The former world land speed record holder Donald Campbell once said “Money may not be the most important thing in life, but whatever comes second is a hell of a long way behind.”
As the purchase and sale of residential property is probably the largest financial transaction most people will ever be involved with, certain procedures need careful explanation well in advance of the settlement date. My experience is that clients can accommodate quite a lot in the run-up to a settlement date, provided that they are given as much advance notice as possible as to what is required of them or regarding the strict order in which certain things need to happen. What they do not want is last minute shocks or surprises.
There is no harm in writing to selling clients in the following terms where a settlement will be taking place by cheque as opposed to a CHAPS transfer:
“By tradition property purchases are settled by the purchasing solicitor issuing a cheque on his own office client account to the selling solicitor. Such a cheque is backed up by guarantees so there are no concerns about cheque clearance. Following on from this the keys and title deeds of the property, including the signed deed transferring ownership to the purchaser, can be released immediately to the purchasing solicitor. Notwithstanding this, the settlement cheque still has to go through the normal banking processes before the selling solicitor’s bank account is credited with the actual funds. This means that there is a slight delay before the free proceeds of the sale can be released to the seller.”
This is a matter which needs careful explanation to sellers of property, in case they gain the impression that the keys and title deeds have been handed over in circumstances where there is the possibility of the settlement cheque not being honoured by the purchasing solicitor’s bank and you are simply keeping your fingers crossed that the incoming cheque will clear.
In times gone by when banks paid a half decent rate of interest, if there was any delay in paying out the sale proceeds the client sometimes gained the impression that the solicitor was holding the money back for a number of days so that he could make a copper or two of interest on it himself. This was where the goodwill so carefully built up with the client in the earlier stages of the transaction simply evaporated in a matter of seconds.
Many clients buying properties tend to stretch their finances to the limit and beyond, and anything which looks like it may add to the expense is unwelcome to say the least. When mortgage funds arrived by cheques drawn on banks in England we used to requisition the funds two or three days early to allow the incoming cheque to be most of the way through the clearance process before we settled the purchase. If the clients got wind of this, however, they went up to high doh. They thought they would have to pay their mortgage for 25 years and three days. You tried to explain that if they started three days early then at the other end of the process they would repay the mortgage three days early, but it was no use. The damage had been done. You had cost them money and that was all there was to it.
CHAPS transfers in a purchase
Where circumstances allow it, I prefer to execute CHAPS transfers on the day before the date of settlement, so that at 9am on the day itself I know that the funds are with the selling solicitor and I do not have to spend the early part of the day hoping that the banking system will function correctly. Doing the transfer a day early could avoid computer glitches at the bank. I think there was an occasion in the recent past where the CHAPS system broke down altogether, no doubt causing great inconvenience in the process. Where money is transferred in advance, a letter has to be sent to the selling solicitor beforehand stating that the funds are to be held as undelivered pending settlement.
“Don’t give all the money to the bank”
People who run businesses on substantial overdrafts sometimes gain the impression that they are not working for themselves but for the bank. If you are selling business premises on which there is a standard security in favour of a bank, you have to explain to the client that you are obliged to pay the entire free proceeds to the bank. The client sometimes responds “Oh don’t give all the money to the bank.”
In such circumstances you have to explain to the client that they themselves pledged the property to the bank in the first place and the bank will only be getting back what they had laid out. After sending the free proceeds to the bank, then if there is any surplus of funds, that would stand to their credit at the bank, but you cannot pay anything direct to the client without written authority from the bank because if there is any shortfall the bank could refuse to grant the discharge of the standard security, and how then can you obtemper your letter of obligation to the purchasing solicitor?
A moving experience
Moving house is supposed to be the second most stressful thing you can do in life, so some practical advice to clients about the mechanics of doing the move is advisable.
A firm I used to work for sent out a standard letter to purchasers saying that they could expect the keys of their new house to be available round about noon on the settlement day. This was all very well, but did anyone think to tell the sellers about this? I said to my boss that it was only a question of time before we had a client shouting down the telephone to us at 3.30 in the afternoon: “You told me I would get the keys at 12 o’clock.”
Clients should be advised to contact the sellers direct well in advance to say “We are not trying to bundle you out of your house, but could you tell us when you are going to do your removal? There is no point in us booking our removal van for 8am if your van is not coming to your house until 2pm.” One single telephone call could prevent an awful lot of frustration. Clients communicating directly with one another is fine, as long as they stick to practicalities such as this.
No expense involved
If a disposition or standard security has to be re-executed by your client long after the time of settlement of the transaction, the final sentence in your covering letter sending the new deed out for signature should be: “There will be no expense involved in this matter.” This prevents the client getting the impression that you will be sending out another fee note to them.
Managing client expectations - 1
We are solicitors, not magicians. We cannot always deliver what the clients want. If they suggest I should, I draw an analogy with medicine. I say to the client: “Can your doctor guarantee to cure every single illness that you might have? No. There are some things he can cure completely, some things he can treat to get them down to a level where they are not troubling you too much, and there are some things where he can do very little for you. I am in the same boat, so if you are saying to me 'You’re the solicitor it is your job to sort this out', that is like someone who is seriously ill saying: 'I don’t want to have cancer. What does my doctor think he is playing at?'”
Managing client expectations – 2
A client was buying a house and a title fault was picked up. As he had made plans in anticipation of moving into the house I wanted to see if there was anything extra I could do, so I went over the title deeds again and I worked out that the man who had owned the house before the seller was actually a relative of one of our clients, so we contacted this client and he was able to fill in some more of the background.
The purchasing client then came in and my boss was explaining to him all that we were doing to try to resolve the problem. The client responded in a rather indignant tone: “I’m not paying for this.” If he had said that to me I would have responded: “I am not the one who is not getting the key to his new house on the due date. I am not the one who has new furniture coming up from England and no house to put it into. I am not the one who has to vacate his present property at the end of the month because the tenancy has expired and to cap it all I am not the one with a wife who is eight months pregnant with her second child and no house to bring the new baby home to. I don’t have any of these problems so why am I bending over backwards to try to sort out the title issue?”
I would have advised the client that if he was expecting the selling solicitor to sort the problem out on his own he should start looking for another house right away. The transaction foundered and the client did not come back to us to buy another house. The only satisfaction you can take out of a situation like that is the knowledge that you have done your level best and if the transaction founders it is certainly not your fault.
If you pick up a serious title fault, the client has to be told at the earliest opportunity that it could delay settlement. This is the last thing they want to hear, but you have no option but to tell them just in case they assume that the problem will be sorted out prior to the date of entry and they can continue to make all of the necessary arrangements regardless.
Ashley Swanson is a solicitor in private practice in Aberdeen. His views are personal. Other readers are welcome to contribute their own experiences and tips.
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