Situations considered by the Professional Practice Committee dealing with closing dates, cashback deals and settlement with lenders’ agents

Closing Dates and Notes of Interest

The Committee first published a guideline on closing dates in 1991. This has been updated on a number of occasions, most recently in February 1999. The Guideline can be found in the Parliament House Book Volume 3 at page F980. In a particular transaction solicitors acted for a prospective purchaser. They noted interest with the estate agents selling the property and were advised that there was one other note of interest. No closing date had been fixed. The solicitors submitted an offer and received a verbal acceptance by the estate agents. The offer was passed to the seller’s solicitors but in the following week those solicitors advised that a better offer had been received from another party which the seller now wished to accept. The first solicitors complained that there client was distressed as “she thought that she had secured the property” although she had been advised that the contract was not binding until missives were concluded. The firm felt that the seller’s solicitors should have withdrawn from acting rather than accept their client’s instructions and sought a change to the Guideline to that effect. The Committee observed (a) that the solicitors and their client knew that there was another interest noted; (b) that the offer had been submitted to estate agents and there had been no prior communications with the seller’s solicitors; and (c) that no qualified acceptance had been issued.

The Committee therefore agreed that in the circumstances the sellers’ solicitors were not under any duty to withdraw from acting and declined to amend the Practice Guideline. The Guideline does not require solicitors to fix a closing date if more than one interest is noted. The Committee are of the view that noting an interest does not imply an undertaking that the prospective purchaser will be given an opportunity to offer. Such an undertaking would have to be expressed.  

Cash Back Deals

Solicitors acting for a builder sought guidance on the question of “cash back” payments. The Committee agreed that unless the cash back position is disclosed to the purchaser’s lender there is a risk that the sellers may be involved in allegations of conspiracy to defraud the lender. The Committee therefore advised that the builder’s solicitors should seek evidence from the purchaser’s lender of their consent to the cash back deal. Without such evidence the sellers should therefore insist on the net price being inserted in the title deeds rather than the price before the cash back is deducted. In practice it is believed that most lenders are comfortable with the concept of a modest cash back deal on a new build property.

Settlement with Separate Agents acting for Lender

In a commercial security, the lenders were separately represented and their agents insisted on delivery of an executed and stamped disposition in favour of the purchaser before they would release the loan funds. Clearly the transaction could not be settled and a disposition obtained unless funds were made available. In the particular case the lenders were eventually satisfied with a faxed copy of the executed disposition. The Committee noted that the matter can be dealt with if the disposition is sent by the seller’s agents to the purchaser’s agents to be held as undelivered with authority to send it on to the lender’s agents also to be held as undelivered – although of course it would not be stamped at that stage. However, the Committee agreed that if the lender’s agents have such a requirement the borrower’s agents must be advised at the earliest opportunity as such a requirement is regarded as a departure from normal practice.  Failure to make such a requirement known until the last minute could be regarded as misleading another solicitor.

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