  The Stock Exchange is experiencing sever fluctuations in prices.  The Country has been stripped of its AAA credit rating. The Government is split on Brexit and the Prime Minister ducking his responsibilities to the Country has decided to resign.  The opposition is not effective and is in melt down.  The long period of stability and certainty stemming from a severe recession has vanished overnight. Clearly given all of this you don’t need to be an economist to know that we are now facing a financial crisis which will inevitably impact on consumer confidence.

As a consumer looking to buy or sale a property there is no longer any short to medium term certainty that interest rates will not increase, property values will not fall and job security will prevail.   Not knowing what will happen in this respect will clearly cause the property market to stall.  For how long who knows but most economists are looking at a 25% fall in transaction numbers over the next 12 months.

So what do we do?  Bury our heads in the sand or as I say look to form and implement a strategy? The conveyancing market will contract this is inevitable so as a business there is a need to make sure a larger share of the market is secured.  This can only be achieved through reducing prices and looking to reduce outgoings.  Regrettably this could lead in some places to job losses.

The only upside to all of this is that the cost of borrowing could become cheaper and with property prices in some parts of the country falling this could stimulate some activity.  Those who have job security may be well placed to make a move in the property market to grab a ‘bargain’ with low cost borrowing. As a seller or buyer or both this may very well be the time to enter or re-enter the property ladder.

Furthermore, the property market in London is unlikely to be impacted due to demand outstripping supply.  The fall in the pound is also likely to attract more foreign investors looking for long term investment in property.

Those who supported our departure from Europe played down the impact of Brexit and in my view misled voters on the recessionary consequences which are inevitable when as is the case the Country is currently operating in a state of uncertainty.

David Pett Solicitor 

The views expressed herein are the personal views of the writer. 

Volume Conveyancers have not lost the plot - just plotting for the future

The Law Society Gazette under an emotive heading of ‘Ombudsman warns of dangers from ‘conveyancing factories’ recently reported in response to the release of a report from the Legal Ombudsman entitled ‘Losing the Plot – residential conveyancing complaints and their causes’ that ‘conveyancing factories’ pose a potential risk for house buyers.

In the article Adam Sampson, the ombudsman, says:

‘increasingly commoditised automated and competitive’ conveyancing market has resulted in traditional high street firms evolving or being displaced into ‘conveyancing factories’.

The report acknowledges that such innovative services can be helpful, but warns they are ‘not without risk’. It voices concern that by focusing exclusively on volume, some firms risk failing to provide a reasonable service.

A very general ( and perhaps unfair and misleading) finding, and one which it would be unreasonable for a consumer to rely on without further investigation.

To begin with there is an issue of definition. What constitutes a 'volume conveyancer'? Presumably, by definition, it is a conveyancer that conducts over a certain number of transactions each year?  If this correct what is the number of transactions an organisation should be handling before it falls into this category and becomes condemned without sentencing?

The biggest mistake critics make when judging a ‘volume conveyancer’ is to jump to the conclusion that due to the size of the organisation it is inevitable that client service will be poor and or that the quality of work produced will be inferior.

In life and in so many different areas of the service industry there are small and large organisations and with both there are good and bad businesses. It is disingenuous and slightly condescending for some professionals to view all large conveyancing providers with the same label.  

I accept there are some poor examples of how conveyancing services should be delivered but it is clearly not the case that these are in the main tied solely to the larger organisations.  The fact is that there are a large number of the smaller providers who quite simply should not be allowed anywhere near a contract for sale.

Equally just because a larger conveyancer is able due to efficiencies of scale and the use of technology  charge the consumer less for the service, it does not follow that the service delivered will be any less inferior than the service provided by a smaller and more traditional organisation.  

Many larger providers have both the resources and expertise to invest in staff training and the establishment of technology to make sure that the consumer experience is enhanced.  These are organisations that depend on consistent and positive consumer feedback to survive and grow.  

They also specialise in conveyancing and are probably a far better and indeed safer choice for the consumer than the small firm who might only do the occasional conveyance. 

