A solicitor phoned the Professional Practice team to advise that he had been approached by an existing client who wanted to transfer her house to her daughter. It would be a sale, but not for full market value; however, the client had advised that the price agreed would represent a better deal than she would achieve from equity release. Additionally, the mother would continue to live in the house rent free. The solicitor asked, could he act for both mother and daughter in relation to the transaction and would he require a waiver to do so?
Primarily, the answer to the particular enquiry is to be found in the Society’s rule B2: conflict of interest. By rule B2.1.2, “You shall not act for two or more parties whose interests conflict.” Rule B2.1.4 goes on to provide that “the same practice unit… shall not, at any stage, act for both seller and purchaser in the sale or purchase or conveyance of heritable property… provided, however, that where no dispute arises or might reasonably be expected to arise between the parties… this rule shall not apply if… (c) the parties are related by blood, adoption or marriage or civil partnership, one to the other”.
Essentially, if there is no conflict or anticipated conflict, and subject to compliance with the remaining requirements of rule B2, the solicitor can act for both mother and daughter in the situation described without requiring a waiver.
- In the course of discussing the particular enquiry, other information was disclosed that suggested the absence of conflict of interest was maybe not as clear cut as had been originally suggested.
- The solicitor had already mentioned to his client the alternative of creating a liferent interest in her property.
- The solicitor was not sure how extensively and with what expert advice his client had considered the currently available equity release options.
- His client was a relatively young mother and any arrangement would require to remain the correct option for years to come.
- The daughter’s ownership of the house, and consequently the mother’s occupation, might be jeopardised in the future if the daughter was to be involved in a divorce and/or bankruptcy.
- Would all the benefits to the mother compensate for the sale of her main residence for less than its market value?
- Alternatively, on the basis that the daughter would be paying for all the maintenance of the house in the future, particularly if there were existing maintenance issues, would this and other considerations result in the rent-free option being overly beneficial in favour of the mother?
This is not intended as an exhaustive list of considerations. For instance, it had not been questioned/investigated (1) whether there were other children who would wish to be a party to the arrangement and would feel aggrieved if they were not given the opportunity; or (2) what information would require to be disclosed to the daughter’s lender.
As is often the case, it was the solicitor who concluded that his enquiry related to a potentially complex transaction with an involved equation to balance out the value/cost to each party of all the contributing factors.
He acknowledged that the conversation had been beneficial for two reasons. First, it had reaffirmed that in this particular case he did not require a waiver to act for both parties, but could only act as long as there was no actual conflict of interest. Secondly, it had forced him to stop and assess the transaction from a more detached perspective and resist the “just do” instruction from clients who wished to achieve the immediate aims of their agreement, but who perhaps did not have the insight and knowledge to consider its longer term implications, which might well involve conflicts of interest.
As a general observation, following the “sep rep” debate that engaged the profession in 2013 and which largely concluded with the vote against mandatory separate legal representation for home buyers and their mortgage lenders, there has been a reduction in the number of applications for waiver under rule B2 that have required to be considered by the Society’s Rules & Waivers Subcommittee.
The Professional Practice team is always ready to discuss a particular case where conflict of interest is a concern, to analyse the relevant factors and assist a solicitor in making the professional judgment as to whether an instruction can, or as importantly should, be accepted.
Sometimes, after a very careful analysis, it is concluded that there is not an actual conflict of interest, but the decision often then rests on a number of complex factors that may well not be appreciated by the clients. In these circumstances, the team will caution a solicitor about the hazards of acting where there may be a perceived conflict of interest. These can be as serious as acting where there is an actual conflict of interest, in relation to reputational damage and the amount of management time that may require to be expended in defending a complaint, even if successfully.
It is encouraging to think that more solicitors are realising when they can act, but are also questioning whether they should act.
Stella McCraw is a solicitor in the Professional Practice team. You can contact Stella on 0131 226 8896 or firstname.lastname@example.org
In this issue
- Factors in the balance
- Balancing the right to decide
- Life yet in oil and gas
- Commercial awareness begins at trainee stage
- Relocation and the finances of contact
- Reading for pleasure
- Opinion: Archie Maciver
- Book reviews
- President's column
- Up and running at last
- People on the move
- With this Act, I thee wed
- Tax: a mission to inform
- For better, for worse
- Filling the Bournewood gap
- Power talking
- For whose aid?
- Balanced view
- A laughing matter?
- Directors: how much is too much, or not enough?
- Credit where it's due?
- New age, new image, new media, continuing problems?
- Scottish Solicitors Discipline Tribunal
- Lawyers as leaders
- Property Law Committee update
- Property Standardisation Group update
- Over the finishing line – 2
- Not proven no more?
- Vulnerable clients guidance now extended to the young
- From the Brussels office
- Take it to the schools
- A future – a vision
- Ask Ash
- A strategy with legs?
- Who's got what it takes?
- I can act, but should I?
- Prominence unplanned