,REAL ESTATE
LEGAL PRACTICE COURSE
REVISION NOTES
, ACTING AS SOLICITOR IN CONVEYANCING TRANSACTION
ACTING FOR SELLER ACTING FOR BUYER
(INFORMATION TO OBTAIN) (INFORMATION TO OBTAIN)
Full names, addresses of buyer & seller Full names, addresses of buyer & seller
Name & Address of contact at estate agents Name & Address of contact at estate agents
Name & Address of other party’s solicitors Name & Address of other party’s solicitors
Full address of property Full address of property
Title (freehold or leasehold) Title (freehold or leasehold)
Price (inclusive of VAT?) Price (inclusive of VAT?)
Preliminary deposit paid? Preliminary deposit paid?
Fixtures & fittings Fixtures & fittings
Desired completion date Desired completion date
Present use of property Present use of property
Who is in occupation of property? Who is in occupation of property?
Synchronisation Synchronisation
Any agreed terms between parties Any agreed terms between parties
ADVISE OF TRANSACTION COSTS ADVISE OF TRANSACTION COSTS
Whereabouts of title deeds/documents
Outstanding mortgages Outstanding mortgages
Deposit amount Deposit amount
What is going to happen with proceeds of sale
ADVISE ON CGT
Intended use
Sufficient funds for purchase & deposit
Obtaining mortgage?
ADVISE TO COMMISSION SURVEY
ADVISE ON SPECIAL SEARCHES
ADVISE ON INSURANCE (Breach insurance etc.)
Who is purchasing property (co-owners etc.)
, Who is to have custody of deeds following
transaction
Client’s present property (necessary to sell?)
Plan & Registry documents
Changes made to building by seller Changes made to building by seller
Easements, restrictive covenants etc. Easements, restrictive covenants etc.
EPC rating EPC rating
TAKING INSTRUCTIONS
, CONDUCT
Acting For Seller & Buyer
Para. 6.2 CoC: Solicitor/Firm cannot act where there is a conflict of interest, or a
significant risk of one arising (Supports Principle 7)
GENERAL RULE ‘Conflict of Interest’: A ‘situation where your separate duties to act in the best
interests of two or more clients conflict’ (SRA Glossary)
Factors to take into account:
(i) Complexity of matter length of conveyancing chain
CONFLICT/RISK OF CONFLICT? (ii) Likelihood of negotiations having to take place
(iii) Bargaining power of parties & any vulnerabilities of either party
Clients have a clear common purpose & strong consensus as to how the
common purpose is to be achieved (SRA Glossary)
SUBSTANTIALLY COMMON If exception applies, solicitor can act even where there is a conflict
Exception only applicable where conditions in Para. 6.2 (i)-(iii) CoC are satisfied:
INTEREST EXCEPTION (i) Parties must give informed consent (in writing) to solicitor
(Para. 6.2(a) CoC) (ii) Firm puts in place effective safeguards to protect parties’ confidential
information
(iii) Solicitor must be satisfied that it is reasonable to act for both parties
COMPETING FOR SAME OBJECTIVE
EXCEPTION Not applicable as buyer & seller not competing
(Para. 6.2(b) CoC)
Consider whether conflict could arise later
Inform clients in advance of the possible risks, inc. cost/delay of instructing a
new solicitor should conflict arise
CONCLUDE Obtain client’s consent to the firm acting
Record factors considered in reaching decision to act
Ensure each party represented by different fee earner
Acting For Borrower & Lender
Duty owed to both clients, but solicitor may act unless there is a conflict of
GENERAL RULE interest, or a significant risk of one arising
Para. 6.2 CoC (SEE ABOVE)
Remember terms of mortgage probably negotiable
CONFLICT/RISK OF CONFLICT
Borrower wants mortgage to be cheap & flexible, whilst lender wants
(Para. 6.2 CoC) profitability & good security
