Law Commission open consultation on putting “statutory duty of care” on conveyancers for fraud prevention

The Law Commission have opened a consultation on the future of registration of land and of the Land Registration Act 2002.

The consultation, which is separate to the Land registry privatisation consultation, seeks to identify a number of areas for reform, particularly those relating to fraud and asks whether conveyancers or mortgage lenders are actually incentivised to develop best practice.

The Law Commission also asks whether conveyancers should be subject to a statutory duty of care when it comes to fraud prevention, and whether identity checking standards between different regulators should be harmonised.

Professor Nick Hopkins, Law Commissioner for property, family and trust law, said: “Effective land registration is the foundation of conveyancing and essential to the successful operation of the property market in England and Wales.

“The landscape within which land registration operates has changed considerably since the 2002 Act came into force. Our review provides an opportunity for landowners, conveyancers, lenders and all those with an interest in the property market to tell us how the Act has been working in practice. It allows us to consider where we can bring greater certainty and security and what can be done to reinforce the role of the land register as a guarantee of title.”

The summary consultation states: “We have seen an increase of incidents of fraud relating to registered land, the legal consequences of which have been difficult to resolve, while technology has not developed in the way that was predicted at the time of the legislation.”

It goes on to say: “The provision of an indemnity is an essential part of the land registration system, but the ultimate aim is to prevent fraud from happening in the first place. One of the concerns of the current law is that while Land Registry carries the risk of transactions once they are entered on the register, Land Registry is not best placed to detect fraud.

“Those who may be better placed – such as conveyancers and mortgage lenders – may not be incentivised to develop best practice because they will not necessarily bear the cost. Of course the vast majority of conveyancers and mortgage lenders conduct their business in a professional manner and exercise all due diligence in their dealings with land. We consider whether any reforms should be made to ensure that the financial consequences of fraud fall on the minority who fail to do so, as a means of encouraging best practice.

“In particular, we ask whether a duty of care that conveyancers may owe Land Registry in respect of applications that they make should be enhanced and whether a statutory duty of care should be introduced.

“Identity fraud is a particular concern in the context of registered land. We therefore invite views on specific reforms aimed at detecting and preventing this type of fraud. Currently, conveyancers may be subject to different guidance on what steps should be taken to verify a person’s identity, according to whether the conveyancer is a solicitor.

“We question whether the existing requirements could be rationalised. We also ask for views on how the land registration system could include more effective identity checks.”

The consultation also aims to cover the development of solely electronic conveyancing.

Part 1.56 of the summary states: “It is clear that at the current time a number of practical barriers stand in the way of a system of electronic conveyancing that provides for simultaneous completion and registration of an interest, (the model envisaged in and permitted by the LRA 2002). We consider that simultaneous completion and registration should remain the goal of electronic conveyancing, but we have concluded that it is not practical to move directly to such a model from paper-based conveyancing.

“We consider that for electronic conveyancing to become a practical reality it is necessary to step back from the original goal. From the experience of other jurisdictions, we believe that removing the requirement of simultaneous completion and registration will open up avenues along which electronic conveyancing can develop.

“We provisionally propose that the requirement of simultaneous completion and registration should be removed from the LRA 2002. We also consider the legal process by which electronic conveyancing should be able to be introduced, and then how decisions to phase out paper-based conveyancing may be made.

“Additionally, we make proposals to ensure that overreaching – a process whereby certain interests in land (beneficial interests under a trust) are removed from the land and transferred into the proceeds of sale – continues to operate in the context of electronic conveyancing.”

The full consultation document can be found here.

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