\ THE UNIVERSITY OF LAW
PROPERTY
NOTEBOOK
, CONDUCT, PRELIMINARY, PLANNING
PERMISSION
CONDUCT ACTING FOR SELLER & BUYER
Principle 4: separate duties to act in the best interest of each client
O3.5: cannot act where there is a client confict (see conduct notes) or a
significant risk of a client confict
GENERAL RULE Apply to the facts; there is a confict here because the buyer will want the
lowest price for the property and the seller will want to get the highest
price for it
There are two main exceptions
1. O3.3 identifies some relevant circumstances:
a) Clients have different interests (such as the best price)
WHETHER b) Whether the client is vulnerable or imbalance of bargaining powers
CONFLICT OF c) A need to negotiate between terms
SIGNIFICANT RISK d) Solicitor’s ability to give independent advice will be fettered
OF ONE 2. The following will tend not to achieve O3.5 (therefore, confict)
a) IB3.3: acting where matters of substance are being negotiated (such as
price)
b) IB3.14: acting for the buyer and seller in a transfer of land for
value/grant/assignment of a lease
3. Consider whether buyer and seller are related or associated companies
If so, may not be a confict (check facts carefully)
O3.6 states that you can act if there is a substantially common interest
(see conduct notes). This could apply where:
SUBSTANTIALLY The property is being gifted, or
COMMON Purchase on developer’s standard terms (but watch out for imbalance of
INTEREST bargaining power IB3.4)
Generally not applicable as each party wants the best price for the transaction;
IB3.11
O3.7 is never relevant (parties are not competing)
Always apply it to the facts & consider whether a confict could arise in the
transaction
CONCLUDE Decision is ultimately the solicitor’s to make
Consider age of the seller/buyer, bargaining power, mental capacity, history of
purchases, undue infuence
Not many firms will act for both in commercial transactions
To uphold principle 4 (to act in best interest of each client) a client confict of interest /
significant risk of a client confict should be avoided according to outcome 3.5. Supported
by IB 3.3 where you should decline to act where you may need to negotiate on matters of
substance on their behalf, e.g negotiating on price between a buyer and seller of a
property. In this case it would be appropriate to inform our client ‘ ‘ to not act on
their behalf as something could come to light later on e.g survey that is coming might
disclose mould or something that needs to be fixed. Might be so bad that the buyer ‘
‘ will say wont pay that and will need price reduction. So will be confict there. So could be
a sig risk in the future and this will cause professional embarrassment. In addition following
outcome 3.6, they don’t have common interest as ones buying and ones selling. As will
want to sell for highest price and one want to buy for lowest so NO common interest.
Who would you act for then:
1
,- The firm you have always been acting for, but have to keep matters from other
side confidential as duty of confidentiality prevails over duty of disclosure. So be
careful of who you act for.
2
, CONDUCT ACTING FOR BORROWER & LENDER
A duty is owed to both clients independently (Mortgage Express), but the solicitor
GENERAL RULE may act for both the borrower and lender unless there is a confict of interest or a
significant risk of one arising
WHETHER O3.5 states that generally there will be confict where:
CONFLICT OF The terms of the mortgage are negotiable
SIGNIFICANT RISK The buyer wants a cheap and fexible mortgage whereas the lender wants
OF ONE profitability and good security
O3.6: this is applicable because both the buyer and the lender want the buyer to
obtain good title to the property and ensure that there are no problems that could
decrease its value
If the exception is established, then put in safeguards:
SUBSTANTIALLY i) Explain relevant issues to client
COMMON ii) Have a reasonable belief they understand the issues
INTEREST iii) Both lender and borrower give informed, written consent to you acting
iv) Satisfied that the benefits of you acting for both outweigh the risks; and
that
v) It is reasonable for you to act in all the circumstances
O3.7 is never relevant (parties are not competing)
COMMERCIAL PROPERTY RESIDENTIAL PROPERTY
Mortgages will usually be It will be fine if it is on the
negotiated, so separate standard mortgage terms: (IB3.7)
representation is required and Provided in normal course of
CONCLUDE advisable lender’s activities
A solicitor may do title investigation A significant part of those
for both parties and then cease to activities is lending; and
act (IB3.3) Material terms are not
negotiated by the parties
Immediately decline to act for both
WHERE THERE IS OR
A CONFLICT
Continue to act for one with the other’s consent
Do not reveal the nature of the confict without consent (Halifax Mortgages v
Stepsky)
- Following Mortgage Express v Bowerman and Partners the solicitor has two clients
and owes a duty to both.
