REAL ESTATE
Workshop 1: Taking Instructions
Outcome 1: Analyse a buyer client’s initial instructions and identify and follow up issues arising at the
instruction stage.
Identify the nature of the client’s business
o Why do they want to purchase the property?
o What are their plans for the property?
o Do they have sufficient funds or asset to fund the purchase?
o Plans to develop the property?
o Current proposed use(s) of the building?
Identify the property issues:
o Access: does the owner have any repair/maintenance covenants/obligations? Does the
plan show any problems re. accessing – eg right of way over only part of a pathway?
o Advise on the above and whether there will be additional costs for the client – eg
maintenance, up-keep obligations?
o Size, car parking spaces, sharing property or rights of way.
Further information required:
o Vacant?
o Age of the property?
o Physical state?
o Are works required?
o Is Planning Permission/Building Regulations Consent required?
o Any past work?
o Has a survey been undertaken? If not, is one required?
Transaction/Finance:
o Proposed completion date?
o Is there a related sale? If so, is simultaneous exchange required?
o EPC provided?
o Present authorised planning use? Current/Future use?
o Other terms agreed?
o Insurance?
o Deposit of 10% payable? Further preliminary deposit to pay?
o How will it be financed? – mortgaged? By who? How much?
o VAT payable?
VAT
OLD NEW
3 years
Exempt = subject to Standard rated =
the option to tax 20%
Why might a seller elect to charge VAT on a sale?
o If a seller opts to charge VAT on the sale it can recover any input tax it has incurred in
connection with the property (eg any refurbishment costs)
Deducted from VAT paid by Buyer [output tax]
Outcome 2: Identify and resolve issue of professional conduct that may arise when you are instructed
on a new commercial property transaction.
CONDUCT ISSUE structure
Principle
Paragraph
Apply & conclude
, 1. Can firm act for both the seller and buyer?
Time: completed quicker with only one firm
Cost: May result in reduction in fees
Trust/pre-existing relationship – save time building elsewhere
2. Relevant SRA principles
Principle 7: you act in the best interests of each client
Paragraphs: para 6.2 ‘you do not act in relation to matter/significant part if you have a conflict of
interest or a significant risk of one’
o Separate duties conflict
EXCEPTIONS:
o para 6.2(a) substantially common interest – clear common purpose
o para 6.2(b) client competing for the same purpose
o para 6.3 – 6.5: firm’s obligations of confidentiality and disclosure
o para 6.4: client aware of info. material to client/matter
Apply and conclude:
o No apparent existing conflict (para 6.2) – price agreed and happy for the firm to work for
both
o There is significant risk of a conflict (eg terms of contract, price, property survey
identifies problems – need to re-negotiate price)
o SRA 2019 Guidance: ‘one client selling/leasing an asset to another client is an example
of a circumstance that can give rise to a conflict of interest/significant risk of one…’
o SRA 2019 Guidance: ‘you should not normally act for two or more clients in these
scenarios.’
Exceptions apply?
o Substantially common interest – para 6.2(a) does not apply: although some terms
agreed – negotiations are likely: risk of conflict – clear common purpose and strong
consensus on how it should be achieved.
o Law Society Guidance 2020: rules out use of para 6.2(a) for circumstances where acting
for buyer and seller – not available for property transactions
o Para 6.2(b) competing for the same objective – not available – Buyer will want cheapest
price, seller will want higher price.
CONCLUDE: The firm cannot act for both client; significant risk of conflict and neither exception
applies.
NB: could, in theory, act for both/two buyers competing to purchase property – para 6.2(b)
exception – unlikely clients would want this.
Para 6.3 – 6.5 – conflicting requirement to keep current and previous client’s info confidential (para
6.3)
vs obligation in para 6.4: ensuring client is made aware of any info you have that is material to
their matter.
Conflicting duties could cause problem if firm were to act for seller and buyer.
Even if firm consider no conflicting interests – one may arise later or parties may cease to compete
for same interest – if this happens – firm would have to stop acting for one or both clients
o waste of time and fees: most firms unlikely to take risk
3. Acting for buyer and mortgage bank?
As above.
Apply & conclude:
o No apparent existing conflict (decision for sol)
o Significant risk of conflict?
Law Society Guidance 2020
o Easier to argue – no conflict/risk of conflict arising and or conflict is peripheral to the
common purpose than with seller and buyer – unlikely existing conflict.
o Significant risk – depends on type of mortgage to be provided.
