REAL ESTATE – PCR ISSUES
ANSWER STRUCTURE:
1. Issue – e.g. conflict of interest, confidentiality, disclosure
2. Reference – Principles and Code paragraphs, definitions (in glossary)
3. Set out provisions and apply to facts
4. Conclusion
Acting for SELLER and BUYER
Why might same firm be asked to act for both parties?
- Relationship – already know both clients?
- Quicker, more convenient and cheaper
Can the firm act for both seller and buyer?
- Occasionally, the parties to conveyancing transaction ask if one firm can act for both parties.
- Principle 7: Act in best interests of client.
- Principle 3: Not allowing independence to be compromised (would you be independent if
colleague working on other side of case)
Two main issues:
1. Conflict of interest (6.1)
2. Confidentiality (6.3)
Conflict of interest (para 6.1)
Glossary definition:
means any situation where:
(i) 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 (a "client conflict"); or
(ii) your duty to act in the best interests of any client in relation to a matter conflicts, or there is a
significant risk that it may conflict, with your own interests in relation to that or a related matter (an
"own interest conflict").
***** TO GAIN MARKS IN EXAM QUESTION GO THROUGH ALL ELEMENTS****
Need to address “unless” in 6.2…
a) Substantially common interest – means a situation where there is a clear common purpose in
relation to any matter or a particular aspect of it between the clients and a strong consensus on
how it is to be achieved and the client conflict is peripheral to this common purpose.
b) Competing for same objective - any situation in which two or more clients are competing for an
"objective" which, if attained by one client, will make that "objective" unattainable to the
other client or clients, and "objective" means, for the purposes of Chapter 3, an asset, contract
or business opportunity which two or more clients are seeking to acquire or recover through a
liquidation (or some other form of insolvency process) or by means of an auction or tender
process or a bid or offer which is not public.
à Would they have substantially common interest? (para 6.2)
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, I. Impossible to act for both a buyer and seller at once?
II. Could uncover things that are negative for other party – e.g. fails structural survey so may
want to change price (interests start to diverge)
For firm to act need to get positive consent…
All clients have to give informed consent – in writing. (6b cont.)
Ensure effective safeguards in place to protect clients’ confidential info (passwords and computer
systems)
Reasonable for you to act for all the clients.
Confidentiality (para 6.3)
Para 6.3 – You keep the affairs of current and former clients confidential unless disclosure is
required or permitted by law or the client consents.
Para 6.4 – Where acting for a client on matter, make client aware of all information material to
matter of which you have knowledge
What if things uncovered that are negative for other party during searches?
CONCLUSION:
So a solicitor may only act for a buyer and a seller in a conveyancing transaction in the rare instances
where he is satisfied that there is no existing conflict of interest and no significant risk of a conflict
arising in future, or there is a conflict of interest but the conflict is peripheral to the clients’ common
purpose AND there is no breach of duty of confidentiality.
Ex. of rare instances:
- Where the land is being gifted, or transferred between related parties, ie in the context of
private individuals
- Where the parties are related by blood, adoption, marriage, civil partnership or living
together
- In the commercial context, where the parties are associated companies (one is a holding
company and the other is its subsidiary, or both are subsidiaries of the same holding
company.) Even in rare instances, solicitor must stop acting for one client if a conflict arises
and can only act for the other if the duty of confidentiality to the former client is not at risk.
So best not to act.
Who to keep?
- Arcadian (the property company with large portfolio of commercial properties) because big
ticket income and existing client of firm so already owe duty of confidentiality
- Although, might keep Winter as it manages leasehold properties, so issuing landlord’s
licences would ensure stable income
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,ACTING FOR BUYER AND LENDER
à Cares about property at buying stage passing all the due diligence tests.
à Similar objective and common interest with the buyer – want the property to be high
quality so if buyer defects on mortgage payments, can sell house.
Issue – Best interests of bank and borrower
Refs – Principle 7 Best interests of client
Issue – Conflict of interests?
Refs – para 6.1 and para 6.2
Substantially common interest. Both want to pass due diligence tests
Para 6.2b not applicable
- Benefits: rather than 2 firms carrying out same searches and inquiries one set of solicitors
does all searches= time and money saved.
- Risks: negotiating the terms of the mortgage in particular the interest rate.
Conditions to be met:
Informed consent
Information barriers
Reasonable
Material information – tell lender if thought borrower had given inflated values.
NB: a solicitor can sometimes act for buyer and lender in a commercial transaction. If the
mortgage is a standard mortgage, the solicitor might decide that there is no conflict of
interest existing or likely to arise,
*Better chance of acting for buyer and lender than buyer and seller.
Confidentiality
Problems can arise where solicitor has been acting for borrower and lender and is told by borrower
that borrower intends to breach terms of mortgage offer by letting premises to tenant and will not
agree to lender being told of this.
Solicitor obliged by para 6.3 to keep borrower’s intentions confidential, but para 6.4 says he must
make lender aware of all information material to matter of which he has knowledge. Conflict of
interest in this situation (para 6.2)
Solicitor must tell lender he cannot act for it due to conflict of interest, but not nature of conflict.
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,MONEY LAUNDERING AND MORTGAGE FRAUD
Mortgage fraud = individuals defrauding a financial institution or private lender through the
mortgage process
To minimise risk of becoming involved in mortgage fraud…
§ Check the identity of companies - both buyer and seller (directors etc.) Companies House
search.
§ Do enhanced due diligence if they are acting dodgy (under Money Laundering regs)
§ Check solicitors on other side using SRA search.
§ Check the paperwork all adds up
§ Check the value of property represents market value.
§ Check sources of income. Where is funding coming from?
§ Check property and mortgage are consistent with financial positions
§ Establish true net cash price to be paid and ensure this is disclosed to the lender.
