Chapter 1: Freehold Transactions

Question 1

1 Introduction to property practice
1.1 The role of a solicitor in property transactions.

Answer 1

For most people, their home is the most expensive asset they will ever buy or own. For companies
too, property is usually a valuable asset. Parties to a property transaction can risk losing money through, for example:

Question 2

• The process of buying property

Answer 2

At some point the buyer will need to pay a substantial sum, and the seller gives up ownership of the property. How does the buyer ensure that they don’t pay money without acquiring the property, and how does the seller ensure that they don’t give up ownership of the property without being paid?

Question 3

• Problems with the property

Answer 3

– the buyer may find, having acquired the property, that legal issues mean the buyer cannot use it as intended, or that its value is not what it first seemed. A property solicitor would resolve these issues by handling the mechanics of the transaction and,
for a buyer, investigating the legal aspects of the property. To understand a solicitor’s role, it is necessary to understand the differing aims of the various parties involved in a transaction.

Question 4

1.2 The buyer’s aims?

Answer 4

In common with clients in other areas, property clients may be most concerned with
* How long is it going to take?
* How much is it going to cost?
However, providing a fast and cheap service is likely to involve compromises in the quality of work
provided. A solicitor who completes a transaction quickly and cheaply will have a happy client…
until things go wrong.
A solicitor acting for a buyer therefore has aims that go beyond speed and cost.

Question 5

1.3 A solicitor’s aims when acting for the buyer

Answer 5

A solicitor acting for a buyer must ensure that:
* the seller has the right to sell the property
* the physical condition of the land and buildings is adequate for the buyer’s needs and the property is worth the money being paid
* they identify all the rights that the property enjoys

Question 6

1.3 A solicitor’s aims when acting for the buyer

Answer 6

• they identify any third party rights affecting the property
• the property is free from any security interest (such as mortgages) or will be on completion
• the contract reflects the terms agreed between the parties
• there are sufficient funds to finance the purchase

Question 7

1.4 Lender’s aims in a freehold transaction

Answer 7

Unless the buyer has enough cash to cover the purchase, they will borrow money from a lender. The lender will take a security interest over the buyer’s (borrower’s) property. If the buyer does not repay the mortgage, the lender knows that it can sell the property to cover its losses. The lender’s aims, although similar to the buyer’s, are slightly different. The lender will not worry so much how long it takes or even if the transaction does not proceed at all

Question 8

Residential transactions means same solicitor

Answer 8

In residential transactions where the buyer is borrowing part of the purchase price from a high street lender, the same solicitor will commonly act for both buyer and lender. There is no conflict
of interest, because the lender will have a set of standard documents and there is no room for negotiation. If the buyer cannot meet the lender’s strict requirements, then the lender will simply decline to lend.

Question 9

In commercial transactions

Answer 9

In commercial transactions, there may be negotiation over the security documents, and there is scope for a conflict of interest, so the lender in this situation will commonly have their own solicitor.
The lender will want to know:
* that the property is marketable (ie, easy to sell on the open market)
* that the property’s value is sufficient to cover any losses if the buyer does not repay the mortgage

Question 10

1.5 A solicitor’s aims when acting for the lender

Answer 10

A solicitor acting for a lender must ensure that:
* the seller has the right to sell the property
* the physical condition of the land and buildings is adequate for the lender’s needs and the
property is worth enough to cover any losses if the buyer fails to repay the mortgage
* they identify all the rights that the property enjoys
* they identify any third party rights affecting the property

Question 11

1.5 A solicitor’s aims when acting for the lender

Answer 11

• the property is free from any security interest (such as mortgages) or will be on completion
• the contract reflects the terms agreed between the parties
• there are sufficient funds to finance the purchase
• there are no discrepancies in the lender’s understanding of the transaction and the borrower’s circumstances
• the security document (mortgage) is valid and enforceable
  (As a lender’s solicitor’s aims are broadly similar to a buyer’s solicitor’s aims, the differences are shown above in bold.)

Question 12

1.6 Seller’s aims in a freehold transaction

Answer 12

Usually, the seller’s interests are simpler, as they just want to sell the property and receive the money as soon as possible. It may be more complicated if they have a related purchase.

Question 13

1.7 A solicitor’s aims when acting for the seller

Answer 13

A solicitor acting for the seller generally has a bit less to do, but will still need to ensure that:
* the contract reflects the terms agreed between the parties
* provide the buyer’s solicitor with what they need to proceed with the purchase
* tie the timing of the sale to any related purchase
* transfer legal ownership (and responsibility) of the property to the buyer
* collect money from the sale, repay the mortgage and account to the seller for the balance

Question 14

1.8 Summary

Answer 14

• Property transactions can involve large sums of money, and solicitors take steps to avoid losses to their client.
• A solicitor’s role differs if acting for the buyer, lender or seller.