- Principle 4 is relevant here as must act in best interests of each client and cannot
act under outcome 3.5 if there a client confict or sig risk of client confict.
- However it will be possible to act under outcome 3.6 as there is a substantially
common interest here being that ensure borrower will have good title to the
property and the property itself does not suffer from any problems that would
adversely effect its value. But you would have to make sure safeguards are met
and the risks have been understood.
- According to IB 3.7 acting for a Lender and Borrower on grant of a mortgage of
land may tend to show you have achieved the outcomes if the mortgage is a
standard mortgage ( write it).
- But according to IB 3.3, likely negotiation will take place and as such in commercial
transactions it is best lender and borrower separately represented to comply with
the principles.
- So wont act for lender in relation to loan itself, but lender may ask us (borrowers
solicitor) to act for both the lender and borrower on the title investigation and
searches and enquiries whilst retaining its own solicitors to negotiate the loan
documents.
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, CONTRACT RACE
ACTING FOR THE SELLER ACTING FOR THE BUYERS
Winner is one ready to exchange first (signed contract and full
deposit) If two or more buyers ask a
High risk for buyer’s (abortive costs); consider becoming firm to act for them in a contract
uninvolved race, then:
If the seller’s solicitor is asked to deal with more than one There is a confict of interest
prospective buyer at the same time, the solicitor must: triggered under O3.5, so you
O11.3 Immediately inform all buyers/solicitors of the should not act, unless O3.7
seller’s intention exception applies:
Explain to the seller that they must do this and it must be (competing for same
done immediately objective)
i) Buyers are
Seller Refuses sophisticated users
If the seller refuses to allow you to disclose to the other buyers, of legal services
then: (IB3.6); and
Confidentiality duty is triggered under O4.1 and so you ii) It is a commercial
cannot disclose to the buyers without the seller’s authority transaction
You must decline to act
Avoiding Contract Race
To avoid a contract race, ensure only one buyer is in possession
of a draft contract at any one time. This would not trigger O11.3:
B1 has the draft contract when you receive a better offer
from B2
Ask B1 to return the draft contract and withdraw S’s
acceptance
Accept B2’s better offer and submit draft contract to them
instead
JOINT BORROWERS (UNDUE INFLUENCE)
GENERAL A solicitor may act for joint borrowers provided a confict of interest does not
arise (O3.5)
Husband borrows against matrimonial home to put money into business
Wife is required to consent to the mortgage
SCENARIO Lender will worry that if they claim against the house, the wife will claim UI to set
the mortgage aside
i) If the transaction is not to one borrower’s advantage, the lender is put on
enquiry (Royal Bank Scotland v Etridge)
THEREFORE ii) Lender must take reasonable steps to satisfy itself that the person is fully
aware of the practical implications of the mortgage
iii) Lender will rely on solicitor’s confirmation that they advised borrowers
correctly (below)
The solicitor must:
a) Advise the person face-to-face (without the other borrower present)
b) Use non-technical language
SOLICITOR
c) Give reasoned advice as to the disadvantages of the transaction
REQUIREMENTS
d) Get express authority from the person to give to the lender
e) If it is obvious the person is being wronged, you must decline to act
There is no presumption of undue infuence for husband/wife
PRESUMPTIONS There is a presumption for solicitor/client and parent/child (rebuttable)
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, UNDERTAKINGS
“a statement made by you or your frm to someone who reasonably relies on it that you or
DEFINITION your frm will do something or cause something to be done or refrain from doing
something”
State that Undertakings apply to Principles 1, 2 and 6
PRINCIPLES
WHAT THEY An enforceable promise that may be done orally (but make an attendance note)
ARE The word “undertake” is not required
O11.2: perform them within an agreed timescale or a reasonable amount of time
Ambiguity will be read against the giver
If costs isn’t specified, ‘proper costs’ is implied
WORDING
Even if expressed as “on behalf of client”, it is still personally binding on the
solicitor
It can, in theory, exclude personal liability of the giver (but it will not be accepted)
Personally binding upon the solicitor who gave it
It is the responsibility of the frm to make sure it is honoured (especially if it is a
WHO BOUND
junior lawyer). If not, Partners will be in breach of conduct
BREACHING If a solicitor breaches, they are personally liable for any loss caused (Udall v Capri
AND Lighting)
ENFORCEME Courts can enforce them (the SRA cannot)
NT SRA can take disciplinary action against the solicitor who breached, ultimately
being stricken off the Roll
If the undertaking becomes impossible to perform, solicitor is still bound by it
The recipient may agree to release them
IMPOSSIBILI
IB11.6: if a conditional undertaking can no longer be performed, inform the
TY
recipient immediately
Do not accept an undertaking from an unqualified person because they cannot be
UNQUALIFIE enforced
D PERSONS O11.1: should not take unfair advantage of unqualifed persons
IB11.7: should not take advantage of another’s lack of legal knowledge, so it is
inadvisable to force on them an undertaking
IB11.5: should maintain a proper system of given and received undertakings
Undertaking should ideally be given:
BEST
By a Partner
PRACTICE
In writing
If you are certain you can carry it out (client has money)
Express and current client instructions and consent
Solicitor not obliged to give undertaking. Outcome 11 of SRA the undertaking should be
specific, agreed and timed. APPLY] It must be performed within the timescale ( Outcome
11.2). Still binding if outside control of the solicitor and failure to honour an undertaking
constitutes personal liability and so should not be given here ( apply) and client should be
informed to make other arrangements.