It is wrong and perhaps small minded to criticise these businesses ( many of which receive awards for outstanding client services ) solely on the basis of size and the drive many possess to use technology to deliver a cost effective and highly satisfactory service to the end user.

My message to the consumer is not to attach too much weight to this report.  Instead consumers should undertake research.  Look for reviews and testimonials and remember do not be suspicious per se about an organisation that offers a competitive price and the facility to interact and experience an enhanced level of communication through the use of cutting edge technology.  Just because a business has a non-traditional approach to conveyancing does not mean that it should be viewed differently or less favourably.

Remember also that the scare mongers out there would like consumers to believe that all large conveyance providers  are bad because it suits their interests.  They are worried about the forward looking businesses and how they are using technology and processes to introduce efficiencies to reduce fees for the consumer but to still operate with a healthy profit. It is the large providers out there who are leading the way to improve what is a very archaic system for the purchase and sale of property.

Finally it is worth keeping in mind the words of Law Society chief executive Desmond Hudson when he says the volume of complaints should be put in perspective. 'There are, on average, more than 675,000 property transactions a year. We are talking about 1,300 complaints on conveyancing to the LeO in a year. My point is that the vast majority of solicitors do a good job when it comes to conveyancing'.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Conflict - Do I need to report to my lender client or not?

The scope for conflict in a conveyancing transaction when acting for a buyer and the buyer’s lender is extensive and is often overlooked by busy practitioners.

It is clear from the Court of Appeal decision in Mortgage Express Limited v Bowerman & Partners [1995] The Times, 1 August that in circumstances where a conveyancer acts for both the borrower and lender in the course of a residential conveyancing transaction, although the conveyancer’s implied duty extends beyond referring matters of title to the lender, the duty only extends to disclosing information that might have a material bearing on the lender's potential security or its decision to lend

In other words, matters which could lead to the lender’s surveyor/valuer reconsidering the adequacy or otherwise of the value of the security to be taken from the client to secure the mortgage, or the ability of the lender to sell the property quickly should the mortgage be foreclosed, or the clients affordability to repay the loan.

Examples include:

The potential contamination of the land

Serious flood risk

Boundary issues

Client’s disclosure of redundancy or dismissal

Close proximity to HS2 route

Sub-sales or where the current owner has owned the property for less than 6 months.

So what happens should information come to a conveyancer’s knowledge which gives rise to a conflict of the interests between those of the client and those of the lender?

In these circumstances where the information is of a confidential nature, the conveyancer must either obtain the client’s consent to disclose the information, or decline to act for both parties.

The conveyancers ( defendant ) in  Mortgage Express Limited v Bowerman & Partners [1995] The Times, 1 August, were instructed to act for Mortgage Express Ltd and the prospective purchaser of a flat at Queensway, London, for the sum of £220,000.  Prior to exchange of contracts, the conveyancers discovered that the property was the subject of a sub-sale to the vendor which was to be completed contemporaneously with the purchase for £150,000. The lender had agreed to make a loan of £180,150 based on a valuation of £199,000.The conveyancers reported the sub-sale to the client who confirmed that he was prepared to accept the price as he wished to purchase this particular property.

The Conveyancers were satisfied with this response but did not inform the lender of the existence of the sub-sale. The lender satisfied the court that if it had been informed of the sub-sale, it would not have lent the purchase money to the purchaser, and alleged breach of duty and/or negligence on the part of the conveyancers.

At first instance, Mrs Justice Arden held that a conveyancer’s duty to his respective clients is to protect their respective interests when carrying out their instructions, and found that the conveyancer owed a duty of care to report to the lender the information he had about the sale price.

The Court went so far as to find that the solicitor is bound to take some action in relation to 'any information which puts him on enquiry as to the accuracy of the valuation' and that the failure to disclose any such information amounted to negligence.

On appeal, he Court of Appeal held that the information concerning the price and the existence of the sub-sale was not confidential to the client and was of equal importance to both clients, albeit for different reasons.