Question 15

2 Outline of the conveyancing process
2.1 Three Distinct stages
There are three distinct stages in a freehold transaction (see figure Three Distinct Stages)

Answer 15

1. Pre-Exchange
2. Pre-Completion
3. Post-Completion

Question 16

2.1.1 Pre-exchange

Answer 16

In the pre-exchange stage:
* the buyer decides to buy property and agrees the price
* the buyer’s surveyor surveys property and reports on its value and condition
* The buyer’s solicitor investigates and reports on title (the complete legal picture of the property)- this is usually the most time-consuming element of the buyer’s solicitor’s work.
* Only when the buyer is satisfied with the above, will they proceed to exchange

Question 17

2.1.2 Exchange

Answer 17

On exchange:
* the seller and buyer enter into a contract to sell and buy the property on the completion date
* the buyer pays a deposit (usually 10% of the full price)
* from this point on (the pre-completion stage), neither seller nor buyer can pull out without
serious financial consequences

Question 18

2.1.3 Pre-completion

Answer 18

In the pre-completion stage:
* the buyer’s solicitor orders mortgage funds and ensures has full money from client in time for
the completion date
* (in a residential transaction) the seller and buyer book removal vans for completion date if appropriate
* the seller’s solicitor ensures that they have all the necessary paperwork to transfer the property on completion

Question 19

2.1.4 Completion
On completion:

Answer 19

• the buyer’s solicitors send the purchase price to the seller’s solicitors
• the seller’s solicitors agree to send the necessary paperwork to transfer the property to the buyer’s solicitors
• the buyer gets the keys
• (in a residential transaction) the buyer and seller physically move house

Question 20

2.1.5 Post-completion
In the final stage, post completion:

Answer 20

• the seller’s solicitor pays off the seller’s mortgage and pays balance to seller
• the buyer’s solicitor pays Stamp Duty Land Tax (SDLT) or, in Wales, Land Transaction Tax (LTT), and registers the buyer as the new owner at the Land Registry

Question 21

2.2 Summary

Answer 21

There are three distinct stages to a property transaction:
(i) Pre-exchange (beginning to exchange)
(ii) Pre-completion (exchange to completion)
(iii) Post completion (after completion)

Question 22

2.2 Summary

Answer 22

• The most work takes place in the pre-exchange stage, when the buyer’s solicitor has to investigate and report on title.
• Exchange is when the parties become contractually bound to proceed with the sale/purchase.

Question 23

2.2 Summary

Answer 23

• Completion is when the buyer’s solicitor pays the balance of the purchase money to the seller and the seller’s solicitor agrees to send the necessary paperwork to the buyer’s solicitor.
• Post completion, the buyer’s solicitor arranges to pay any SDLT/LTT and register the new
  ownership at the Land Registry

Question 24

3 Caveat emptor
3.1 Caveat emptor

Answer 24

Caveat emptor: The Latin principle of caveat emptor translates to ‘buyer beware’.

Question 25

3.1 Caveat emptor

Answer 25

We are used to feeling confident in buying clothes, electronic equipment, etc, knowing that we can return such items if they are faulty, or often even if we change our mind. This does not apply to real property (land). The principle of caveat emptor means that, in general, a buyer takes the property as they find it. They cannot return the property if it turns out to be unsuitable in some way.

Question 26

3.1 Caveat emptor

Answer 26

The seller is generally under no obligation to give the buyer all the relevant information that the
buyer may require. It is the buyer’s solicitor’s job to investigate as thoroughly as possible and report to the buyer.If the buyer is not happy with the report, then the buyer may want to renegotiate the price or even withdraw from the transaction. They can do this at any point up to
exchange. After exchange, however, they cannot withdraw because they subsequently find a problem with
the property.

Question 27

3.2 Finding out information about the property

Answer 27

The buyer’s solicitor can find out about problems with the property by investigating title and raising pre-contract searches and enquiries.
Information about the property will come from:
(a) The title to the property:
The Land Registry official copies (if registered) or the deeds (if not).
(b) The seller’s replies to enquiries:
(whether standard enquiries or the buyer’s solicitor’s own specific enquiries).

Question 28

3.2 Finding out information about the property

Answer 28

(c) Searches:
(requests for information) from various bodies such as the local authority, the Land Registry
and statutory undertakers (eg, water and drainage supply companies).
(d) A survey of the property:
The surveyor will inspect the property and report on value, structural defects and necessary repairs. Unlike a solicitor, their concern is primarily with the physical condition of the property.