Alternative could be to use the words ‘ reasonable amount of time; when stating timescale
as required under outcome 11.2.
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, TAX CONSIDERATIONS
SDLT
If payable, it is payable on the VAT inclusive sum
Not payable on the value of the chattels (only payable on the consideration
STAMP DUTY for the land) (so if sale includes chattels, can reduce tax liability by apportioning
LAND TAX some of the purchase price to the chattels)
Payable on whole of price, not just the exceeding portion
Payable within 30 days from completion
Dependant on whether commercial or residential freehold (below)
Not exceeding £150,000 0%
£150,000 - £250,000 1%
COMMERCIAL / £350,000 - £500,000 3%
MIXED USE Exceeding £500,000 4%
FREEHOLD
Not exceeding £125,000 0%
£125,001 - £250,000 1%
RESIDENTIAL £250,001 - £500,000 3%
FREEHOLD £500,001 - £1,000,000 4%
£1,000,001 - £2,000,000 5%
Exceeding £2,000,000 (by natural person) 7%
Exceeding £2,000,000 (by company) 15%
VAT & COMMERCIAL PROPERTY
Completed in the last 3 years
NEW COMMERCIAL Standard rated
FREEHOLD A developer can recover their input tax
OLD COMMERCIAL “Old” means constructed, or such construction substantially completed, > 3
FREEHOLD / years ago
LEASEHOLD Exempt, but seller has the option to tax (can elect to do so at any time)
COMMERCIAL This would allow them to recover input tax (see below)
Would put off VAT-sensitive buyers such as insurance
companies/banks/building societies
Sale of a green-field site Exempt
Construction/civil engineering services 20%
RATES Legal/professional fees 20%
Sale of a new freehold building 20%
Sale of an old freehold building Exempt
Grant/assignment of a lease Exempt
Payable on the whole purchase price, not just the portion that exceeds a given
threshold
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, EXAM MODEL ANSWER
GENERAL Check who we are acting for BUYER/SELLER]
Apply it to the facts of the case
Status
For VAT purposes, this was a sale of an “old” freehold commercial property
“Old” in this context means constructed (or such construction substantially
completed) more than 3 years ago
Accordingly, the sale was exempt, subject to the option to tax (by seller)
VAT & Option to Tax
COMMERCIAL Thus, the seller has/had a choice as to whether or not to opt to tax
PROPERTY The seller can only recover some or all of the VAT it has paid to builders and such
during the renovation works (from the output tax chargeable on the sale price) if
it opts to tax
Impact
The problem with opting to tax is that VAT would have to be charged on the
purchase price on the sale and as an insurance company, the buyer would not
be able to recover any of this (as it does not make VATable supplies in the court
of its business)
The buyer might therefore object to the client opting to tax or seek a
reduction in the purchase price to compensate it for the irrecoverable VAT
The seller will have to weigh up the benefit of recovering the refurbishment VAT
against the potential loss of sale proceeds (or even the sale itself)
VAT
If old – The sale is exempt subject to the option to tax because it is an old freehold
commercial property. Old means constructed more than 3 years ago. Client has a choice of
whether or not to opt to tax ( see if they do). Client can only recover some or all of the VAT
it has paid to builders etc during the renovation works if it opts to tax. See what kind of
company it is e.g if insurance company the buyer does not make VATable supplies and so
will not be able to recover any VAT on the tax it would have to pay.
Less than 3 years – New freehold property . CAN TAX
More than 3 years – Old property, the sale is exempt but can opt to tax.
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