SAMPLE CHAPTER: Conveyancing Module

Taking instructions and establishing who is your client

While many conveyancing practitioners will view the identification of the party or parties for whom they act as a straightforward matter, the large number of professional negligence claims that arise from the area indicates the importance of clarifying for whom you act and taking clear instructions from the outset.

The position becomes more complex when acting for a number of individuals, and practitioners need to beware of conflicts of interests both at the outset and throughout the conveyancing transaction. Conflicts of interest commonly arise when advising joint owners in a transaction, for example where a property is being purchased as tenants in common with a declaration of trust to be drafted, the co-owners will need to take independent legal advice given the dangers of a conflict of interest arising in this situation.

Issues to consider

References to the Council of Mortgage Lenders’ Handbook are to the online edition of 6 May 2005.

1.1 Confirming instructions to act

The client may instruct you by telephone or in person or your first intimation may be that you receive a copy of the memorandum of an agreed sale from the estate agents. In any event write to the client confirming your instructions and setting out the terms upon which you will be acting. Do you have a client care letter/standard terms of engagement?

Do you need to limit your retainer in any way to exclude, for example, matters such as advice on taxation? Unless you do so, your duty will extend to advising on taxation.

1.2 Estate agent’s particulars

Obtain and confirm correctness of the particulars with the client. Both parties will need to ensure that the heads of terms are accurately reflected in the contract and are consistent with the seller’s title.

1.3 Taking instructions on the transaction

In addition to setting out the terms of your retainer, you need to take instructions from the client on the transaction eg timescale, fixtures, fittings, deposit etc. Do this in an interview with the client and have a checklist so as to reduce the risk of anything being forgotten during the interview. The Law Society Conveyancing Handbook has checklists which you may use (which should be subject to continuous updating and review). After the interview, confirm in writing the instructions given at the interview.

1.4 Instructions from the client’s agent

Is the person who is giving you instructions the client, or the agent of the client eg a son acting as the agent of his elderly mother in the sale of her house? You must treat the mother as the client and as soon as possible see her to satisfy yourself that she knows of the transaction and is content for her son to give instructions. See the mother alone to establish that the son is not seeking to exercise any undue influence over her. See her again when it is time for her to sign the contract.

1.5 Where the client consists of more than one person

If the client consists of more than one person, then obtain instructions from all of them in writing. You must treat each individual as a separate client and meet all of them. Consider:

• Can you act for all persons or is there a conflict of interest which will require that a person take separate legal advice?
• Be aware of the possibility of undue influence. Consider seeing each client separately at some stage before exchange.

1.6 Checking the identity of the client

Is the buyer known to you or another member of the firm? If not, you should have in place a procedure for establishing the identity of the person claiming to be your client. If acting for a lender paragraph 3 of the CML Handbook requires the conveyancer to carry out certain checks – seeing original documentation such as a passport, keeping a copy on file, and ensuring that the signature on it matches the signature on the mortgage deed.

You must be aware of money laundering and mortgage fraud. The Law Society has produced Money Laundering: Guidance for Solicitors, Money Laundering Warning Card (Blue Card), Property Fraud Warning Card II (Green Card) and Mortgage fraud – variation in purchase price.

1.7 Establishing who will occupy the property

Will anyone other than the buyer, who will be the legal owner, occupy the property after completion? Ask the buyer to confirm that any information in the mortgage instructions about the occupants of the property after completion is correct. The lender will expect you to obtain a consent from all such occupants aged 17 or over in which they postpone in favour of the lender any interest which they have in the property.

If in doubt about the information provided by the buyer, then see paragraph 7.4 of the CML Handbook – generally you must report your doubts to the lender if the buyer agrees. If the buyer does not consent, you must cease to act for the lender.

1.8 Advising guarantors and adult occupiers

Are you satisfied that you can act for these parties or is there a conflict of interest which requires them to take separate legal advice? An example is where a spouse obtains a mortgage to fund their business and the lender requires the other spouse to act as a co-mortgagor or guarantor of the loan. In general, the CML Handbook says that you cannot act for such parties unless part 2 of the Handbook permits it. The House of Lords in Royal Bank of Scotland Plc v Etridge [2001] UKHL 44 set out the ‘golden rules’ regarding how a solicitor should act in this situation.

