News of disciplinary proceedings having been taken recently against a conveyancer who had acted for both parties in a conveyancing transaction has thrown back into the regulatory spotlight the circumstances when the same firm may act for both of the main parties to the transaction. The SDT found the conveyancer in question “highly culpable” for her actions in the rather unusual circumstances of the transaction, which involved a couple where the owner of the property was a woman aged 78 and the purchaser her male partner aged 34, he having (it later transpired) a track record for fraud offences. The risks of a conflict of interests and undue influence were made that much the greater in that the purchase price represented a material discount on the property’s true value, and nor could it be argued that the parties were achieving a discount on their legal fees as both parties were charged the firm’s fees that would have applied to each of them had the firm been acting for just one or the other. For the record, the conveyancer in question was fined £8,000 and a £4,000 costs award was also applied.
The position in relation to the same firm acting for both vendor and purchaser in a property transaction has been much discussed over the years, and the professional rules in place for this situation have also been something of a bellwether for the style of regulation in force. First and foremost, the view has always been taken that vendor and purchaser will not necessarily find themselves in conflict since, unlike the parties to a litigation dispute, they are both pursuing the same objective. Realistically, however, the risk of some element of disputed negotiations arising during the transaction is always a risk, and where this is the case it will inevitably leave the conveyancer in difficulties in seeking to act in the best interests of both parties as they will be required to do by Principle 7 of the SRA Standards and Regulations.
In the now rather distant and pre-technology past the rules in force required separate representation for both parties but permitted the same adviser to act if, other circumstances permitting, there was no other solicitors’ practice within a stated radius of that office. The position under the Code of Conduct 2007 was somewhat more permissive in allowing the same firm to act if the circumstances of the transaction meant that it was not at arm’s length, as where the vendor was transferring the property to their pension fund, or if at arm’s length where:
- both parties were established clients;
- the consideration was £10,000 or less; or
- vendor and buyer were represented by separate offices of the firm in different locations.
In practice, however, these controls often proved to be ineffective and abuse was commonplace. In one situation encountered at the time the workaholic conveyancer would suggest to their vendor client that if the purchaser were to contact them they would then count as an “established client” and so both parties would then qualify for a discount on the firm’s fees.
When it took effect in 2011 the SRA Handbook adopted a far less prescriptive approach and so placed the onus on the advisers concerned to show that they had dealt with the situation in an appropriate manner. With its regime based more on a set of “outcomes” rather than rules, the firm would be required to explain how they had conducted themselves in line with their duties if an investigation were to be made or, more likely, a complaint received from an unhappy client. Adding to the uncertainty of the situation, however, this particular issue was dealt with more by way of the non-binding “indicative behaviours” in the Handbook than outcomes, which were memorably referred to as being merely “risk free pointers to good practice” at the time. So too today, with the Standards and Regulations where nothing is stated on this particular situation in either of the Codes of Conduct for Firms or for Individuals. All that we have in place is instead a practice note on conflicts of interests which even then does not refer specifically to property transactions, but does envisage that it may be possible to act for both parties to an agreement as long as the possibility for “substantive negotiations” does not seem to be likely at the outset of the matter.
Many firms, and those that are small or sole practices in particular, understandably adopt a cautious line on this issue and state that they will not act for the different parties in such situations. This will be based on the circumstances making it impossible to provide separate representation for the parties, or at very least the same supervisor will be involved for both advisers. Firms that are more confident that they do have the potential to separate those acting for the different parties, and who are Infolegal members, might wish to refer to Infolegal Factsheet 12 on this topic “Acting for Seller and Buyer in Property Transactions”, which contains further guidance, supplemental text for retainer letters in such cases, along with a Seller and Buyer Checklist and Consent Form.
As ever, if we can assist you further if this is a topic that you are currently addressing within your firm and would like any further guidance on it, please contact email@example.com.