Conveyancing accounts and other accounts

Question 1

What does it mean if a firm holds the buyer’s deposit as stakeholder?

Answer 1

It is held jointly on behalf of both the buyer and the seller during the period between exchange of contract and completion. On completion the deposit belongs to the seller

Question 2

What does it mean if a firm holds the buyer’s deposit as agent?

Answer 2

It is held on behalf of the seller only and it belongs to the seller from exchange of contracts rather than on completion

Question 3

If the firm chooses to use a separate stakeholder ledger, what are the accounting entries?

Answer 3

Receipt of stakeholder deposit on exchange of contracts:
- credit stakeholder client ledger client account
- debit cash sheet client account

Transfer of the stakeholder deposit on completion:
- debit stakeholder client ledger client account
- credit seller’s client ledger client account

Question 4

If the deposit is to be held as agent, what are the accounting entries?

Answer 4

As the deposit belongs to the seller from exchange of contracts it would go directly into the seller’s client ledger:
- credit client ledge client account
- debit cash sheet client account

Question 5

When may a solicitor or firm be required to operate a joint account with a third party?

Answer 5

If the firm or solicitor is an executor alongside another executor who are not part of the firm

Question 6

What are two rules that apply to joint accounts?

Answer 6

1. bank statements for the joint account need to be obtained at least every 5 weeks
2. a central record of all bills or written notifications of costs associated with the joint account need to be kept

Question 7

When might a solicitor need to operate the client’s own bank account?

Answer 7

If the client is unable to operate the account themselves due to a lack of capacity the solicitor may take on a specific role that allows them to operate the account. They may be appointed as the client’s attorney under a power of attorney or appointed as a Court of Protection deputy

Question 8

What are the rules that apply to solicitors operating a client’s own bank account?

Answer 8

1. bank statements for the joint account need to be obtained at least every 5 weeks
2. the statements need to be reconciled at least every 5 weeks
3. a central record of all bills or written notifications of costs associated with the joint account need to be kept

Question 9

What is a third-party managed account?

Answer 9

It is when the law firm chooses not to operate their own client accounts and prefers to outsource the responsibility to a third-party business which manages the money in third-party accounts

Question 10

What are the advantages of third-party managed accounts?

Answer 10

1. the money does not fall under the definition of ‘client money’ as it is not held by the law firm and therefore the firm does not have to comply with the stringent requirements
2. it avoids the costs associated with operating client accounts such as paying for professional indemnity insurance to cover risks to client money
3. reduces the risk of money laundering

Question 11

Can third party managed accounts be used for all client money?

Answer 11

Only where it is in the best interests of the clients to do so

Question 12

Who does the third party managed account provider need to be regulated by?

Answer 12

The financial conduct authority

Question 13

Does the SRA need to be notified of the use of a third party managed account?

Answer 13

Yes

Question 14

Do clients need to be aware of the use of third party managed accounts?

Answer 14

Yes and they need to know of the implications of this before accepting instructions