PRELIMINARYMATTERS (STAGE 1) Flashcards
transaction stages
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TAKING INSTRUCTIONS ON A SALE AND PURCHASE
- Once a conveyancing transaction has been agreed, the client will instruct their solicitor. The solicitor must take instructions to obtain the essential information regarding their client’s matter. This might be done via an interview or by sending a checklist for the client to complete and return.
- Send a client care letter to their client setting out the level of service to be provided and the costs, in accordance with the Code of Conduct;
- Obtain appropriate identifcation documentation (for ex-ample, a passport, driving licence, or utility bill) to satisfy themselves that the client is legitimate; and
- Carry out appropriate due diligence checks (for example, to see where large sums of money from the client might have come from in accordance with anti-money launder-ing requirements).
SURVEY ON PURCHASE
At the beginning of the transaction, the buyer’s solicitor should advise the buyer to have a surveyor carry out a phys-ical inspection of the property
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CAPITAL GAINS TAX—WILL SELLER HAVE TO PAY?
- Capital gains tax (‘CGT’) is a tax on the profts made when a taxpayer disposes of an asset that has increased in value.
- The seller’s solicitor should advise the seller that capital gains tax could be due on the sale, although CGT is not pay-able in most residential transactions because of a tax relief
called the Principal Private Residence Relief exemption. - note that if any CGT is payable by the seller, they must submit a tax return and the tax to Her Majes-ty’s Revenue and Customs** within 60** days of the completion date. A return is not required if no CGT is payable.
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PROFESSIONAL CONDUCT ISSUES RELEVANT TO CONVEYANCING
- Undertakings
- Confidentiality
- Conflicts of Interest
- Giving Co-Ownership Advice
Undertakings
an under-taking is 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.
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Confdentiality
- In a residential transaction, if the buyer needs a mortgage to fund their purchase, the buyer’s solicitor often acts for the buyer’s lender as well. In such cases the lender also be-comes 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, for example, 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 confdentiality to the buyer is paramount.
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Conflicts of Interest
- A solicitor must avoid a confict of interest or ‘signifcant risk’ of a confict of interest between the solicitor and the client or between two or more clients in the same transaction
- Buyer’s Solicitor May Represent Both Buyer and LenderIn a** residential transaction**, lenders often choose to use the buyer’s solicitor in the transaction.
- In** a commercial transaction**, the lender will often appoint their own solicitor to represent them rather than the buy-er’s solicitor.
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The solicitor can act for the buyer and the buyer’s lender provided that:
- The lender is an institutional lender, providing loans in the ordinary course of its business;
- The standard certificate of title is provided
- There is no confict of interest or risk of a confict of interest (note that the risk is considered not to be high if standard terms are used).
However, if a confict of interest arises, the solicitor should cease acting for both the buyer and the buyer’s lender.
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Other Potential Conficts of Interest
- A conflict of interest might also arise if a solicitor acts for two sellers who cannot agree on how the sale proceeds should be divided between them, for example, if the two sellers co-own a property but are getting a divorce.
- A conflict may also arise if the solicitor acts for two buyers who cannot agree on how they should co-own the property (namely, how they should hold the benefcial interest).
- Another conflict can arise if someone is gifting a deposit to the buyer of a property, for example, the buyer’s parents. In such cases, the solicitor should avoid acting for the parents and the buyer due to the possibility of a confict of interest.
Exam Tip
Look out for any suggestion on the exam that the solic-itor is to act for more than one party** in the same trans-action**. The parties will often have conflicting interests. If that is the case, the solicitor should decline to act for the additional party or parties. - If the solicitor is acting for more than one seller or buyer, to prevent fraud and guard against conflicts of interest, the solici-tor must ensure that they are instructed by each of the clients.
Note: Once joint instructions are taken and identifcation requirements are satisfied, the clients can agree one of them will take the lead on giving instructions and the solicitor can accept this.
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Giving Co-Ownership Advice
- When acting for more than one buyer of a property, the buy-er’s solicitor must give co-ownership advice.
- As discussed in Land Law, the legal estate can be held only as** joint tenants, **and a maximum of four people can hold the legal estate. The behind-the-scenes benefcial interest can be held as joint tenants or tenants in common.
- Declaration of Trust
If the buyers decide to hold the beneficial interest as tenants in common, it is advisable for them to enter into a document called a declaration of trust. - Remember that if the parties hold as tenants in common, the doctrine of survivorship does not apply. It is therefore important for them to make a will.
LAW SOCIETY CONVEYANCING PROTOCOL
The Law Society Conveyancing Protocol (the ‘Protocol’) is 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.
