Chapter 2: Preliminary Matters (Stage 1)

Question 1

What will a client’s solicitor do once they have been instructed?

Answer 1

1. Obtain essential information re client’s matter via interview/checklist
2. Send a client care letter
3. Obtain appropriate identification documentation
4. Carry out appropriate due diligence checks

Question 2

What will a client care letter do?

Answer 2

Set out the level of service to be provided and the costs, in accordance with the Code of Conduct

Question 3

What is considered appropriate identification documentation, and why does a solicitor need it?

Answer 3

E.g., a passport, driving licence, or utility bill.

To satisfy themselves that the client is legitimate

Question 4

At the beginning of the transaction, what should the buyer’s solicitor advice the buyer to do?

Answer 4

Have a surveyor carry out a physical inspection of the property to determine whether there are any structural defects or problems which might affect the value of the property.

Question 5

What might happen if defects are found following a survey of the property?

Answer 5

If any defects are found, this may result in a reduced offer or the buyer’s withdrawal from the transaction.

Question 6

What is capital gains tax?

Answer 6

Tax on the profits made when a taxpayer disposes of an asset that has increased in value

Question 7

What should a seller’s solicitor advise the seller re CGT?

Answer 7

That capital gains tax could be due on the sale, although CGT is not payable in most residential transactions because of a tax relief called the Principal Private Residence Relief exemption.

Question 8

What must be done if any CGT is payable by the seller?

Answer 8

They must submit a tax return + the tax to HMRC within 60 days of the completion date.

Return is not required if no CGT is payable

Question 9

What professional conduct issues are particularly relevant to conveyancing?

Answer 9

1. Undertakings
2. Confidentiality
3. Conflicts of interest
4. Giving co-ownership advice

Question 10

What is an undertaking?

Answer 10

A promise enforceable against the solicitor and the solicitor’s firm arising whenever a solicitor or member of the firm says that they will do something.

Question 11

Who can you deal with whilst in a conveyancing transaction? What is needed to discuss progress?

Answer 11

Often estate agents or mortgage brokers telephone or email solicitors to try to establish the progress that has been made in a chain of transactions.

A solicitor must ensure that they have the authority of their client to discuss the client’s transaction with the caller

Question 12

How does confidentiality affect the buyer and the lender for the solicitor?

Answer 12

If the buyer needs a mortgage to fund their purchase, the buyer’s solicitor often acts for the buyer’s lender as well.

The lender then becomes a client of the firm.

The lender will expect the buyer’s solicitor to report to them any issue which might affect the value of the property or which might affect the lender’s decision to lend.

But the buyer’s solicitor also must have the consent of their buyer client to report such issues to the lender.

If, e.g., the buyer instructs a solicitor not to disclose a certain issue to the lender, the solicitor must cease acting for the lender.

The duty of confidentiality to the buyer is paramount.

Question 13

Why is a solicitor generally permitted to act for the buyer and lender in a residential transaction?

Answer 13

Because they have the same common interests - to acquire a good and marketable title

Question 14

What conditions must be satisfied for a solicitor to be able to act for both a buyer and their lender in residential situations?

Answer 14

1. The lender is an institutional lender, providing loans in the ordinary course of its business,
2. The standard certificate of title is provided, and
3. There is no conflict of interest or risk of a conflict of interest

Question 15

What should a solicitor do if a conflict arises between the buyer and their lender?

Answer 15

The solicitor should cease acting for both the buyer + the buyer’s lender

Question 16

What happens with the buyer + their lender in a commercial situation?

Answer 16

In a commercial transaction, the lender will often appoint their own solicitor to represent them rather than the buyer’s solicitor

Question 17

When may conflict of interest arise between 2 sellers?

Answer 17

If the sellers cannot agree on how the sale proceeds should be divided between them, e.g., if the 2 sellers co-own a property but are getting a divorce

Question 18

How may a conflict arise if the solicitor acts for 2 buyers?

Answer 18

They cannot agree on how they should co-own the property.

Question 19

When may conflict arise re funding the property?

Answer 19

Conflict can arise if someone is gifting a deposit to the buyer of a property, e.g., the buyer’s parents.

In such cases, the solicitor should avoid acting for the parents and the buyer due to the possibility of a conflict of interest

Question 20

What must the solicitor do if they are acting for more than 1 seller or buyer?

Answer 20

To prevent fraud and guard against conflicts of interest, the solicitor must ensure that they are instructed by each of the clients.

Question 21

What advice must a solicitor give if acting for more than 1 buyer of a property?

Answer 21

Must give co-ownership advice.

Question 22

How can the legal estate of land be held?

Answer 22

Only as joint tenants + a maximum of 4 people can hold the legal estate.

Question 23

How can the beneficial interest of land be held?

Answer 23

As joint tenants or tenants in common

Question 24

When will a buyer’s solicitor give co-ownership advice?

Answer 24

1. At the beginning of the transaction, and
2. Will reinforce the advice when they report to their clients before exchange of contracts

Question 25

What is advisable if the buyers decide to hold the beneficial interest of land as tenants in common?

Answer 25

Advisable for them to enter into a document called a declaration of trust.

Question 26

What is a declaration of trust?

Answer 26

Sets out the circumstances of the purchase and their contributions and set out their shares in the property.

Question 27

What is important for purchasers to do if they hold land as beneficial tenants in common?

Answer 27

The right of survivorship does not apply.

Therefore, it is important for them to make a will (or to review wills if they already have one) to ensure that their wishes regarding their share in the property are met.

Question 28

What is the Law Society Conveyancing Protocol (the ‘Protocol’)?

Answer 28

A statement of best practice for residential conveyancing introduced by the Law Society.

It provides a set of steps for each stage of a conveyancing transaction that a solicitor may (and usually does) follow when acting in the sale or purchase of a home for an owner occupier

Question 29

What is the scope of use of the Protocol?

Answer 29

The Protocol can be used in transactions involving freehold and leasehold property.

It also covers the situation in which the buyer + seller both have mortgage lenders and the solicitor acts for the lender in addition to the client.

However, the Protocol is not designed to be used in the purchase of new build homes or commercial property