Question 29

3.2 Finding out information about the property

Answer 29

(d) A survey of the property: However, they may find issues that suggest legal issues, and will recommend furthe investigation by the solicitor. For example, if they were to find evidence of somebody walking across the land (such as trodden down grass), the solicitor may need to look into the possibility of a right of way

Question 30

3.3 Exceptions to the principle of caveat emptor

Answer 30

Caveat emptor does not completely absolve a seller from responsibility. There are two exceptions to the principle of caveat emptor:
(a) Misrepresentation
(b) Latent encumbrances and defects in title

Question 31

3.3.1 Misrepresentation

Answer 31

Misrepresentation: This is a false statement which induces a buyer to enter into a contract to buy

Question 32

Misrepresentation can arise from:

Answer 32

• estate agents’ particulars of sale or auction particulars
• remarks made by the seller on viewing the property
• any communication from the seller or the seller’s solicitors to the buyer

Question 33

Examples of misrepresentation are:

Answer 33

• Stating in written replies to enquiries that there have been no neighbour disputes when both
  are untrue
• Overstating the floor area of a building
• Stating that there have been no objections to a particular use of the property when there have been

Question 34

Misrepresentation Act 1967

Answer 34

The seller cannot mislead the buyer by concealing physical defects (such as painting over damp patches) or answering questions dishonestly. If the buyer has been induced by such conduct or statement to enter into the contract, then they have remedies in common law for misdescription, or under the Misrepresentation Act 1967.

Question 35

3.3.1 Misrepresentation

Answer 35

In practice, they will probably rely on the sale contract. The standard conditions of sale (incorporated into the majority of land contracts) do not require the buyer to prove that they were induced to rely on the conduct or statement: it is sufficient to prove that there was an error or omission.

Question 36

3.3.2 Latent encumbrances and title defects

Answer 36

A seller must disclose latent incumbrances and/or any defects in title.
Latent encumbrance: This means something which is not apparent, or cannot be discovered, when inspecting the property. A seller is under a duty to disclose latent incumbrances of which it is aware or of which it has the means to know, acting reasonably and diligently. It is difficult though to be confident whether an incumbrance is latent or readily discoverable on inspection
and so if in doubt it is safest for a seller to disclose the incumbrance.

Question 37

Defect in title:

Answer 37

This means something that brings into question the seller’s ownership of the property, or the rights and burdens that affect the property. Typically such defects are a
result of missing title deeds, for example if a deed contacting a restrictive covenant has been
lost it is unknown how the buyer’s use of the property might be restricted.

Question 38

3.4 Application of the principle of caveat emptor

Answer 38

This case illustrates the importance of a buyer fully investigating the property before becoming contractually bound to the purchase.

Question 39

Key case: Hardy v Griffiths [2014] EWHC 3947 (Ch)

Answer 39

Facts: In March 2011, Mr and Mrs Hardy exchanged contracts for the purchase of a property for
£3.6 million from Mr and Mrs Griffiths. They paid £150,000 deposit on exchange, with the contract
stating that it would need to be topped up to £360,000 (10%) if the Hardys didn’t complete on the
agreed completion date.
The Hardys refused to complete and sought return of their deposit on the basis of ‘reckless misrepresentation’. They alleged that the Griffithses had misrepresented the condition of the
property in not revealing rising damp and dry rot that would cost £600,000 to rectify

Question 40

Key case: Hardy v Griffiths [2014] EWHC 3947 (Ch)

Answer 40

Held: the buyers had to pay the balance of the full 10% deposit as they had failed to complete.
The court applied the principle of caveat emptor. There was no onus on the sellers to disclose any physical defects. It was for the buyer to discover them. In this case, the buyers did not commission a professional, structural survey prior to exchange and therefore failed to discover the problems with dry rot and damp.

Question 41

Key case: Hardy v Griffiths [2014] EWHC 3947 (Ch)

Answer 41

As to misrepresentation, in the replies to pre-contract enquiries the seller had stated that they
were not aware of any issues relating to rot or rising damp and the court found that this was a
true answer. In any event, there was no evidence to suggest that the buyers had even read the
replies. If not, they could not have relied on them and reliance is an essential part of any claim in
misrepresentation

Question 42

3.5 What happens if there is something wrong with the property before exchange?

Answer 42

Up until the point at which contracts are exchanged, the buyer can walk away from the deal without any legal liability. There is no legal right to recover any costs from the other party. Alternatively, the buyer and the seller may negotiate the price, or agree that the seller take steps
to remedy the problem before completion. This could be a condition of the sale contract.

Question 43

3.6 Summary

Answer 43

• Caveat emptor translates to ‘buyer beware’.
• The principle means the buyer takes the property as it finds it.
• There is no onus on the seller to disclose patent incumbrances or physical defects in the property, it is up to the buyer to fully investigate them.

Question 44

3.6 Summary

Answer 44

• Therefore, before becoming contractually committed, the buyer will find out as much as possible about the property. It will do this by investigating title, ordering searches and raising pre-contract enquiries. The buyer should also arrange for a surveyor to undertake a physical
  survey.
• The seller is however obliged to disclose latent incumbrances and defects in title.
• Sellers should also be wary of making any potential misrepresentations.

