Property (Freehold) - Ethical considerations (13) Flashcards
What are conflicts of interest?
Conflicts of Interest: Solicitors should ensure that they are not creating a conflict of interest, which can often arise when acting for multiple clients in a property transaction.
(1) General Rule: Solicitors must refuse to act if there is a conflict of interest, or a significant risk of one arising, between two clients (CoCS 6.2).
(2) Substantially Common Interest: Solicitors may act if there is a substantially common interest between parties.
>Clear common purpose between clients, and a strong consensus on how to achieve it.
(3) Competing for The Same Business: Solicitors may act if clients are competing for the same business.
>Two or more clients compete for an objective which, if one attains it, is unattainable to the other.
(4) Conditions to Act: To act under either exception, there must be:
Informed Consent: Informed written consent (knowledge of issues and risks).
Effective Safeguards: Effective safeguards to protect confidential information between clients.
Reasonableness: Must be reasonable to act - i.e. in both clients’ best interests.
Common Examples
Common Examples: A number of common examples arise within property transactions.
(1) Buyer and Seller: Practically impossible to act. Substantially common interest exception does not apply.
(2) Joint Buyers: Generally okay (subject to both being borrowers).
(3) Borrower and Lender: Generally okay (residentially). More difficult commercially (prone to negotiations).
(4) Joint Borrowers: Possible to act for two borrowers, subject to Etridge Guidelines.
Etridge Guidelines: Solicitors must explain to both borrowers all relevant information, and confirm instructions to act in writing, in absence of other borrower. This counters suggestions of undue influence.
Lender Cooperation: Lenders should provide all pertinent information to the solicitor, and be confirmed in writing of the authorisation of borrowers.
Refusal to Act: If it is glaringly obvious that one borrower is being grievously wronged, refuse to act.
What are contract races?
Contract Races: A contract race is a marketing strategy whereby a seller sends a pre-contract package to multiple prospective purchasers. They compete to exchange first.
(1) Legitimacy: This technique is legitimate, provided the prospective purchasers are aware they are in a race.
(2) Conduct Issues: The solicitor should not be complicit in instructions not to inform prospective purchasers about the existence of the race.
Duty: Solicitors must not mislead or attempt to mislead others, or be complicit in the misleading acts or omissions of others (CoCS 1.4).
(3) Refusal to Act: Where a seller refuses to disclose a contract race, the solicitor must refuse to act. They cannot inform the prospective purchasers, as this is in breach of their duty of confidentiality.
What are undertakings?
Undertakings: Undertakings are promises made by solicitors or firms to a party who reasonably relies on it that the solicitor, or someone they act for, shall do something.
(1) Conduct Issues: Solicitors must perform all undertakings within an agreed or reasonable timescale. Solicitors should therefore be very careful when making them, lest they face personal liability.
(2) Scope: Undertakings are effective even for promises beyond the solicitor’s control, i.e. promises made on a client’s behalf.
What other things may be an issue?
> Mortgage Fraud
Property and Title Fraud
Data Protection
Money Laundering
Third Party Instructions