, o Law Society Guidance 2020: risk of conflict is high if mortgage is not a standard
mortgage or if property is to be used as borrowers’ private resident or is a standard
mortgage – do not use approved certificate of title; even if criteria not apply – ensure no
conflict.
o Heavily negotiated mortgage = significant risk = cannot ask.
Exceptions?
o para 6.2(a) substantially common interest
Law Society Guidance 2020: not preclude use of exception
para 6.2(i) – (iii): safeguards met:
all parties consent in writing
you are satisfied it’s reasonable to act for all clients
clear common purpose between clients and a strong consensus on how it is to be
achieved.
o Negotiated mortgage: could be argued para (a) available – clear common purpose
Both concerned with the property not being over valued
common purpose re. scope – reducing cost in title investigation if firm act for
both
However, if negotiated mortgage – substantially common interest cannot be
demonstrated – eg bank want more interest? Buyer wants best rates etc.
o para 6.2(b) competing for same objective = not available
Unlikely would act for both as loan documentation = usually negotiated: unlikely to act for both
throughout, but may carry out the due diligence and report to the lender.
Decision ultimately down to solicitor/firm but SRA Code of Conduct needs to be considered carefully
and also any risks
Mortgage fraud – minimising risk to firm
Verify identity of the client and any beneficial owners
Companies House search
Enhanced due diligence if client avoids meetings
Check solicitor for seller eg with “Find a Solicitor”/SRA
Property and mortgage consistent with what you know
Establish true cash price – allowances and discounts disclosed
Contract race
Seller enters contracting process with one or more buyer = winner buyer is the one who is ready to
exchange first.
Para 1.2 SRA CoC: unfair advantage – not to abuse position
Para 1.4 – must not mislead/attempt to mislead clients in your acts/omissions.
If Sellers were intending to create a contract race, solicitors have to disclose to all potential buyers
as soon as they send out a draft contract, if they don’t they risk breaching paras 1.2 – 1.4.
Law Society 2019 Guidance – conflicts of interest:
o Sensible to inform all buyers immediately that it intends to deal with more than one
buyer – provided seller consents to this disclosure.
Undertakings
Solicitors has no obligation to give an UT.
Para 1.3 SRA CoC: must perform all undertakings within a reasonable time/agreed timescale.
Golden rule: Do not undertake to do anything beyond your control – professional misconduct/
breach of contract claim
o Client may still market the property themselves
Seller’s sols should not agree to give an UT.
Workshop 1: Taking Instructions
Outcome 1: Analyse a buyer client’s initial instructions and identify and follow up issues arising at the
instruction stage.
Identify the nature of the client’s business
o Why do they want to purchase the property?
o What are their plans for the property?
o Do they have sufficient funds or asset to fund the purchase?
o Plans to develop the property?
o Current proposed use(s) of the building?
Identify the property issues:
o Access: does the owner have any repair/maintenance covenants/obligations? Does the
plan show any problems re. accessing – eg right of way over only part of a pathway?
o Advise on the above and whether there will be additional costs for the client – eg
maintenance, up-keep obligations?
o Size, car parking spaces, sharing property or rights of way.
Further information required:
o Vacant?
o Age of the property?
o Physical state?
o Are works required?
o Is Planning Permission/Building Regulations Consent required?
o Any past work?
o Has a survey been undertaken? If not, is one required?
Transaction/Finance:
o Proposed completion date?
o Is there a related sale? If so, is simultaneous exchange required?
o EPC provided?
o Present authorised planning use? Current/Future use?
o Other terms agreed?
o Insurance?
o Deposit of 10% payable? Further preliminary deposit to pay?
o How will it be financed? – mortgaged? By who? How much?
o VAT payable?
VAT
OLD NEW
3 years
Exempt = subject to Standard rated =
the option to tax 20%
Why might a seller elect to charge VAT on a sale?
o If a seller opts to charge VAT on the sale it can recover any input tax it has incurred in
connection with the property (eg any refurbishment costs)
Deducted from VAT paid by Buyer [output tax]
Outcome 2: Identify and resolve issue of professional conduct that may arise when you are instructed
on a new commercial property transaction.
CONDUCT ISSUE structure
Principle
Paragraph
Apply & conclude
, 1. Can firm act for both the seller and buyer?
