The Latest Advice On Avoiding Conflicts Of Interest In Conveyancing
Back in November 2018, we reported on a case whereby the SRA brought action against Manchester firm Sleigh Son & Booth for four separate offences of conveyancing conflict of interest.
In doing so, they showed that the firm had acted on behalf of both vendor and purchaser in dozens of transactions, without informing the parties of the conflict. The Solicitors Disciplinary Tribunal (SDT) ordered them to pay a fine of £2,000 and costs of £20,000. At the time, Sleigh Son & Booth made the point that the conflicted transactions represented only 1% of their total conveyancing work, but they did implement new processes and systems to avoid any repetition.
This case highlighted that a busy conveyancing firm handling hundreds or even thousands of transactions could unwittingly act for both parties, without taking the necessary steps to ensure transparency and disclosure of interests. As such, all law firms providing residential and commercial conveyancing services should review their practices in line with current Law Society and SRA advice on avoiding conflicts of interest.
The SRA Handbook – Version 21
The SRA’s handbook, chapter 3 defines the rules and possible exceptions for legal professionals concerning conflicts of interest. It states that client conflict (whereby you act for two or more clients with substantially common interests) may be permitted if:
- you have fully explained the situation to the clients – including any issues and risks to both parties, and these are fully understood
- based on your explanation, all clients give informed consent to proceed
- you as the conveyancer are satisfied that it is reasonable to act for all clients and doing so is in their best interests
- the benefits of doing so outweigh the risks.
As such, the SRA allows conveyancers to assess each situation on a case by case basis, and to use their judgement as to whether it is ethical to act for all parties.
The new SRA Standards and Regulations
The new 2019 SRA Standards and Regulations, which are due to come into force in November 2019, will supersede the SRA handbook, and it is notable that the requirements relating to conflicts of interests have been added to and simplified. The new guidance requires the following in cases of conflict of interest:
- all clients affected have given informed consent, given or evidenced in writing, to you acting
- where appropriate, you put in place effective safeguards to protect your clients’ confidential information; and
- you are satisfied it is reasonable for you to act for all the clients.
In doing so, while the handbook does refer to safeguards, the new regulations make it clearer that measures are required to protect each clients’ private information.
The new SRA Regulations also vary considerably from the handbook in that many outcomes and indicative behaviours have been removed. Where previously, the handbook stated, for example, that a conveyancer could act for a lender and borrower, this would be allowed if the mortgage was a standard type, and the certificate of title required by the lender was in the form approved by the Society and the Council of Mortgage Lenders – this is now no longer stated.
Leasehold reform report calls for changes to avoid conflicts
A recent comprehensive report, entitled, ‘Leasehold Reform’ by the House of Commons Housing, Communities and Local Government Committee, raised several concerns relating to existing conflicts of interest, which they believe warrant governmental action. In particular, conflicts of interest between clients and developer-recommended Solicitors have in several cases led to complaints of lack of clarity regarding onerous terms contained within leases. Page 26 of the report makes this clear in stating:
“While developers have been accused of providing misleading sales information or imposing onerous terms in leases, ultimately it was the responsibility of conveyancing solicitors to ensure prospective purchasers of leasehold properties were aware of the ownership structure and lease terms and their effect. It is the conveyancing solicitors, as opposed to the developers, who could be legally liable for failing to highlight these terms to prospective leaseholders. It was concerning, therefore, to hear several reports from leaseholders that they had been advised, incentivised or required by the developer to use a specific conveyancing solicitor, who subsequently did not advise them of onerous terms in their leases”.
According to the report, many leaseholders who had engaged the services of developer-recommended conveyancers didn’t understand the basic differences between leasehold and freehold. This is a worrying situation. On this basis, one of the recommendations made by the committee is that the Government should prohibit the provision of financial incentives to prospective purchasers to use their preferred conveyancer. Having the freedom to choose a wholly independent Solicitor to handle the transaction is seen as core to reining in possible conflicts of interest.
Time to review policies and procedures
Conveyancers should review their systems to ensure that conflicts of interest are avoided, or if there is a potential conflict, that these are flagged up early in the process and managed accordingly. Conveyancers can continue to represent mutually interested parties to a property/land sale or purchase, whether the client is a buyer, seller, leasee, leasor, developer or lender, if the criteria which permit the exception are met. The key for all conveyancers is to remain in control and not to be in a situation whereby unknown risks are taken – allowing you to make informed decisions which protect both your client’s interests and your business’s reputation.