Question 45

4 Taking Instructions - Initial advice

Answer 45

When taking instructions from a client, a solicitor may need to address the following:
* Likely timescale and costs
* Co-ownership
* Surveys
* Tax

Question 46

4.1 Likely timescale and costs

Answer 46

When a client instructs a solicitor, the solicitor should discuss the likely timescale and costs. It can be difficult to predict how long the transaction will take, as it will depend on what issues arise, and also on how quickly the other parties’ solicitors deal with their parts of the transaction.
To give an idea, the average residential sale may take around six to eight weeks from the sale
being agreed to completion.

Question 47

4.1 Likely timescale and costs

Answer 47

Some large value commercial matters are on a tight timescale, and may require exchange within,
say, two weeks, completion within four weeks. The buyer’s solicitor in such a case may need to
prioritise this matter above all others on their desk to achieve this!
The costs may be fixed (particularly with residential matters) or on a time basis, in which case the
solicitor would need to provide an estimate (possibly a range).

Question 48

4.2 Co-ownership

Answer 48

Co-ownership means having two or more owners. This is more common in residential transactions,
particularly if a couple is buying a home. Both legal title and beneficial title (also known as the equitable title) may need to be considered
with the clients from the outset of a transaction.

Question 49

Legal title has the following features:

Answer 49

• The legal owners are named on the Land Registrytitle
• There is a maximum number of four legal owners
• They must be over 18
• Legal ownership can only be sole or a joint tenancy
• The legal owners hold the property on trust for the benefit of the beneficial owners.

Question 50

Beneficial title has the following features:

Answer 50

• The beneficial owners may or may not be the same as the legal owners
• They are not registered at the Land Registry (unless as legal owners)
• There is no maximum number of beneficial owners
• They can be any age
• Beneficial ownership can be sole, a joint tenancy or a tenancy in common

Question 51

Example

Answer 51

Two siblings (aged 16 and 19) want to buy a house together using their shares of an inheritance.
The older sibling can appear on the legal title, but not the younger.
The older sibling will hold the legal title on trust for both of them. (Or, ideally, a second person,
perhaps another adult member of the family, will act as a second trustee and will go on the legal
title as well.)
The beneficial title, however, is held as tenants in common by both of them. When the younger
sibling reaches 18 they too can go on the legal title.

Question 52

4.2.1 Beneficial ownership: Joint tenancy

Answer 52

A beneficial joint tenancy may be suitable for a married couple, civil partnership or cohabitees in
a stable relationship. It is not suitable for a co-owner who wants to pass a share of the property in their will. It is generally not suitable for business relationships. Beneficial joint tenants collectively own the whole of the beneficial estate with each other. They are seen as a single entity

Question 53

Right of survivorship applies

Answer 53

The right of survivorship applies - if any co-owner dies, then the surviving co-owners hold the property between them. The deceased co-owner cannot pass an interest by their will or intestacy.

Question 54

4.2.2 Beneficial ownership: Tenants in common

Answer 54

Beneficial ownership as tenants in common is suitable where co-owners wish to have an interest to leave in their will, or have contributed unequal proportions to the purchase price, or where it is a business relationship.

Question 55

4.2.2 Beneficial ownership: Tenants in common

Answer 55

Purchasers own their own undivided share in the property and can share the property in whatever
proportions they choose (documented in a trust deed). For example, three people might want to
buy a flat together. They can agree to own it in shares of say 40%, 35%, 25%. The right of survivorship does not apply. The share will pass under a will or intestacy rules if the
co-owner dies.

Question 56

4.3 Recording co-ownership arrangements

Answer 56

It is important to get clear instructions from your client on co-ownership and carry them out.
Failing to do so is a common area of professional negligence. A declaration of trust of land must be in writing and signed by the declarant(s) (Law of Property
Act 1925, s 53(1)(b)). The standard Land Registry form transfer deed (most commonly TR1) provides a panel to include a declaration of trust with the following options:

Question 57

4.3 Recording co-ownership arrangements

Answer 57

10 Declaration of trust. The transferee is more than one person and
[ ] they are to hold the property on trust for themselves as joint tenants
[ ] they are to hold the property on trust for themselves as tenants in common in equal shares
[ ] they are to hold the property on trust:
[blank space to be completed with details of the trust]

Question 58

4.3 Recording co-ownership arrangements

Answer 58

The buyer should select the correct option.
The first two options are self-explanatory.
The third option can be used with suitable wording added in the blank space provided to show
that the property is held on trust for beneficiaries (who may be parties other than the legal owners) in unequal shares, and could set out the shares or refer to a separate declaration of trust.
Note. The third option is also used for express trusts that go beyond simple co-ownership
including lifetime and will trusts.

Question 59

4.4 Advice on surveys

Answer 59

A buyer should always be advised to instruct a surveyor to undertake a physical survey of the property in order to identify if there are any physical defects with the property (remember that caveat emptor applies).