Time: completed quicker with only one firm
Cost: May result in reduction in fees
Trust/pre-existing relationship – save time building elsewhere
2. Relevant SRA principles
Principle 7: you act in the best interests of each client
Paragraphs: para 6.2 ‘you do not act in relation to matter/significant part if you have a conflict of
interest or a significant risk of one’
o Separate duties conflict
EXCEPTIONS:
o para 6.2(a) substantially common interest – clear common purpose
o para 6.2(b) client competing for the same purpose
o para 6.3 – 6.5: firm’s obligations of confidentiality and disclosure
o para 6.4: client aware of info. material to client/matter
Apply and conclude:
o No apparent existing conflict (para 6.2) – price agreed and happy for the firm to work for
both
o There is significant risk of a conflict (eg terms of contract, price, property survey
identifies problems – need to re-negotiate price)
o SRA 2019 Guidance: ‘one client selling/leasing an asset to another client is an example
of a circumstance that can give rise to a conflict of interest/significant risk of one…’
o SRA 2019 Guidance: ‘you should not normally act for two or more clients in these
scenarios.’
Exceptions apply?
o Substantially common interest – para 6.2(a) does not apply: although some terms
agreed – negotiations are likely: risk of conflict – clear common purpose and strong
consensus on how it should be achieved.
o Law Society Guidance 2020: rules out use of para 6.2(a) for circumstances where acting
for buyer and seller – not available for property transactions
o Para 6.2(b) competing for the same objective – not available – Buyer will want cheapest
price, seller will want higher price.
CONCLUDE: The firm cannot act for both client; significant risk of conflict and neither exception
applies.
NB: could, in theory, act for both/two buyers competing to purchase property – para 6.2(b)
exception – unlikely clients would want this.
Para 6.3 – 6.5 – conflicting requirement to keep current and previous client’s info confidential (para
6.3)
vs obligation in para 6.4: ensuring client is made aware of any info you have that is material to
their matter.
Conflicting duties could cause problem if firm were to act for seller and buyer.
Even if firm consider no conflicting interests – one may arise later or parties may cease to compete
for same interest – if this happens – firm would have to stop acting for one or both clients
o waste of time and fees: most firms unlikely to take risk
3. Acting for buyer and mortgage bank?
As above.
Apply & conclude:
o No apparent existing conflict (decision for sol)
o Significant risk of conflict?
Law Society Guidance 2020
o Easier to argue – no conflict/risk of conflict arising and or conflict is peripheral to the
common purpose than with seller and buyer – unlikely existing conflict.
o Significant risk – depends on type of mortgage to be provided.
, o Law Society Guidance 2020: risk of conflict is high if mortgage is not a standard
mortgage or if property is to be used as borrowers’ private resident or is a standard
mortgage – do not use approved certificate of title; even if criteria not apply – ensure no
conflict.
o Heavily negotiated mortgage = significant risk = cannot ask.
Exceptions?
o para 6.2(a) substantially common interest
Law Society Guidance 2020: not preclude use of exception
para 6.2(i) – (iii): safeguards met:
all parties consent in writing
you are satisfied it’s reasonable to act for all clients
clear common purpose between clients and a strong consensus on how it is to be
achieved.
o Negotiated mortgage: could be argued para (a) available – clear common purpose
Both concerned with the property not being over valued
common purpose re. scope – reducing cost in title investigation if firm act for
both
However, if negotiated mortgage – substantially common interest cannot be
demonstrated – eg bank want more interest? Buyer wants best rates etc.
o para 6.2(b) competing for same objective = not available
Unlikely would act for both as loan documentation = usually negotiated: unlikely to act for both
throughout, but may carry out the due diligence and report to the lender.
Decision ultimately down to solicitor/firm but SRA Code of Conduct needs to be considered carefully
and also any risks
Mortgage fraud – minimising risk to firm
Verify identity of the client and any beneficial owners
Companies House search
Enhanced due diligence if client avoids meetings
Check solicitor for seller eg with “Find a Solicitor”/SRA
Property and mortgage consistent with what you know
Establish true cash price – allowances and discounts disclosed
Contract race
Seller enters contracting process with one or more buyer = winner buyer is the one who is ready to
exchange first.
Para 1.2 SRA CoC: unfair advantage – not to abuse position
Para 1.4 – must not mislead/attempt to mislead clients in your acts/omissions.
If Sellers were intending to create a contract race, solicitors have to disclose to all potential buyers
as soon as they send out a draft contract, if they don’t they risk breaching paras 1.2 – 1.4.
Law Society 2019 Guidance – conflicts of interest:
o Sensible to inform all buyers immediately that it intends to deal with more than one
buyer – provided seller consents to this disclosure.
Undertakings
Solicitors has no obligation to give an UT.
Para 1.3 SRA CoC: must perform all undertakings within a reasonable time/agreed timescale.
Golden rule: Do not undertake to do anything beyond your control – professional misconduct/
breach of contract claim
o Client may still market the property themselves
Seller’s sols should not agree to give an UT.