On the facts, the court held that the information might have led a reasonably competent solicitor to form the view that the information might have caused the lender to doubt the accuracy of its valuation and, as a consequence, the information ought to have been passed on to the lender. During the course of its judgment, the Court of Appeal re-affirmed the duties of a solicitor in circumstances where the information is of a confidential nature to the borrower.

The Court of Appeal added that it was not the solicitor's duty to comment on value, but to disclose information which might cause the lender to doubt the accuracy of the valuation.

Interestingly the suggestion was that if the difference between the sub sale price and valuation was not significant then there would not have been a duty on the conveyancer to report.  In my view and with reference to the requirements of the CML Handbook I consider it would be dangerous not to report even if there difference was only small.

Practical Implications

It is clear that a practitioner will need to make a judgment call to determine what information it receives could be regarded as confidential to the client and which is not.  If it is confidential ( e.g. loss of job) then the client’s consent will be required before reporting the information to the lender. If as in the above case it is not then there is no need to seek consent, though in practice the client should be alerted and warned that the reporting could lead to the withdrawal of the mortgage offer.

The situation can be helped through the inclusion of a provision in the conveyancer’s terms and conditions which gives the conveyancer express authority ( without further recourse to the client ) to disclose matters to a lender when a possible conflict arises. Even with the existence of such a clause it would still be advisable to make the client aware.

If in a conflict situation there is a clear instruction by the client not to disclose then the practitioner should decline to act for both clients straight away.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at davidp@mjpconveyancing.com

Unfair constraint on free choice of legal regulator

Changing from one regulator to another should not be difficult and should not be restricted due to the exclusive and unnecessarily stringent arrangements operating between one regulator and the insurance industry. 

How on the one hand can you introduce the flexibility of choosing a regulator that suits your business, and which will benefit the client, and then with the other hand have a rule which places a financial burden of such a magnitude that the cost of switching becomes totally prohibitive.  It simply does not make sense and makes a mockery of not only the role of the Legal Services Board but also the legal profession as a whole.

So, you wish for example to switch regulator from the Solicitors Regulation Authority ( SRA) to the Council of Licensed Conveyancers (CLC). A logical move if you are a conveyancer because  you wish to be regulated by a regulator who understands conveyancing and who has a focused interest in how the conveyancing profession should be allowed to be developed.   You make the choice with business interest in mind and with the knowledge that you clients will benefit because of the Council’s insight into and knowledge of the conveyancing industry.  A regulator that is niche and which does not at least for now wish to be all things to all people.

A perfectly logical decision therefore and one which should be easy to implement.

To be fair the process of applying to the CLC is straight forward and unless there are major issues in the way you run your business, the application should be approved without too much difficulty.   The problem however is with the SRA and its agreement with the insurance industry.   Under  Participating Insurers Agreement (PIA) when one changes regulator this acts an automatic  trigger for ‘run off’ indemnity insurance.   The so called logic is that because PII policies are written on a “claims made” basis rather than the “losses occurring” basis used in general insurance, responsibility for the claim rests with the insurer in place at the time of the negligence.  If therefore at the time the claim is made there is no longer an insurance policy  in place which accords with the PIA the client may find him or herself uninsured.  

The theory behind this is that the PIA minimum term insurance is superior in terms of coverage to the insurance which is required by the CLC.  I say in theory  because having had some brokers to interrogate the differences they do not seem to  be that significant and far reaching.   To begin with, the minimum term insurance will still pay out on a claim if the solicitor does not pay the premium or where there has been bad faith on the part of the solicitor which has led to the claim.    Interestingly when the Insurance Act 2015 is introduced later this year the latter of these two difference will offer little comfort as the insurer will be able to void the claim in the event of fraud and or deliberate or reckless failure to disclose relevant facts.  It’s not clear at this stage how this will operate with within he PIA.