Generally a conflict
SUBSTANTIALLY COMMON Applies as both borrower & lender want to obtain good title & ensure the
INTEREST EXCEPTION property has no issues that would diminish its value
Ensure conditions in Para. 6.2(i)-(iii) CoC are met (SEE ABOVE)
(Para. 6.2(a) CoC)
COMPETING FOR SAME OBJECTIVE
EXCEPTION Never relevant as borrower & lender are never competing
(Para. 6.2(b) CoC)
CONCLUDE Residential
On standard terms acting for both usually okay
Standard terms are terms:
(i) Provided in normal course of a lender’s activities;
(ii) Where a significant part of those activities is lending; and
(iii) Material terms are not negotiated by the parties
Commercial
Mortgage terms usually negotiated, so separate representation is required
, Solicitor may do title investigation for both parties but should stop there
Must immediately decline to act for both borrower & lender; or
Continue to act for only one, with other’s consent (and if duty of confidentiality
CONFLCIT ARISES DURING to other client under Para. 6.3 CoC can be fulfilled)
TRANSACTION Para. 6.4 CoC: Must make client aware of all information material to matter of
which he has knowledge – Can cause a conflict of interest
Must not reveal nature of the conflict without consent
Contract Race
ACTING FOR SELLER
STEP ONE – GENERAL PROVISION If seller’s solicitor asked to deal with more than one prospective buyer at the
same time, the solicitor must:
FOR CONTRACT RACE (i) Explain to seller risks of contract races, and that Para. 1.4 CoC
requires solicitor to tell buyers that they are in such race without
delay (and request instructions to do so); and
(ii) Immediately inform all buyers or their solicitors of the seller’s
intention to do this (Para. 1.4 CoC)
STEP TWO – CONSIDER EFFECT IF You cannot disclose without instructions (Para. 6.3 CoC), so must decline to
act to avoid breaching Para. 1.4 CoC
SELLER REFUSES TO DISCLOSE
ACTING FOR BUYER
If 2 or more buyers ask a firm to act for them in a contract race a conflict will exist (explain why)
To comply with Para. 6.2 CoC you should not act (SEE ABOVE)
You can act under the exception in Para. 6.2(b) CoC where the conditions in Para. 6.2(i)-(iii) CoC have been complied with –
Commonly only the case where:
(i) Both buyers are sophisticated users of legal services; and
(ii) Transaction is a commercial one
Joint Borrowers – Undue Influence
Solicitor may act for joint borrowers provided conflicts of interest do not arise under 6.2
CoC.
RBS v Etridge (No. 2): Where there is a special relationship between joint borrowers
(solicitor/client, parent/child, but not husband/wife), there is a rebuttable presumption that
there has been undue influence.
If transaction is not to borrower’s advantage, lender is put on enquiry (RBS v Etridge)
Lender must take reasonable steps to satisfy itself that the person has had practical
implications of mortgage brought home to them
Lender will usually rely on a solicitor’s confirmation that they have advised both
borrowers properly. You must therefore:
(i) Advise the person face-to-face (without other borrower present) and use
non-technical language;
(ii) Give reasoned advice as to disadvantages of the transaction
, (iii) Get express authority from person to write to lender confirming the steps
have been taken;
(iv) If obvious person is being wronged, decline to act
MONEY LAUNDERING & MORTGAGE FRAUD
Money Laundering: ‘Conversion, concealment or disguise of the proceeds of crime, so as
to make it appear that they come from a legitimate source’
DEFINITION Mortgage Fraud: Individual defrauds a lender through the mortgage process e.g.
overstating income or forging of a signature etc.