Question 60

4.4 Advice on surveys

Answer 60

Physical defects with the property can be expensive to put right, affecting the value of the property. Identifying these defects gives the buyer the opportunity to renegotiate the price, require a contribution from the seller or failing that, withdraw before exchange. If the physical defects are potentially serious, the lender may refuse to lend until they are put right, meaning that the buyer cannot proceed even if they want to.

Question 61

4.5 Different types of survey
4.5.1 Basic Valuation

Answer 61

If a mortgage is being obtained, then the lender will insist on at least a basic valuation. This is the cheapest option, and the surveyor will give a valuation and identify any major obvious defects. It is intended to ensure that the lender will be able to recover any losses by selling the property, and is not detailed.
A buyer should be advised to obtain a fuller survey.

Question 62

4.5.2 Homebuyer report

Answer 62

This is much more detailed than the basic valuation, and will be suitable for most properties in
reasonable condition aged less than 150 years.

Question 63

4.5.3 Full structural Survey

Answer 63

This is suitable for any property, but should especially be considered where the property is listed,
has had extensive renovations, or where extensive alterations are planned. It is the most expensive option.

Question 64

4.6 Tax considerations

Answer 64

At the start of a transaction you need to be aware and be able to advise your client of any tax implications in respect of the property transaction.
In a property transaction, you need to be aware of three different taxes that could be payable.
These are:
* Stamp Duty Land Tax (England) or Land Transaction Tax (Wales)
* Capital Gains Tax
* Value Added Tax

Question 65

4.6.1 Stamp Duty Land Tax/Land Transaction Tax

Answer 65

A buyer must pay Stamp Duty Land Tax (SDLT) if it buys a property or land over a certain price in
England and Northern Ireland. If the property value does not exceed the threshold figures, no SDLT is payable.
The threshold figures and rates of SDLT payable are different depending on whether the property is residential or commercial. The tax is different if the property or land is in Wales where Land Transaction Tax (LTT) is payable if the sale was completed on or after 1 April 2018.

Question 66

4.6.2 Capital Gains Tax

Answer 66

Capital Gains Tax (CGT) is a tax on the profit when you sell certain assets (including land and buildings) that have increased in value. It is the gain the seller makes that is taxed, not the amount of money they receive.

Question 67

Example

Answer 67

You buy a piece of land for £100,000 and later sell it for £135,000. This means you made a gain of £35,000. (In practice it is a bit more complicated, as you can deduct costs of buying and selling the property, but this is the basic principle.). CGT is not payable on many residential sales, because if the client is selling their own home, they can use an exemption called Private Residence Relief (PRR).

Question 68

4.6.3 Value Added Tax

Answer 68

Value Added Tax (VAT) is a tax that is added to the price of certain goods and services. It is not usually applicable to existing residential properties, which are VAT exempt.
However, some commercial property purchases will be subject to VAT. The buyer must pay VAT on the sale price to the seller.

Question 69

4.7 Summary

Answer 69

• At the outset of the matter, a property solicitor should consider timescale and costs, surveys, co-ownership and tax as appropriate.
• Joint tenants are seen as a single entity and the right of survivorship applies.
• Tenants in common hold their own individual shares in the property, which they can pass under their will in the event they die.

Question 70

4.7 Summary

Answer 70

• A buyer should always be advised to instruct a surveyor to undertake a physical survey of the property. There are three types of survey. In most circumstances, a buyer should be
  recommended to undertake at least a homebuyer report, and ideally a full structural survey.
• Whether acting for the buyer or seller in a property transaction, a property solicitor should consider the tax implications of a transactions.
• Particularly relevant for a property transaction are SDLT/LTT, VAT and CGT.

Question 71

5 Sources of finance and types of mortgage
5.1 Funding the purchase

Answer 71

The buyer must have sufficient funds to complete the purchase, which includes the following:
* Cash to pay the deposit on exchange
* The balance of the price on completion
* The agreed price for any extras, such as contents that come with the property
* Tax (SDLT or LTT, CGT, VAT as appropriate)
* The solicitor’s fees, which will be subject to VAT (irrespective of the VAT treatment of the property itself)
* The solicitor’s disbursements – such as search fees and Land Registry fees

Question 72

5.1.1 Residential

Answer 72

The funding usually comes from:
1. Client’s own resources
2. A mortgage loan
3. Proceeds of any related sales

Question 73

5.1.2 Commercial

Answer 73

In commercial property the funding options can be more varied and complex:
* With high value properties, money may be raised from a group of lenders (syndicate) to raise the money and limit their risk exposure
* A lender may fund a development whereby the lender will provide the money to the buyer not only buy the land, but to develop buildings on it. The lender will require the power to step in to complete the development if the buyer fails to carry it out.

Question 74

5.2 Types of residential mortgages
5.2.1 Capital repayment mortgage

Answer 74

The borrower repays the capital sum by monthly payments, together with an interest amount added each month. At the end of the term (say 25 years), the loan has been paid off in full.