Essentially therefore, there is very little difference although when one looks at the cost of insurance there is a substantial and a totally unfair difference in annual premiums.   The cost of minimum term insurance and non-minimum term is staggering and does gives rise to the question of whether as a profession we have and continue to be been mugged when it comes to the extortionately high PII premiums charged.   A conveyancing business with a million pound turnover and a clean claims record would with the CLC be looking to pay a premium of around £15,000 compared to a premium of £80,000  for minimum term cover.   How can this be justified?   The same risks apply irrespective of regulator. The only conclusion is that you are paying £65,000 for the added consumer protection provided by the minimum terms.  The fact that the claim will be paid in the event of the wrongdoing of the conveyancer or the failure of the solicitor to pay the premium.  One in reply may ask with good reason why should an insurer pay out in these circumstance in any event.  More importantly why as a profession should we paying higher premiums to address the risk presented by the less honest members.  Why should we be deprived of the opportunity to choose the type and scope of cover we consider as a professional outfit will address the risk of a client raising a claim?

So the SRA as the situation currently stands will not allow a SRA regulated firm to choose its regulator unless it is satisfied that there will be adequate minimum term insurance in place to cover past claims ( for six years)  The practical consequence of this is that although with the CLC, you current year’s insurance could for example be   as low as £15K,  to make the switch and obtain the SRA waiver you would need to put into place a run off minimum term insurance policy which sticking with the present example, could cost as much as  £200,00 plus!

A nonsense and a major barrier to the freedom and benefits of choosing your regulator.

To be fair to the SRA the above unfairness and restriction on competitiveness has been identified and the SRA has began a consultation process with the view to removing the ‘run of’f requirement on change of regulator (http://www.sra.org.uk/sra/consultations/removing-barriers-switching-regulators.page).

Crispin Passmore, Executive Director for Policy at the SRA, commenting on the process stated:

"Firms should be able to switch to the regulator they feel is right for their business more easily than is currently the case. Legal businesses are increasingly owned by, and employ, a range of lawyers and non-lawyers, so choosing a regulator is an important business decision. Facilitating choice is a good way to encourage a modern, competitive market that provides affordable and accessible services.

"The Legal Services Board ensures minimum standards of client protection are maintained by all legal services regulators. Nonetheless, we have to be careful that removing unnecessary bureaucratic obstacles for firms does not create potential risks for the clients of firms wanting to switch. We want to get the right balance between encouraging a competitive market and ensuring the interests of those using legal services continue to be protected, so we are keen to hear views on how best to do this.

"If there are options that we have not thought of that should be considered, we are very open to ideas.”

I agree the client has to be protected but if as is available insurers are prepared to offer conveyancers looking to switch cover for past claims and which will meet claims providing the conveyancers have not failed to provide full disclosure and paid the premium then I am not sure how it can said the client will not be protected.   To claim otherwise would suggest that CLC conveyancer clients are at more risk than SRA conveyancing clients.  If this  so shouldn’t the public be made aware of this ?

It seems to me that the insurance industry has been able with the full acquiesce of the SRA to hide behind the PIA and charge inflated PII rates making it more expensive for SRA insured back conveyancers to compete with other regulated conveyancers.   This cannot be allowed to continue and as a profession we need to stand up and support the SRA with the proposed changes which could if implemented lead to reduction in the level of PII insurance premiums across the board.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

Are conveyancers over charging on ‘mum and dad’ assisted property transactions?

Introduction

The principle behind the insurance is that it protects the mortgagee’s (i.e. bank lending the money) title in the property if the donor of a gift or informal family loan goes bankrupt and  the donor’s creditors make a claim to the money as part of the donor’s assets.

But is it necessary?  Do all conveyancers actually understand the applicable law?

Background

The conveyancer is under a duty to both client and the client’s lender to ensure they obtain “a good and marketable title to the property and free from prior mortgages or charges and from onerous encumbrances which title will be registered with absolute title” (Solicitors’ Regulation Authority Handbook).

If there is a gift from a family member ( or a discounted purchase price when purchasing from a family member) or an informal loan the donor on the face of it will acquire an interest in the property. Gifted deposit insurance provides protection if the donor becomes insolvent and creditors of the donor make a claim putting the property at risk as well as the lender’s security.

