Text of guideline on settlement by cheque, loan redemption and remit of the free proceeds of sale 2008

In recent months the Professional Practice Committee has seen an increasing number of requests for information or guidance on the question of whether settlement of house purchase and sale transactions should take place by cheque or electronic transfer. This is also getting to be a frequently asked question by clients, and the issues are not well understood.

Almost all transactions now settle by post. A solicitor can send a cheque subject to conditions, but cannot attach conditions to an electronic transfer. If the buyer’s solicitor does not get the titles, keys etc in return, he cannot stop an electronic transfer, but he can either demand the return of a cheque or stop the cheque (in extreme circumstances). Settlement by cheque therefore protects the buyer by giving the buyer’s solicitor control over the money even after the cheque has been sent. A seller’s solicitor can also protect the seller by attaching conditions to deeds etc sent by post, including a condition about interest on the price if settlement has been delayed (a not infrequent problem these days).

When a solicitor receives another solicitor’s client account cheque, he can write cheques to redeem a loan or settle his own client’s purchase the same day (unless the recipient of his cheque banks at the same branch of the same bank, which is rare), so there should not be a delay in progressing the client’s business. If the client is buying in England or Wales there is a problem because solicitors do settle by electronic transfer there. If the selling solicitor knows the client is buying south of the border he can put a clause in the missives requiring the sale to be settled electronically. That will be subject to agreement by the buyer, but it must be in the missives or it cannot be insisted upon.

The Professional Practice Committee remains of the view that settlement by cheque between solicitors is in both clients’ interests, as the cheque can be sent in advance to be held as undelivered pending delivery of relevant items and/or confirmation that the sender is in funds, and the disposition can be sent in advance subject to the seller’s conditions.

The Committee agreed however that so far as settlement with the client and the lender are concerned, the seller’s agent should ascertain in advance whether the seller would prefer to meet the cost of an electronic transfer of funds or opt for the issue of a cheque in relation to (a) redemption of the loan (if the method is not prescribed by the lender), and (b) remit of the free proceeds of sale to the seller.

The Society has issued advice in relation to a circular letter from HBOS requesting loan redemption by electronic transfer as from 1 August: see p 71.

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