Question 75

5.2.2 Interest only mortgage

Answer 75

The borrower only pays the interest on the loan. This means the borrower pays less per month, but the disadvantage is that the capital remains outstanding, no matter how long the loan is in place. The capital will generally only be repaid by the sale of the property. The borrower may, still, however, end up better off as they will have the ‘equity’, ie, the value of the property (hopefully
higher) that is not required for the mortgage.

Question 76

5.2.3 Endowment mortgage

Answer 76

In general, these are no longer available in the UK, but you may come across endowment mortgages that clients have taken out in the past. They are interest only mortgages, topped up with a payment that is invested in an endowment policy. The idea is that the policy repays the capital at the end of the term. Unfortunately, many have not performed as expected, leaving borrowers with a shortfall to make up out of their own cash.

Question 77

5.3 Summary

Answer 77

• Funding for a property purchase usually comes from the purchaser and a lender.
• Residential transactions typically involve the borrower obtaining funding from a high street
  bank/building society. Commercial property finance can be raised from these lenders as well as other more complex ways, such as through equity finance.
• There are different types of mortgage loans available including capital repayment and interest-only.

Question 78

6 Professional conduct issues in property transactions
6.1 The Solicitors Regulation Authority (SRA) principles

Answer 78

The SRA principles are the “fundamental tenets of ethical behaviour” expected of all solicitors, and other regulated lawyers. You will see more detailed guidance, but you should always have in mind the principles.

Question 79

6.1 The Solicitors Regulation Authority (SRA) principles

Answer 79

The Solicitors Regulation Authority (SRA) principles are that you act:
(a) in a way that upholds the constitutional principle of the rule of law, and the proper
administration of justice.
(b) in a way that upholds public trust and confidence in the solicitors’ profession and in legal
services provided by authorised persons.
(c) with independence.

Question 80

The Solicitors Regulation Authority (SRA) principles are that you act:

Answer 80

(d) with honesty.
(e) with integrity.
(f) in way that encourages equality, diversity and inclusion.
(g) in the best interests of each client

Question 81

6.1 The Solicitors Regulation Authority (SRA) principles

Answer 81

The SRA Code of Conduct for Solicitors (CCS), Registered European Lawyers and Registered Foreign Lawyers expands on these principles to set out the professional standards expected of solicitors and other SRA regulated legal service providers.
This section builds on your understanding of Professional Conduct by considering the conduct
issues and SRA Code of Conduct most relevant to property practice.

Question 82

When accepting instructions to act in a property matter, what conduct issues do you need to consider?

Answer 82

• Can you provide a competent and timely service?
• Duty of confidentiality
• Are you authorised to act on your client’s behalf?
• Would you have any conflict of interest?
• Duty of disclosure

Question 83

6.1.1 Can you provide a competent and timely service?

Answer 83

CCS 3.2 requires that you ensure that the service you provide to clients is competent and delivered in a timely manner.
* Do you have the necessary skills and experience for what your client is asking? If you mainly deal with residential property, will you be able to deal with the purchase of a high value commercial property (or vice versa)? If not, you may need supervision or to refer the matter to
another lawyer who has the necessary skills and experience.
* If you think that you will be too busy to offer a service that deals with the client’s matter in a timely manner, consider referring the matter to another lawyer, possibly someone else in your team.

Question 84

6.1.2 Are you authorised to act on your client’s behalf?

Answer 84

CCS 3.1 requires that you only act for clients on instructions from the client or from someone properly authorised to provide instructions on their behalf. If you have reason to suspect that the instructions do not represent your client’s wishes, you do not act unless you have satisfied
yourself that they do.

Question 85

6.1.2 Are you authorised to act on your client’s behalf?

Answer 85

• Identity checks are essential to verify that your client is whom they claim to be
• Be careful about accepting instructions from one spouse on behalf of the other –require
  written confirmation from the other spouse that they are happy for you to take instructions from the first spouse
• When acting for a company, ensure that you are instructed by a validly appointed director (Companies House check) who has authority to instruct you (eg, a board resolution)

Question 86

6.1.3 Own interest conflict

Answer 86

CCS 6.1 requires that you do not act if there is an own interest conflict or a significant risk of an own interest conflict.

Question 87

Own interest conflict:

Answer 87

This means a situation where your duty to act in the best interests of
any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with your own interests in relation to that or a related matter (SRA Glossary)
Note that there are no exceptions to this rule. If you have an own interest conflict, or there is a significant risk that an own interest conflict might arise, you must NOT act.