Providing false information about:
(i) Identity
(ii) Income
(iii) Employment
WAYS OF COMMITTING
(iv) Other debt obligations
MORTGAGE FRAUD (v) Sources of funds other than mortgage for purchase
(vi) Value of property
(vii) Price to be paid
(viii) Whether payments have been, or will be made, directly between buyer & seller
Large cash payments
Unexplained and/or sudden changes in property ownership
Party A providing the financing but property being transferred into Party Bs name
Sale price either distinctly high or low compared to normal market rates
WARNING SIGNS OF ML Client pays deposit into solicitor’s account, but then withdraws from transaction without
good reason & requests repayment of funds
Client/Property involved is located long distance from firm
Client unusually interested in purchase
Nominated purchasers taking out mortgages often have no beneficial interest in the
property, and may be fictitious
Property value is inflated & mortgage will be sought for full inflated valuation
Mortgage payments often not met & properties allowed to deteriorate
When bank seeks payment of mortgage, fraudsters mortgage with another bank through
COMMON STEPS further fictitious purchasers & essentially sell property back to themselves, but at greater
;leveraged valuation
As 2nd mortgage is inflated, first mortgage arrears are paid off, giving large profit
Eventually, bank forecloses on the property, only to find it in disrepair & worth
significantly less than current mortgage & its arrears
Solicitors must comply with Principles 1 & 5 (uphold rule of law & integrity) and not
continue to act for a client involved in money laundering or mortgage fraud – Failure to
do so risks SRA disciplinary proceedings
Risk of committing offence under Proceeds of Crime Act 2002
Must comply with the Money Laundering, Terrorist Financing & Transfer of Funds
RISKS (Information on the Payer) Regulations 2017 (failure is a criminal offence)
Where mortgage fraud has been committed, solicitors acting for both lender & buyer
may be liable to potentially face a claim for professional negligence by the lender
Where title fraud has been committed on an innocent buyer , the buyer’s solicitor may
be liable to its client for breach of trust & will need to claim a contribution from seller’s
solicitor (P&P Property v Owen White & Catlin LLP)
COMPLIANCE WITH ML To comply with ML Regs, a solicitor must:
(i) Reg 18: Assess the risk of terrorist financing/money laundering to which the
REGS business is subject
(ii) Reg 21: Maintain written policies, controls & procedures to manage the
identified risks
(iii) Reg. 21(a): Appoint a senior person to be responsible for overall compliance
, with ML Regs.
(iv) ML Reg. 21(3): Appoint nominated officer, whose role is to receive reports
from within the firm concerning any suspicions of money laundering & to liase
with national crime agency as necessary
(v) Reg. 28: At start of business relationship with client, carry out customer due
diligence at the appropriate level (simplified, standard, enhanced) in the
circumstances (most clients require standard checks)
ID check & background check, including of beneficial owners where they are not the
direct client (enhanced due diligence if necessary)
Check if property has changed hands several times (and if so, how often)
Search Companies House
Identify other party’s solicitors
Identify where purchase funds are coming from
STEPS TO UNDERTAKE Check that property mortgage, client’s financial position/source of income are consistent
Witness all signatures
Ensure allowances, discounts & incentives are disclosed to lender
Complete transaction according to the most up to date Law Society completion codes
If acting for buyer, ask additional questions of the seller’s solicitor to ensure they have
carried out the proper checks on their own client
Only released from duty where satisfied of a strong prima facie case that the client or
third party was using you to further fraud or other criminal purpose
Making a disclosure to the National Crime Agency will serve as a defence to any charge
against you
Where acting for lender & buyer and you come into possession of information from the
RECALL DUTY OF
buyer that is relevant to the lender, you must consider how to balance your duty of
CONFIDENTIALITY confidentiality with duty to disclose all relevant information to the lender client
Cite all relevant considerations & conclude that you must ask buyer for consent to
disclose to lender
If consent not given, you must cease to act for the lender client citing only ‘professional
reasons’ and return the mortgage documentation to them
ANALYSING A SCENARIO
FACTS PROBLEM? STEPS TO TAKE
Land Registry – Look at title deed for
Is it included in sale?
easements & ordnance survey map on deed.
Is it burdened/benefitted?
Client can’t see parking arrangements as
Is it within public highway?
couldn’t get round back of property Local Authority – Search for rights of way
How big/safe/well-repaired?
How is it currently used? By whom?
Site inspection
It it value for money?
Property needs renovation How long would renovation take? Survey by professional surveyor
Is it an investment property?
Environmental Agency – Environmental search
Environmental issue – Noise;
Located near garage/warehouse Local Authority enquiries
contamination etc.
Enquiries of Seller
Could be ‘listed’ or in a conservation Local Authority enquires
Property is Victorian and has ornate external area
features Speak to English Heritage
May need special consent works
Change of use planning permission Local Authority planning department – Ask for
Used to be family home
required? history of permissions – Any conditions?
