Conveyancing accounts for more than half the value of claims made each year on the Master Policy. Below are 10 suggestions of things to watch out for which go a bit beyond the basics, and in some cases are informed by recently intimated claims.
1. Who exactly is your client?
Hopefully it will be obvious in most cases, but where there are parents gifting a deposit or there is a trust or company involved it is crucial to be clear about who exactly your client is and who can expect to rely on your advice. If your client is a seller but not the registered proprietor, that should ring immediate alarm bells.
It is permissible (and will often make sense) for a solicitor to act for both sides in an inter-family transfer, but it is essential to be open and transparent with the clients about the risk of a conflict arising and to involve an independent solicitor when necessary. Make sure you have encouraged everyone consulting you to consider how they would feel about the transaction if relations soured. Not an immediately pleasant thought, but it might help to focus minds about whether separate representation or a more formal agreement is needed.
2. Have you checked the client has capacity?
It would be easy to see this as an issue relevant only to will drafting, and incapacity is most common in older clients, but it really can occur at any stage in a client’s life so solicitors should always have that question in the back of their mind. The signs will not always be obvious, but solicitors are not medical practitioners and are not expected to pick up on every minute sign of incapacity.
Make it a habit to think about capacity the first time you meet a new client, or an existing one you have not spoken to for a while, and include any observations in your attendance note.
3. Do they understand the purchasing process?
It can be easy to assume that a client will know how the Scottish purchasing process works, but that will not always be the case. As well as explaining the general process of making an offer and the back and forth negotiation of missives, make sure the client understands that in a closing date situation they have only one opportunity to make an offer and you will not be in a position to submit another one after that date has passed. Make sure they also understand that, should their offer be accepted, there are only very particular circumstances where the price they have offered could be subsequently reduced (see the Law Society of Scotland’s guidance on gazumping/gazundering for these two scenarios).
The client should understand on the one hand that the contract will not be concluded until an unqualified acceptance is issued by either party, and that either party could walk away at any point before then (see more on that below under time limits); but on the other hand that there is always a risk of the client’s offer being accepted without qualification, so any formal missive issued should always be in a form the client is fully comfortable with, without relying on being able to negotiate finer details later on.
4. Who is meant to own the property after settlement?
There are plenty of ways for confusion to arise around this. If there is more than one party buying, is the property to be held in equal shares? Is title to be taken in the name of a trust or company? Are some of the funds coming from a relative or third party? Is a relative who is not contributing funds to be included on the title? Is there to be a survivorship destination? You can probably think of another half dozen questions like these yourself.
Make sure to discuss this fully with the client(s) to avoid any disagreement and root out any issues. They may have an idea in their mind of what they want to achieve but have difficulty articulating it without your help, or they may simply not be aware of the options. Be mindful too of LBTT implications, such as where a main residence is being replaced but the purchasers of the new property and sellers of the old property do not match.
5. Have your client account details been provided securely?
Fraud facilitated through email interception is on the rise and unfortunately is here to stay. To guard against it, provide your client account details on paper at the outset of the transaction, and make it clear that under no circumstances will they be changed. If there will be net sale proceeds to return to the client, take their account details at the outset and be clear that those are the details you will use. There is simply no reason for either solicitor or client to need to change account details mid-transaction, and the amounts of money involved are too large to risk it.
Lockton recently released a document of sample wording, available on our Resource Centre at locktonlaw.scot. It can be printed off and issued to clients with your client account details inserted, or used as a style for your own document. The important thing is to make clients aware of the risk of fraud of this type and encourage them to be vigilant.
6. Does your terms of business letter exclude liability for environmental law and/or contaminated land matters?
Environmental law is a complicated and evolving practice area which is subject to a complex statutory regime, imposing strict obligations on those involved with severe fines possible for non-compliance. Unless you have specialist knowledge of these areas, you may find yourself (even inadvertently) acting outwith your own expertise and run the risk of a complaint or claim. The most common types of transaction for this will be rural or commercial property, but residential property (especially new-build) is also at risk.
If it appears any environmental issues might affect the land you are transacting with, specialist advice should be sought early on. Accredited specialists in any field of accreditation can be found under the advanced search options in the “Find a Solicitor” section of the Society’s website.
7. Has your client asked you to delay concluding missives?
This is not an issue in itself, as very often there will need to be a delay while clients obtain funding or agree a sale of their own property; but remember that we have a professional obligation against knowingly misleading professional colleagues, and to act in a spirit of trust and co-operation: rule B1.14 (Standards of Conduct). If a client asks you to keep quiet about the reasons for conclusion being delayed, the Society advises that you withdraw from acting.
Obviously, as in just about every situation lawyers are involved in, communication is key. It may be that it would only take some more discussion with the client to flush out what is going on or whether the issues causing them to want to hold up the transaction can be resolved. It is also important for you to keep in touch with the solicitor on the other side, bearing in mind that they will otherwise be in the dark and will have a client of their own no doubt anxious to be told of progress.
8. Has the seller owned for at least six months?
This is a lender requirement and is covered in clause 28.1 of the Standard Clauses. Your reporting to the lender will also require you to confirm that the seller has owned for the minimum specified period, and this is something lenders take seriously so it is important not to overlook it. If the selling solicitor tries to delete clause 28.1, you should request an explanation immediately and report to the lender and your client.
9. Is the property built of prefab concrete?
Prefab concrete structures, intended as a temporary fix to the post-war housing shortage but still standing today, can be a major issue and potentially unmarketable. Lenders are very unlikely to offer mortgages against these and other types of non-traditional build homes. The home report will not always identify a property as prefab or non-traditional in so many words, but look out for references to this or an appearance of it from the schedule, and raise the matter with the surveyors in early course.
10. Keep an eye on your time limits!
Solicitors in residential property transactions in particular have a professional duty to conclude missives without undue delay; however most if not all of us will have issued a missive containing a time limit we knew would not be enforced. That will not always be the case though, and we have seen instances recently of sellers insisting on time limits which had been set and refusing to re-enter negotiations, resulting in very disappointed buyers. It would certainly be a professional courtesy to advise the other solicitor if your client had told you they wanted a time limit strictly enforced.
Bear in mind too that there might be time limits which apply after conclusion of missives, for e.g. payment of a deposit or delivery of building documentation. In another case from several years ago, a seller was trying to persuade the buyer to withdraw from a set of concluded missives, but the buyer refused. The buyer had been due to pay a deposit within five working days of conclusion, but amongst all the commotion over withdrawing had failed to do so, so the seller simply held the buyer in breach and unilaterally terminated the missives. The lesson: start drafting that settlement checklist as soon as the missives are concluded, if not before!
All 10 of these issues have come up in some way or another in the past year, so are worth keeping an eye on. We also recommend consulting the checklist produced by the Standard Clauses Working Party and available from the Society’s website, which provides a helpful guide to other things to watch out for and is cross-referenced to the Standard Clauses. As well as a useful tool during transactions it can act as a simple refresher of issues to keep in mind. Above all, the importance as ever is attention to detail and the trained solicitor’s sharp eye.
Kenneth Law is a solicitor and risk manager in the Master Policy team at Lockton
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