The Law

The law behinds this is S339 of the Insolvency Act 1986 provides that if a bankrupt has within the previous five years “entered into a transaction with any person at an undervalue,” then “the trustee of the bankrupt’s estate may apply to the court for an order” to restore  the gift to the donor for the benefit of the creditors.

However S342(2)(a) offers the lender with protection stating that if an order is made under S339  this will not …. prejudice any interest in property which was acquired from a person other than that individual and was acquired in good faith and for value, or prejudice any interest deriving from such an interest”. Essentially the bank is protected from a Section 339 order by S.342 as long as it acts honestly and doesn't knowingly aid dishonesty. Its title in the property is therefore protected and in no way placed at risk .

The only time a  lender may not avail itself of this protection if the lender knew both that there was a gift/transaction at an undervalue and that the donor was already insolvent or a petition of bankruptcy had been presented when the gift was made. Hence the need for the conveyancer to carry our ID and bankruptcy checks against the donor.

Interestingly if this situation was allowed to arise then gifted deposit insurance would not assist in any event.

If the gift was specially made to put it beyond the reach of creditors, an order could be made under  Sections 423–425 of the Insolvency Act to restore the position to that before the transaction at an undervalue. Section 425 however would protect the lender if its interest was “acquired in good faith, for value and without notice of the relevant circumstances”.  Again unless the lender was aware of what was going on the lender would not be affected by the insolvency.

Council for Mortgage Lenders Handbook

This states:

‘If you are aware that the title to the property is subject to a deed of gift or a transaction at an apparent undervalue completed within five years of the proposed mortgage then you must be satisfied that we will acquire our interest in good faith and will be protected under the provisions of the Insolvency (No 2) Act 1994 against our security being set aside. If you are unable to give an unqualified certificate of title, you must arrange indemnity insurance (see section 9)

‘You must effect an indemnity insurance policy whenever the Lenders’ Handbook identifies that this is an acceptable or required course to us to ensure that the property has a good and marketable title at completion’.

Practical Implications

Providing the checks on identification and bankruptcy come back all clear,  it would seem from this analysis that an unqualified certificate of title could be given to the lender where there is a gifted deposit.

Is there a need to obtain a letter of postponement from the donor, that is a ‘gift letter’.  Probably yes in terms of good practice though the Land Registration Act 2002 does provide that a mortgagee has priority over any claim that the donor may have for the return of the gift,

Conclusion

By blindly insisting on indemnity insurance which appears on the above analysis of the law to be wholly unnecessary it seems conveyancers are not acting in their clients best interests.   

At the time the Insolvency ( No2) Act 1994 ( which made amendments to S342 (2) (a)  was passing through the then House of Lords Lord Coleraine said:

“the saving in that section [of the Insolvency Act] for a third party purchaser for value and in good faith will no longer be negatived merely by the purchaser’s knowledge of an earlier transaction at an undervalue or preference … the effect of the clause should be to speed conveyancing and greatly reduce the need for insurance in the cases where problems arise” (Hansard 1994 vol 554 at para 348).

Clearly the insurance industry is also very much guilty in terms of selling and promoting an insurance which seems to offer no purpose other than as a comforter to conveyancers.

There should also be a call made on the Council for Mortgage Lenders to review and to amend the Handbook to make the requirements  for seeking indemnity insurance on a gifted deposit clear and more in line with the Insolvency legislation.

Source :   *Gifted deposits and indemnity insurance: a risk assessment, Nick Piška, Conv. 2015, 2, 133-147  (Subscription required)

 MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

The practical implications for conveyancers arising out of the decision in Purrunsing v A’Court & Co & Anor - An article by David Pett Solicitor and Director MJP Conveyancing

HH Judge Pelling QC

In Purrunsing v A’Court & Co & Anor [2016] EWHC 789 (Ch) conveyancers for both the seller and buyer  were held liable for the actions of a rogue seller who committed a £470,000 property fraud.

In this article I examine the findings and provide some thoughts on how conveyancers may wish in the light of the decision to adapt certain parts of their processes. 