Outside of building needs improving & buyer May needs planning permission to Local Authority enquiries
wants to fit air-con system change look of building
Record of refusals (may have expired) and
May need to comply with restrictive permissions
LEGAL PRACTICE COURSE
REVISION NOTES
, ACTING AS SOLICITOR IN CONVEYANCING TRANSACTION
ACTING FOR SELLER ACTING FOR BUYER
(INFORMATION TO OBTAIN) (INFORMATION TO OBTAIN)
Full names, addresses of buyer & seller Full names, addresses of buyer & seller
Name & Address of contact at estate agents Name & Address of contact at estate agents
Name & Address of other party’s solicitors Name & Address of other party’s solicitors
Full address of property Full address of property
Title (freehold or leasehold) Title (freehold or leasehold)
Price (inclusive of VAT?) Price (inclusive of VAT?)
Preliminary deposit paid? Preliminary deposit paid?
Fixtures & fittings Fixtures & fittings
Desired completion date Desired completion date
Present use of property Present use of property
Who is in occupation of property? Who is in occupation of property?
Synchronisation Synchronisation
Any agreed terms between parties Any agreed terms between parties
ADVISE OF TRANSACTION COSTS ADVISE OF TRANSACTION COSTS
Whereabouts of title deeds/documents
Outstanding mortgages Outstanding mortgages
Deposit amount Deposit amount
What is going to happen with proceeds of sale
ADVISE ON CGT
Intended use
Sufficient funds for purchase & deposit
Obtaining mortgage?
ADVISE TO COMMISSION SURVEY
ADVISE ON SPECIAL SEARCHES
ADVISE ON INSURANCE (Breach insurance etc.)
Who is purchasing property (co-owners etc.)
, Who is to have custody of deeds following
transaction
Client’s present property (necessary to sell?)
Plan & Registry documents
Changes made to building by seller Changes made to building by seller
Easements, restrictive covenants etc. Easements, restrictive covenants etc.
EPC rating EPC rating
TAKING INSTRUCTIONS
, CONDUCT
Acting For Seller & Buyer
Para. 6.2 CoC: Solicitor/Firm cannot act where there is a conflict of interest, or a
significant risk of one arising (Supports Principle 7)
GENERAL RULE ‘Conflict of Interest’: A ‘situation where your separate duties to act in the best
interests of two or more clients conflict’ (SRA Glossary)
Factors to take into account:
(i) Complexity of matter length of conveyancing chain
CONFLICT/RISK OF CONFLICT? (ii) Likelihood of negotiations having to take place
(iii) Bargaining power of parties & any vulnerabilities of either party
Clients have a clear common purpose & strong consensus as to how the
common purpose is to be achieved (SRA Glossary)
SUBSTANTIALLY COMMON If exception applies, solicitor can act even where there is a conflict
Exception only applicable where conditions in Para. 6.2 (i)-(iii) CoC are satisfied:
INTEREST EXCEPTION (i) Parties must give informed consent (in writing) to solicitor
(Para. 6.2(a) CoC) (ii) Firm puts in place effective safeguards to protect parties’ confidential
information
(iii) Solicitor must be satisfied that it is reasonable to act for both parties
COMPETING FOR SAME OBJECTIVE
EXCEPTION Not applicable as buyer & seller not competing
(Para. 6.2(b) CoC)
Consider whether conflict could arise later
Inform clients in advance of the possible risks, inc. cost/delay of instructing a
new solicitor should conflict arise
CONCLUDE Obtain client’s consent to the firm acting
Record factors considered in reaching decision to act
Ensure each party represented by different fee earner
Acting For Borrower & Lender
Duty owed to both clients, but solicitor may act unless there is a conflict of
GENERAL RULE interest, or a significant risk of one arising
Para. 6.2 CoC (SEE ABOVE)
Remember terms of mortgage probably negotiable
CONFLICT/RISK OF CONFLICT