1.9 Buyer and lender – separate duties owed

Be aware that, although you may be acting for both lender and buyer, you owe separate duties to both which may conflict. If this happens, then you will be unable to act for both eg if your duty to the lender requires you to advise it of information which the buyer has given you but the buyer refuses to consent to this. In such an instance you must cease to act for the lender.

QUESTION 1 A is a sitting tenant of a house. The owner has decided to sell and A has agreed to buy the property. He instructs you to act on the purchase. You receive instructions from a bank regarding the loan and you notice that the loan is to be in the joint names of A and B. Upon asking A for more information, A explains that B is his girlfriend who has agreed to be a co-mortgagor and joint owner so as to allow him to raise the necessary mortgage to buy the property. However, A says that he will pay all the mortgage payments and will be the ‘outright owner’. In addition, you are contacted by C who is a friend of A’s brother who says that he is providing a loan to A as part of the purchase price. You seek instruction from A on this and he confirms that this is correct. In this situation which of the following can you act for?   POSSIBLE ANSWERS YOUR ANSWER a. A and the lender? b. For B in addition to A and the lender? c. For C in addition to A, B and the lender?

Correct. Wrong, the correct answer is A. Wrong, the correct answer is A. You can act for A and the lender subject to there being no conflict of interest either when you first receive instructions or subsequently. You cannot act for B in addition to A and the lender. Paragraph 8 of the CML Handbook provides that, unless part 2 of the Handbook advises otherwise, you cannot act for someone who does not personally benefit from the loan or a guarantor or an occupier who will not be a party to the mortgage. You cannot act for C as there is a conflict of interest. It is advisable that his loan is secured on the property. However, it is in the interests of A that the loan remains a purely contractual arrangement between A and C. It is advisable to write to C stating that you are not acting for him and that he must seek independent legal advice. If C does require a charge over the property, this will be an ‘individual mortgage’ at arm’s length under rule 6(3) of the Solicitors’ Practice Rules 1990. In such circumstances the rule requires that lender and borrower be separately represented. You must advise the lender of C’s loan, as required by paragraph 5.9 of the CML Handbook. If A refuses to allow you to disclose this, you must cease to act for the lender.

QUESTION 2 According to the CML Handbook, which of the following forms of identification are appropriate to verify evidence of identity of a signatory of a document required by the lender to be signed, where the signatory is not personally known to you?   POSSIBLE ANSWERS YOUR ANSWER a. No evidence of identity is required even if I do not know the signatory of the document. b. A credit card only. c. A valid passport only. d. A council tax bill less than 3 months old only.

Wrong, the correct answer is C. Wrong, the correct answer is C. Correct. Wrong, the correct answer is C. Paragraph 3.3 of the CML Handbook lists what evidence of identity should be asked for where a signatory of a document is not personally known to you. If a valid full passport, valid HM forces identity card with the signatory’s photograph, or valid UK photo-card driving licence is provided this will be sufficient. Otherwise two satisfactory forms of identity are required, which includes a firearms certificate, a receipted utility bill less than three months old, a council tax bill less than three months old, a council rent book showing the rent paid for the last three months and a Switch/Delta debit card or Visa/Mastercard credit card issued in the UK which is less than three months old.

QUESTION 3 When a document used to verify a signatory’s identity has been provided to you, do you:   POSSIBLE ANSWERS YOUR ANSWER a. Not look to see if the document appears authentic and current and signed in the correct place. b. Check the document appears authentic and current and signed in the correct place and return it without making a copy. c. Check the document appears authentic and current and signed in the correct place and make a copy to be kept on the file.

Wrong, the correct answer is C. Wrong, the correct answer is C. Correct. As stated in paragraph 3.3 of the CML Handbook.

QUESTION 4 A married couple are jointly buying a second home for their own use and you have agreed to advise them on potential tax issues. Which of the following taxes is most relevant?   POSSIBLE ANSWERS YOUR ANSWER a. Income tax. b. Capital gains tax and VAT. c. Capital gains tax, council tax and inheritance tax.

Wrong, the correct answer is C. Wrong, the correct answer is C. Correct. Capital gains tax and council tax will be relevant as the property is a second home. Inheritance tax may also be relevant. Remember that you will be under a duty to advise on taxation unless you expressly exclude it from your retainer. As with any joint purchase, you will have to advise A and B on holding the beneficial interest as joint tenants or as tenants in common.