Facts

London based conveyancers Home Owners Conveyancing Limited (HOC) (the second defendant) acted for the purchaser (the claimant) of a property which was sold by a rogue seller who was purporting to be the registered owner of a £470,000 property.  The fraudster who claimed to be but was not the registered owner ‘Mr Dawson’ was represented by the Windsor based conveyancers A’Court & Co (ACC) (the first defendant).

By the time the fraud was discovered, the claimant has transferred the purchase monies to his conveyancer (HOC), and these monies had in turn been sent on to the fraudsters solicitors (ACC). Following completion of the transaction ACC then transferred funds to the fraudster to an account held in Dubai.

The issues

ACC the solicitors acting for the purported seller were initially found to have made the payments to the fraudster in breach of the duty of trust it owed to the claimant.

The issues before HH Judge Pelling QC in this case were as follows:

Having acted in breach of trust should ACC be granted relief under s61 of the Trustees Act 1925?  S61 provides:

"If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, … but has acted honestly and reasonably and ought fairly to be excused for the breach of the trust … then the court may relieve him either wholly or partly from personal liability for the same."

Should the claimant’s conveyancers (HOC) be liable to the Claimant for breach of contract or negligence?

In the event both firms of conveyancers should be held liable to the claimant how the liability should be apportioned between the two firms?

The findings – the claim against ACC (the ‘seller’s’ solicitors)

HH Judge Pelling found that ACC had not acted reasonably and were not entitled to relief under S61.

He based this on the following findings:

Upon considering the Money Laundering Regulations 2007 and the Proceeds of Crime Act 2002 he concluded:

‘……..that is that the solicitor concerned is required to look at all of the information available and assess whether it is consistent with the transaction that the client wishes to carry out being a lawful one. That much is obvious from ss.327-329 and s.340 of POCA. As the Note makes clear, that exercise "… may include considering whether the client is actually the owner of the property they want to sell"’.

He added:

‘As I have explained already, that will not be necessary or appropriate in every case in which a solicitor is retained to act for the vendor of residential property. In each case a judgment will be required based on the risk posed by the transaction in question. That is the effect of the part of the Handbook [Conveyancing Handbook set out above, which emphasises the need for a risk-based approach to be taken’.

In short, the Judge stated that a reasonable solicitor carrying out due diligence required by the MLR and adopting as per the Conveyancing Handbook a risk based due diligence approach ought to have considered whether Mr Dawson was the owner of the property he was purporting to sell in order to assess whether the transaction was a lawful one.  I will deal with the practical implications of this shortly.

The findings – the claim against HOC (the buyer’s solicitors)

The finding that HOC has acted in breach of contract and or duty of care was based on the following general principle applicable when considering the extent of the duty of care owed by a conveyancer to a client:

‘That in general a solicitor or licensed conveyancer is not obliged to undertake investigations that are not expressly or impliedly requested by the client but that if in fact a solicitor or licenced conveyancer acquires information that may be of importance to a client, then it is the duty of the solicitor to bring that information to the attention of the client.'

In this case HOC had raised an enquiry with ACC in the following terms:

"Please confirm you are familiar with the sellers and will verify they are the sellers and check ID to support same"

In reply ACC had responded:

‘2) As explained to you over the telephone, prior to being approached to act on the sale we have no personal knowledge of Mr Dawson, but we confirm that we have met him in person and have seen his passport (and retain a copy of the photo page) together with utility bills etc showing his UK address as notified to us’.

There was a failure on the part of HOC to inform the claimant that this question had been raised and also to make the claimant aware of the significance of the reply even though it was found that the claimant had failed to read the replies sent to him.

The Judge found:

‘HOC was in breach of contract and/or duty to the claimant in failing to inform him that (a) Additional Enquiry (2) had been raised, (b) that the purpose of that additional enquiry was to attempt to establish a link between the property and the apparent vendor, and (c) the answers received showed that (i) ACC had no documents whatsoever relating to this property, save for those already received (and thus for example they did not have the Deed of Gift of which Mr Beach had made enquiries by the earlier letter from him to Mr A'Court of 16 October 2012); (ii) ACC had no personal knowledge of Mr Dawson, and (iii) ACC had not verified, and could not confirm from the information available to them, or at least had not confirmed from the information available to them, a link between the vendor and the property, and (d) in consequence, there was a risk in proceeding with the purchase.’

