DEPOSITS HELD AS AGENTOR STAKEHOLDER; PETTY CASH; INTEREST

Question 2

DEPOSITS

Answer 2

1. In any standard property transaction, the buyer will pay the seller a deposit as a prerequisite to exchange of contracts.
   When acting for a client who is selling their property, law frms will receive the deposit from the potential buyer, which they must** hold jointly for the buyer and seller as stakeholder**, which simply means that the frm is holding the deposit on trust until the transaction is complete.
2. Rule 8.1 requires all client money to be record-
   ed on a client ledger identifed by that client’s name (in this case, both seller and buyer). Rule 8.1 is complied with if the seller’s solicitor records the receipt of the deposit** on a sep-arate stakeholder ledger** in the name of both the buyer and seller.

3.Once the property transaction is complete the funds must then be transferred to the selling client’s ledger.

Question 3

4

Acting for an Institutional Lender

Answer 3

1. To purchase a property, many clients will require the assis-tance of a mortgage advance from a mortgage provider. In this instance, law frms are permitted to act for the mortgage provider (‘Lender’) as well as the purchaser (‘Borrower’).
2. They are treated as two separate clients.
3. Before completion of the purchase, the firm will receive the mortgage funds from the Lender. The funds do not belong to the Borrower until completion.
4. Rule 8.1 requires client money to be recorded on a client ledger identifed by that client’s name. The rule is complied with if the mortgage funds are credited on a separate ledger account for the Lender on receipt. On the day of completion an inter-client transfer should be made to the Borrower.

Question 4

PETTY CASH

Answer 4

1. Petty cash is a small amount of money held at the firm’s office as opposed to the bank.
2. The key point to note regarding the use of petty cash is that any payment made on behalf of a client using petty cash must come from the business account.
3. there will be a separate petty cash ledger to record this on.

So if a solicitor pays £50 from petty cash on behalf of a client, the accounting entries would be:
*Debit client ledger £50 business account
*Credit petty cash ledger £50 business accoun

Question 5

3

WHEN SHOULD INTEREST BE PAID?

Answer 5

1. Firms must account to clients or third parties for a fair sum of interest on any client money held by them.
2. This fexible approach has been adopted by the SRA to give frms discretion in deciding when and how interest is paid to its clients, ensuring that a fair outcome is achieved for both the firm and the client.
3. Each firm must have a written policy on the payment of inter-est which seeks to provide a fair outcome. The policy should be presented to the client at the outset of any transaction,

Question 6

fair sum
interests paid

Answer 6

1. The firm may adopt a ‘de minimis’ policy, for example, ‘No interest shall be paid on any individual client’s funds where the firm holds less than £20 for them’.
2. If the firm holds client money in a general client account, the firm is allowed to keep any interest earned over and above the amount required to be paid under the Rules.
3. Thus the firm may earn more interest on client money than it needs to pay out to clients.
4. Should the firm decide to open a separate designated account for a client, there is no obligation for the firm to treat the interest paid any diferently from funds held in a general client account. However, most firms will simply apply the bank’s rate of interest to the money held in that account and pay it directly to the client concerned.

Question 7

payment Methods
The methods that the firm may use to provide the client with any such interest payments are as follows:

Answer 7

1. Offset any interest owed from any amounts owed to the firm for payment of bills;
2. Transfer the sum of interest from the business account to the client account; and
3. If the transaction has ended, send the interest payment directly to the client.