Common examples:
- Client making payment using large sums of cash, sudden or unexplained changes in
ownership of property
- Third party providing finance for purchase but registered in someone else’s name
- Cash changing hands directly between clients
- Unusual sale price
- Client paying deposit but withdrawing from transaction without good reason and requiring
deposit to be repaid to him
Practice Note’s further warning signs to look out for and get more details on….
o Client/property long distance from firm
o Client unusually disinterested in purchase
o Is it arm’s length commercial transaction of private company?
o Unusually large scale property investment for this client
o Client has limited or vague knowledge of property despite having owned for years
o Client’s credit history shorter than you would expect for their age (fake ID?)
o Plans for sub-sale or back-to-back transactions
o Last minute change of representative for other side
o Party unrelated to transaction is paying your fees
o Property has history of being re-sold quickly or mortgages settled quickly
o Finance sought after property registered in buyer’s name
o Owner who has been registered for long period, does not appear to be of age to have held
land for that length of time
o Other solicitor/conveyancer has email address from large-scale web based provider
o County Court judgment against property
o Land transferred following court order, but mortgage sought later
Customer due diligence under Money Laundering Regs:
- Identifying the client
- Identifying beneficial owner of client –
- Info on purpose and nature of business
What to do if suspicious:
§ Report suspicious transactions to firm’s Nominated Officer
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, § Nominated officer considers reports and if he considers it gives rise to suspicion of money
laundering à must report it to National Crime Agency.
§ Reporting requirements override duty of confidentiality
CONTRACT RACE
Conduct situation: Seller wants us to engage in a Contract Race – this is where a seller enters into
conveyancing process with two or more prospective buyers at the same time. The buyers are
competing with each other and the winner of the race is the buyer who is ready to exchange
contracts first.
When acting for seller can you reassure a buyer that they won’t lose out to another buyer at the last
moment?
Para 1.4 – Duty not to mislead or attempt to mislead clients, others or courts either by own acts or
omissions or allowing or being complicit in the acts or omissions of others (including your
client).
à best taken to mean that solicitor should still inform all buyers immediately of the seller’s
intention to deal with more than one buyer.
Solicitor must explain to client that he is required to comply with para 1.4. Seller should also
be warned of danger of losing all prospective buyers if a race is commenced (wasted time
and expense puts buyers off)
If seller wants to proceed, and client authority is given, solicitor for seller should disclose
decision to conduct contract race directly to solicitor for each prospective buyer.
à Should make precise terms of race clear e.g. first buyer who presents signed contract and
deposit cheque at seller’s solicitor’s office will secure property.
If seller refuses to allow solicitor to notify prospective buyers, solicitor cannot disclose
contract race info to buyers under para 6.3, but would be in breach of para 1.4 so must
decline to act.
Clear conflict of interest if solicitor acts for more than one prospective buyer in a contract
race.
à Except perhaps where commercial property cases if exception para 6.2(b) applies
UNDERTAKINGS
Para 1.3 – Solicitor must perform all undertakings given by you, within agreed timescale or within
reasonable amount of time.
In glossary of SRA COC – “undertaking” means a statement, given orally or in writing, whether or not
it includes the word "undertake" or "undertaking", to someone who reasonably places reliance on it,
that you or a third party will do something or cause something to be done, or refrain from doing
something
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,Solicitor is not obliged to give an undertaking.
Consequences of Undertaking: Solicitors should not give a promise if it is outside of their control.
Only ever undertake things that are under your control. If they gave it they would be bound by it and
they would be personally liable and could be sued personally. It is also a breach of professional
misconduct, so the solicitor can be disciplined by the SRA. It will thus be necessary to tell client
immediately to make other arrangements.
**Apply specifically to the facts!!
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, TAKING INSTRUCTIONS
Analysing the client’s initial instructions and identifying/following up issues arising
- Acting for Arcadia Investments Ltd
- Purchasing Kenulf House in Peterborough
- Want to know if any issues arising from documents and further instructions
Have the following documents:
• Memorandum of sale – overview of main facts (not legally binding)
• Photograph – 1970s building
• Plan
Nature?
- Buy to let
- Long term investment
CHECKLISTS…
The Plan
§ Why does it run into Blake’s Alley?
§ Does Victoria House have access to it? What is the access to the property?
§ Is there a right of way over Blake’s Alley?
§ Is Blake’s Alley a private road? If it is, do we have to pay to maintain it? (Do search and check what state it’s
in)
§ What is space between Blake Alley and Kenulf? Car park? (better rent)
§ Any easements or burdens?
§ MAKE SURE TO IDENTIFY EVERYTHING ON THE PLAN – WHAT IT IS AND WHAT EFFECT THAT WILL HAVE E.G.
TO RIGHT OF WAY – ALWAYS THINK ABOUT ACCESS
Memorandum of Sale
§ Who are the seller’s solicitors?
§ Does the price include VAT?
§ Verify identity of clients/ solicitors
§ Do company search to see companies?
§ Has the seller got a related transaction? A chain of transaction sell to buy?
§ What use of property?
§ Is it vacant? Do we get vacant possession?
§ Date of completion?
à Within 3 months.
§ How are you going to pay for it?
à Buyer will be financing with 75% loan monies from HRC private bank ltd. Rest 25% coming from own
funds.
§ Check constitution of Arcadian and get its registration details
§ Fixtures and fittings form & Commercial Property Standard Enquiries.
§ Did Winter buy the property using mortgage finance. Outstanding mortgages?
à Here there is and the intention is to pay it off using the proceeds of the sale.
§ Asbestos issue? Structural survey?
à The client has instructed a surveyor.
§ Government EPC - do you have the energy performance certificate?
§ Listed building? PP restrictions
§ Market value of properties/offices in area?
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