The findings – Contribution

The judge found both firms of conveyancers equally to blame having regard to ‘…relative causal potency as well as comparative blameworthiness by reference to the facts and matters…’

The Practical Implications when acting for the seller

It is clear that when acting for any client there is a need to carry out a risk assessment not only on the client but the transaction itself.  In carrying this out one needs to keep in mind the MLR, POCA and Conveyancing Handbook requirements and guidance. 

The case assists in identifying certain risk indicators that any responsible conveyancer would be foolish to ignore.

In this case the solicitors acting for the rouge seller chose to reply blindly on routine money laundering checks ignoring the following warning signs:

They knew that the property was unoccupied

They knew that it was not subject to a charge

They knew that Mr Dawson had given an address that was not either the address for the property or the alternative service address that appeared in the proprietorship register for the property.

It is abundantly clear that faced with these facts that a reasonable solicitor should obtain from a seller documentation of any sort that could establish a link between that individual and the property.  In this case there were two addresses shown for the registered proprietor none of which matched the address given by the rouge seller to ACC.

It should be kept in mind that ACC knew that that a previous attempt to sell the property on behalf of the rouge seller fell through after the then prospective buyer pulled out when the rouge seller failed to provide evidence of employment in Dubai.  

So where a seller produces evidence of identity and of an address which is not that shown on the land Registry title it would be prudent to insist that the seller produces documents or other evidence which shows a connection between the seller and that of the property to be sold.

I also suggest that it may in some circumstances be wise to ask for details of the solicitor who acted on the purchase of the property so that appropriate checks can be made with that solicitor over identity etc

The Practical Implications when acting for the Buyer

It seems to me that the buyer’s solicitor in this case fell foul due to raising a question which probably they did not need to raise.  Remember the Judge in this case found for the claimant because of a failure on the part of the conveyancer to ‘…ensure that the claimant proceeded at all times on an informed basis.’

Therefore one may be best advised not to raise questions that go behind the Land Registry evidence of title since once raised there is then a professional obligation to make sure the client is made aware of any question and to ensure that when the reply comes in that advice is given on the reply and that any ambiguity and or uncertainty is fully addressed.

The rouge seller’s first attempt to sale failed however after the buyer solicitor was asked for evidence of the seller’s employment in Dubai.

It may in the light of this be prudent to raise as standard enquiries the following questions:

Is the seller based in the UK? 

If not please provide evidence of the seller’s employment based abroad.

A fraudster could still get around this and provide fake evidence but with reference to the S61 defence and the findings in this case it would at the very least show some attempt of trying to protect the buyer’s money.

You may also wish to ask whether there have been any previous attempts to sell the property and if there were why these did not proceed.  

Remember however that if you raise the questions do make sure that you receive full and complete replies.

Other implications

It is clear that when receiving replies to enquiries there is an obligation on a conveyancer to ensure the client sees the replies as well as raising with the client any issue within those replies which could influence the client’s decision to proceed with the transaction.   Sending the replies out to the client and asking the client to simply read and digest is not sufficient.

Conclusion

There is nothing remarkable about this decision other than the fact it should act as a reminder to all conveyancers of the need to keep the risk of fraud in mind at every juncture of the transaction and if acting for a buyer not to assume in every case that the seller has carried out full risk based due diligence. 

David Pett - Solicitor 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

Stamp Duty Changes - Guide for clients and conveyancers

The Government has now confirmed the rules for higher stamp duty land tax higher rates for purchases of additional residential properties.  These changes will take effect as from the 1^st April 2016

In this article some of the main features of the changes are examined.