Question 88

Example

Answer 88

Circumstances that may give rise to an own interest conflict:
* A financial interest of yours or someone close to you Your developer client asks you to advise on a large development. You realise that it is sited next to your partner’s holiday cottage and will likely affect its value.
* A personal or business relationship of yours. You act for the buyer of a house. The seller is your best friend. The seller fails to complete the
purchase, and the buyer instructs you to claim for damages

Question 89

Example

Answer 89

It can be difficult sometimes to identify conflicts. For example, you have been asked to act in the
purchase of a house. Your closest friend, a solicitor at another firm, has been asked to act for the seller. Is this a conflict? It can be difficult sometimes to identify conflicts. For example, you have been asked to act in the purchase of a house. Your closest friend, a solicitor at another firm, has been asked to act for the
seller. Is this a conflict?

Question 90

Example

Answer 90

Provided that you and your best friend are able to be objective and separate your client’s interests
from your own, then this should be acceptable. However, if you feel that it would hinder your independence and impartiality, then you should consider declining to act or passing it to someone else in your firm.

Question 91

6.1.4 Other conflicts of interest

Answer 91

CCS 6.2 requires that you do not act in relation to a matter or a particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it unless…
There are exceptions to the rule, but they are rare. In most cases, if there is a conflict of interest, you will NOT be able to act

Question 92

Conflict of interest:

Answer 92

This means a situation where your separate duties to act in the best
interests of two or more clients in the same or related matter conflict (SRA Glossary)

Question 93

Example

Answer 93

If you act for a seller, your client’s interest may be to sell the property at the full price as quickly
as possible. If you act for the buyer, your client’s interest may to take as long as necessary to investigate the
title before exchange. If you try to act for both seller and buyer, then you will be torn between these two conflicting interests. You may wish to review the principles below, and how this might offend those principles.

Question 94

Example

Answer 94

There are other examples, such as negotiating the contract where each party will have an interest
in protecting themselves from liability, or where the price has to be renegotiated. This is why you are prohibited from acting where there is a conflict of interest.

Question 95

6.1.5 Exceptions to the rule in CCS 6.2

Answer 95

CCS 6.2:
You do not act in relation to a matter or a particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it unless:
a) The clients have a substantially common interest in relation to the matter or the aspect of it,
as appropriate; or
b) The clients are competing for the same objective,

Question 96

6.1.5 Exceptions to the rule in CCS 6.2

Answer 96

and the conditions below are met, namely that:
(i) All the clients have given informed consent, given or evidenced in writing, to you acting;
(ii) Where appropriate, you put in place effective safeguards to protect your clients’ confidential information; and
(iii) You are satisfied it is reasonable for you to act for all the clients

Question 97

Substantially common interest:

Answer 97

This means a situation where there is a clear common purpose between the clients and a strong consensus on how it is to be achieved (SRA Glossary)

Question 98

Example

Answer 98

Two clients who often buy properties together for development ask you to prepare a report on title for a site. They have a clear common purpose (to investigate the land) and a strong consensus on how it is to be achieved (through your report). You can act for both clients and prepare the report
on title.

Question 99

Example
Clear common purpose and strong consensus

Answer 99

Two clients who often buy properties together for development ask you to prepare a report on title for a site. They have a clear common purpose (to investigate the land) and a strong consensus on how it is to be achieved (through your report). You can act for both clients and prepare the report
on title.

Question 100

Example

Answer 100

On receiving the report on title, both clients decide to buy the property together. You must check again that they have a clear common purpose (to buy the land) and a strong consensus on how it is to be achieved (ie, do they agree on the price, timetable, etc?). The clients then fall out and decide to negotiate separately against each other for the same property. They no longer have a clear common purpose, and therefore you may not act for both
of them (and ideally neither of them).

Question 101

Not an SCI:

Answer 101

Arguably a seller and buyer may have at least one clear common purpose if they both want the agreed deal to take place as soon as possible.
However, they will lack strong consensus on how it is to be achieved. The seller will likely want the sale completed as soon as possible, whereas the buyer will only want to complete if satisfied that
all issues have been identified and resolved. They do not therefore, have a substantially common interest, and you cannot act for both.

Question 102

Competing for the same objective exception

Answer 102

This means any situation in which two or more clients are competing for an “objective” which, if attained by one client, will make that ‘objective’ unattainable to the other client or clients, and “objective” means an asset, contract or business opportunity which two or more clients are seeking to acquire or recover through a liquidation (or some other form of insolvency process) or by means of an auction or tender process or a bid or offer, but not a public takeover.

Question 103

Strcutured Competition Process

Answer 103

This would apply in a structured competition process, such as an auction or tender. In this instance, you may act for two or more clients, as the process itself will mean that only one of the clients will be successful. (Compare this to the last example, where the two commercial clients are separately negotiating for the same property - this would not satisfy the test as the seller may
elect to give them different terms or different parts of the same property.)

Question 104

In practice, only applicable to sophisticated clients

Answer 104

In practice this exception only applies to sophisticated clients. Although you would be acting for two or more clients at the beginning of the process, the nature of the process is that at the end of the process, you will only have one client.