Borrower wants mortgage to be cheap & flexible, whilst lender wants
(Para. 6.2 CoC) profitability & good security
Generally a conflict
SUBSTANTIALLY COMMON Applies as both borrower & lender want to obtain good title & ensure the
INTEREST EXCEPTION property has no issues that would diminish its value
Ensure conditions in Para. 6.2(i)-(iii) CoC are met (SEE ABOVE)
(Para. 6.2(a) CoC)
COMPETING FOR SAME OBJECTIVE
EXCEPTION Never relevant as borrower & lender are never competing
(Para. 6.2(b) CoC)
CONCLUDE Residential
On standard terms acting for both usually okay
Standard terms are terms:
(i) Provided in normal course of a lender’s activities;
(ii) Where a significant part of those activities is lending; and
(iii) Material terms are not negotiated by the parties
Commercial
Mortgage terms usually negotiated, so separate representation is required
, Solicitor may do title investigation for both parties but should stop there
Must immediately decline to act for both borrower & lender; or
Continue to act for only one, with other’s consent (and if duty of confidentiality
CONFLCIT ARISES DURING to other client under Para. 6.3 CoC can be fulfilled)
TRANSACTION Para. 6.4 CoC: Must make client aware of all information material to matter of
which he has knowledge – Can cause a conflict of interest
Must not reveal nature of the conflict without consent
Contract Race
ACTING FOR SELLER
STEP ONE – GENERAL PROVISION If seller’s solicitor asked to deal with more than one prospective buyer at the
same time, the solicitor must:
FOR CONTRACT RACE (i) Explain to seller risks of contract races, and that Para. 1.4 CoC
requires solicitor to tell buyers that they are in such race without
delay (and request instructions to do so); and
(ii) Immediately inform all buyers or their solicitors of the seller’s
intention to do this (Para. 1.4 CoC)
STEP TWO – CONSIDER EFFECT IF You cannot disclose without instructions (Para. 6.3 CoC), so must decline to
act to avoid breaching Para. 1.4 CoC
SELLER REFUSES TO DISCLOSE
ACTING FOR BUYER
If 2 or more buyers ask a firm to act for them in a contract race a conflict will exist (explain why)
To comply with Para. 6.2 CoC you should not act (SEE ABOVE)
You can act under the exception in Para. 6.2(b) CoC where the conditions in Para. 6.2(i)-(iii) CoC have been complied with –
Commonly only the case where:
(i) Both buyers are sophisticated users of legal services; and
(ii) Transaction is a commercial one
Joint Borrowers – Undue Influence
Solicitor may act for joint borrowers provided conflicts of interest do not arise under 6.2
CoC.
RBS v Etridge (No. 2): Where there is a special relationship between joint borrowers
(solicitor/client, parent/child, but not husband/wife), there is a rebuttable presumption that
there has been undue influence.
If transaction is not to borrower’s advantage, lender is put on enquiry (RBS v Etridge)
Lender must take reasonable steps to satisfy itself that the person has had practical
implications of mortgage brought home to them
Lender will usually rely on a solicitor’s confirmation that they have advised both
borrowers properly. You must therefore:
(i) Advise the person face-to-face (without other borrower present) and use
non-technical language;
(ii) Give reasoned advice as to disadvantages of the transaction
, (iii) Get express authority from person to write to lender confirming the steps
have been taken;
(iv) If obvious person is being wronged, decline to act
MONEY LAUNDERING & MORTGAGE FRAUD
Money Laundering: ‘Conversion, concealment or disguise of the proceeds of crime, so as
to make it appear that they come from a legitimate source’
DEFINITION Mortgage Fraud: Individual defrauds a lender through the mortgage process e.g.
overstating income or forging of a signature etc.
