Solicitors' Accounts - Agent vs Stakeholder, Petty Cash and Interest

Question 1

Deposit held as agent

Answer 1

• On receipt - paid into client account
• On exchange - credited to seller’s account

Question 2

Deposit held as stakeholder

Answer 2

• Held by seller’s solicitor for both buyer and seller until completion
• Rules require all receipts of client money be recorded on the client ledger for that client and so this deposit is treated as if it belongs to a separate client (client ledger in joint name of buyer and seller - called ‘stakeholder ledger’)
• On receipt - held in stakeholder’s account (credit stakeholder ledger, client account with deposit and deposit cash sheet, client account)
• On completion - held in seller’s account (inter-client transfer, debit joint stakeholder account, client account and credit seller client account, client account)

Question 3

Mortgage Advances

Answer 3

• Received from the lender held for the lender until completion
• No specific guidance on this situation in rules but the buyer and lender are separate clients, therefore separate client ledger for lender needs to be created
• On receipt = held in lender’s account

Credit lender ledger, client account with mortgage advance and debit cash sheet, client account

• On completion = held in buyer’s account (via inter-client transfer)

Question 4

Petty Cash

Answer 4

• Not a bank account but real cash
• Always business money - if used to pay something for a client the entry is recorded on client ledger, business account
• Debit client ledger, business account and credit petty cash ledger, business account

Question 5

Accounting for Interest

Answer 5

• Firm must account to clients or third parties for a fair sum of interest on any client money held, unless agreed otherwise
• Firm must set its own policy as to when it is fair to account to clients for interest and how it will calculate interest
• Must provide policy to client or draw the client’s attention to it at start of retainer
• Policy must be regularly reviewed

Question 6

Dealing with Interest

Answer 6

• Open separate deposit account for a client’s money or use the general bank account
• Firm may choose to open separate client account if it is likely the firm will be holding a substantial amount for that client for a significant period of time
• Not common for separate accounts to be opened for every client
• Firm does not have to account to client for all of the interest (only a fair sum), usual to account to client for all the interest earnt

Question 7

Payment of Interest

Answer 7

• Offset it against any money owed to the firm
• Transfer the interest from the business account to the client account
• Send the interest payment directly to the client (if the transaction has ended)