Question 104

6.1.6 The conditions to the exceptions

Answer 104

Whenever an SCI or CFSO applies, the lawyer involved must comply with all the conditions in 6.2(i) to (iii), namely:
(a) all the clients have given informed consent, given or evidenced in writing, to you acting;
(b) where appropriate, you put in place effective safeguards to protect your clients’ confidential information [eg, only allowing certain staff access to the client’s files]; and
(c) you are satisfied it is reasonable for you to act for all the clients [eg if one client is more vulnerable than the other, it would not be reasonable to act for both clients].

Question 105

6.1.7 Acting for a borrower (the buyer) and lender

Answer 105

In commercial transactions this does not usually happen. Lenders and borrowers often have a different approach as to how they would resolve issues which arise during the transaction, so it makes it impossible for the same solicitor to act even-handedly for both parties. In addition, the same solicitor cannot negotiate with him or herself the terms of a loan agreement or security
documentation. Conflicts of interest are likely and often significant.

Question 106

In residential transactions

Answer 106

In residential transactions it is common for the buyer’s solicitor to act for the lender in residential
transactions because there is unlikely to be any conflict of interest between these parties. This is because they will not tend to negotiate the terms or form of the loan or security
documentation and a standard form of certificate of title (this is a reporting document) approved
by the Law Society and the Council for Mortgage Lenders will be used.

Question 107

6.1.8 Duty of confidentiality

Answer 107

CCS 6.3 requires that you keep the affairs of current and former clients confidential unless disclosure is required or permitted by law or the client consents. As a solicitor or legal professional, you owe a duty of confidentiality to your clients. This duty applies to current and former clients. Former clients include clients of a firm you used to work for and clients that used to instruct you but now instruct a different firm. It also continues to apply after a client’s death.

Question 108

6.1.8 Duty of confidentiality

Answer 108

The duty does not apply where disclosure is required or permitted by law. A number of statutes empower the government and other bodies to require disclosure of documents, eg HMRC or the National Crime Agency, when investigating money laundering. You might also need to disclose information to comply with a court order.

Question 109

6.1.9 Duty of disclosure (reporting to a client)

Answer 109

CCS 6.4 requires that where you are acting for a client on a matter, you make the client aware of all information material to the matter of which you have knowledge…
If acting for a buyer, you must report to your client on the extent and results of your investigations, and any limitations or matters which were not covered. As well as complying with CCS 6.4, this makes it less likely that your client will be able to sue you for negligence!

Question 110

6.1.9 Duty of disclosure (reporting to a client)

Answer 110

There are limited exceptions to this duty, including if you believe that disclosing the information
could cause serious physical or mental harm to your client or another person, or disclosure is
prohibited by legal restrictions. It is rare that these will apply.

Question 111

6.1.10 Duty of disclosure (reporting to a client)

Answer 111

CCS 8.6 requires that you give clients information in a way they can understand Commercial clients may be used to reading reports on title, whereas residential clients may not
be. If you provide a report in complex and technical language to a client who cannot understand it,
then you have not complied with CCS 8.6 (unless perhaps you offer to go through it on the phone or in person).

Question 112

6.2 Summary

Answer 112

• When you are taking on a new client or instructions from an existing client you must ensure that you are competent to act (CCS 3.2).
• You must always make sure that anyone giving you instructions is authorised to act on behalf of the client. (CCS 3.1)
• You must not act if there is an ‘own interest conflict’ or a significant risk of an own interest conflict (CCS 6.1). There are no exceptions to this rule. This occurs where your duty to act in
  the best interests of your client conflicts with your own interests.

Question 113

6.2 Summary

Answer 113

• You must not act in relation to a matter if you have a ‘conflict of interest’ or a significant risk of
  such a conflict (CCS 6.2). This occurs where your separate duties to act in the best interests of two or more clients in the same matter conflict. There are two exceptions to this rule.
• The two exceptions to the rule in CCS 6.2 where you may be able to act where there is a conflict of interest or a risk of a conflict of interest are:
• where the clients have a substantially common interest in relation to the matter or the
  aspect of it, as appropriate; or
• the clients are competing for the same objective

Question 114

For each exception

Answer 114

• For each exception you must also meet all the following conditions:
• all the clients must have given informed consent, in writing, to you acting;
• where appropriate you put in place effective safeguards to protect your clients’ confidential information; and
• you are satisfied it is reasonable for you to act for all the clients

Question 115

Keeping affairs of clients confidential

Answer 115

• You have a duty under CCS 6.3 to keep the affairs of clients and former clients confidential. There are a limited number of exceptions to the duty of confidentiality.

Question 116

Making sure client is aware of all the information

Answer 116

• You also have a duty under CCS 6.4 to make your client aware of all information material to the matter of which you have knowledge. There are exceptions to this duty. If the duty of
  confidentiality and duty of disclosure conflict, your duty of confidentiality will always override your duty of disclosure