The higher rates will be 3% above the standard rates of SDLT but will not apply to purchases of property under £40,000 or purchases of caravans, mobile homes and houseboats. Transitional provisions provide that where contracts were exchanged on or before 25 November 2015 and the purchase completes on or after 1 April 2016 the higher rates will not apply.  A calculator is available on the gov.uk website which calculates the amount of SDLT due on purchases of additional residential properties:https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

If you’re replacing your main residence you will not be liable to pay the extra 3% SDLT if the property you are purchasing is replacing your main residence and that has already been sold.  This is the case even if you already have two or more properties, and you sell your main residence and buy a replacement residence within three years.

Renting a new main residence in the time between disposal and purchase will not prevent the purchase from being a replacement of a main residence unless the period of the tenancy agreed is more than seven years.

If there’s a delay selling your main residence and it hasn’t been sold on the day you complete the purchase of your new main residence you will have to pay higher rates because you own two properties.  However you should  get a refund if you sell your previous main residence  within three years.  There is a simple form to complete which will be available on 1st April. This will need to be completed within 3 months of selling your previous main residence, or within 12 months of the filing date of the return, whichever comes later. This can be completed by the main purchaser of the property which the higher SDLT payment was paid on or by a solicitor acting on your behalf if you provide a letter of consent.

If you are purchasing any properties jointly with other people and any of them already own one or more properties, you’ll need to pay the higher rates.  Ironically this will cause unfairness to certain people who are looking to get their feet on the property ladder.  Take the following example.  A couple is in the process of purchasing a property jointly, which will be their main residence. One of the couple currently owns another property which is rented out and the other is a first time buyer. Surprisingly ( and I say this as the objective behind the changes is to make it easier for first time buyers to find affordable property) the higher rates will apply to the total purchase price as following the purchase one of the joint owners will own an interest in an additional residential property. For joint purchases the higher rates will apply if either of the purchasers own other residential property.

If you’re married or in a civil partnership, buying a property and your spouse or civil partner already owns a property you may still be liable to the higher rates though as is mentioned above you may be able to claim a refund if the interest in the other property is disposed of within 3years.

If you are purchasing a property and at the same time inherit a share in another property which is 50% or less of the market value of the inherited property the inherited share will not be taken into account providing the purchase completes within three years of becoming entitled to the inherited share.  This means the additional tax will not be payable.

It’s worth mentioning in conclusion the following exemptions:

You don’t have to pay SDLT or file a return if:

·         no money or other payment changes hands for a land or property transfer

·         property is left to you in a will

·         property is transferred because of divorce or dissolution of a civil partnership

·         you buy a freehold property for less than £40,000

·         you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000

·         you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential or non-residential SDLT threshold

·         you use alternative property financial arrangements, e.g. to comply with Sharia law

What does this mean for conveyancers?

The first consideration is to ensure that clients are made aware of the changes and of the obligation which rests with the client to provide full and truthful disclosure of the circumstances which surround the purchase. The legislation places the obligation on the client to make the correct declaration and will not require the conveyancer to ‘police’ the system

I do consider however that terms of retainer should make it clear that advice on taxation issues relating to the transaction including stamp duty does not fall within the ambit of the retainer and that if advice is sought is should be taken from an accountant or expert.

If as is usual the conveyancer acts as the client’s agent to submit the stamp duty return then again the appointment letter should make it clear that the return is being submitted on the basis of the information supplied and that the conveyancer does not accept any liability for any information sent which turns out to be incorrect.

All quoting systems should be reviewed and changed and consideration be given to the questions which need to be asked to determine stamp duty liability.

Questions like the following:

·         Do you or your partner ( if applicable) own any other property?

·        If you do is the property you are purchasing to be used to replace your main residence which you are selling or which you have sold within the past years ( calculated with reference to the date on which you estimate you will be completing your purchase)?

If the answer to the first question is yes and the answer to the second question is no then in all likelihood the additional stamp duty will apply.  There may be other exceptions but in general terms this should flush out the information required.

There should also be training sessions arranged for all staff so that the detail of the changes and the examples within the Revenue’s Practice Note can be considered.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com