Providing false information about:
(i) Identity
(ii) Income
(iii) Employment
WAYS OF COMMITTING
(iv) Other debt obligations
MORTGAGE FRAUD (v) Sources of funds other than mortgage for purchase
(vi) Value of property
(vii) Price to be paid
(viii) Whether payments have been, or will be made, directly between buyer & seller
Large cash payments
Unexplained and/or sudden changes in property ownership
Party A providing the financing but property being transferred into Party Bs name
Sale price either distinctly high or low compared to normal market rates
WARNING SIGNS OF ML Client pays deposit into solicitor’s account, but then withdraws from transaction without
good reason & requests repayment of funds
Client/Property involved is located long distance from firm
Client unusually interested in purchase
Nominated purchasers taking out mortgages often have no beneficial interest in the
property, and may be fictitious
Property value is inflated & mortgage will be sought for full inflated valuation
Mortgage payments often not met & properties allowed to deteriorate
When bank seeks payment of mortgage, fraudsters mortgage with another bank through
COMMON STEPS further fictitious purchasers & essentially sell property back to themselves, but at greater
;leveraged valuation
As 2nd mortgage is inflated, first mortgage arrears are paid off, giving large profit
Eventually, bank forecloses on the property, only to find it in disrepair & worth
significantly less than current mortgage & its arrears
Solicitors must comply with Principles 1 & 5 (uphold rule of law & integrity) and not
continue to act for a client involved in money laundering or mortgage fraud – Failure to
do so risks SRA disciplinary proceedings
Risk of committing offence under Proceeds of Crime Act 2002
Must comply with the Money Laundering, Terrorist Financing & Transfer of Funds
RISKS (Information on the Payer) Regulations 2017 (failure is a criminal offence)
Where mortgage fraud has been committed, solicitors acting for both lender & buyer
may be liable to potentially face a claim for professional negligence by the lender
Where title fraud has been committed on an innocent buyer , the buyer’s solicitor may
be liable to its client for breach of trust & will need to claim a contribution from seller’s
solicitor (P&P Property v Owen White & Catlin LLP)
COMPLIANCE WITH ML To comply with ML Regs, a solicitor must:
(i) Reg 18: Assess the risk of terrorist financing/money laundering to which the
REGS business is subject
(ii) Reg 21: Maintain written policies, controls & procedures to manage the
identified risks
(iii) Reg. 21(a): Appoint a senior person to be responsible for overall compliance
, with ML Regs.
(iv) ML Reg. 21(3): Appoint nominated officer, whose role is to receive reports
from within the firm concerning any suspicions of money laundering & to liase
with national crime agency as necessary
(v) Reg. 28: At start of business relationship with client, carry out customer due
diligence at the appropriate level (simplified, standard, enhanced) in the
circumstances (most clients require standard checks)
ID check & background check, including of beneficial owners where they are not the
direct client (enhanced due diligence if necessary)
Check if property has changed hands several times (and if so, how often)
Search Companies House
Identify other party’s solicitors
Identify where purchase funds are coming from
STEPS TO UNDERTAKE Check that property mortgage, client’s financial position/source of income are consistent
Witness all signatures
Ensure allowances, discounts & incentives are disclosed to lender
Complete transaction according to the most up to date Law Society completion codes
If acting for buyer, ask additional questions of the seller’s solicitor to ensure they have
carried out the proper checks on their own client
Only released from duty where satisfied of a strong prima facie case that the client or
third party was using you to further fraud or other criminal purpose
Making a disclosure to the National Crime Agency will serve as a defence to any charge
against you
Where acting for lender & buyer and you come into possession of information from the
RECALL DUTY OF
buyer that is relevant to the lender, you must consider how to balance your duty of
CONFIDENTIALITY confidentiality with duty to disclose all relevant information to the lender client
Cite all relevant considerations & conclude that you must ask buyer for consent to
disclose to lender
If consent not given, you must cease to act for the lender client citing only ‘professional
reasons’ and return the mortgage documentation to them
ANALYSING A SCENARIO
FACTS PROBLEM? STEPS TO TAKE
Land Registry – Look at title deed for
Is it included in sale?
easements & ordnance survey map on deed.
Is it burdened/benefitted?
Client can’t see parking arrangements as
Is it within public highway?
couldn’t get round back of property Local Authority – Search for rights of way
How big/safe/well-repaired?
How is it currently used? By whom?
Site inspection
It it value for money?
Property needs renovation How long would renovation take? Survey by professional surveyor
Is it an investment property?
Environmental Agency – Environmental search
Environmental issue – Noise;
Located near garage/warehouse Local Authority enquiries
contamination etc.
Enquiries of Seller
Could be ‘listed’ or in a conservation Local Authority enquires
Property is Victorian and has ornate external area
features Speak to English Heritage
May need special consent works
Change of use planning permission Local Authority planning department – Ask for
Used to be family home
required? history of permissions – Any conditions?
Outside of building needs improving & buyer May needs planning permission to Local Authority enquiries
wants to fit air-con system change look of building
Record of refusals (may have expired) and
May need to comply with restrictive permissions
