When a conveyancing solicitor receives instructions from both seller and buyer, he is duty bound to act in the best interest of both. In instances, when he can act for both parties, it is important that safeguards mentioned in the Code of Conduct are explained clearly to them. Such safeguards include, ensuring that both the clients understand and give consent despite the risks involved, and when benefits far outweigh the risks involved.
Chapter 14 of the Code sets out that ‘substantially common interest’ is a situation where there is a common purpose in relation to a matter or a particular aspect of that matter, and there is strong consensus between both parties. And if there is a conflict, it is not related to the common purpose. A common consensus or substantial common interest is that both buyers and sellers wanting to make sure that there is good title to the property and it does not suffer from any problems that would adversely affect its value.
And when it is a residential transaction, the buyer’s lenders, i.e. the banks shall instruct the buyer’s conveyancing solicitor to act for them in connection with the mortgage. The same holds true on the seller’s side when he has to discharge a mortgage. When it comes to residential mortgages, buyers usually choose standard organisations like banks, building society etc. where standard practices are followed and even the mortgage rates are pre-printed.
A standard mortgage is one that is provided over the normal course of activity of the lender whose significant business is to lend money on standard terms and the material terms of the mortgage documentation are not negotiated. When a property solicitor has acted in good faith and followed the practices explained above, he is said to have complied with Chapter 3 of the Code of Conduct. The conveyancing solicitor is said to have followed the Principles if the mortgage is a standard one with the borrower’s residence being used for the mortgage and the lawyer being assured that the certificate of title is in the form that is approved by the Law Society and the Council of Mortgage Lenders.
When it is a commercial transaction, the general practice for parties, viz. buyers and sellers is to be represented by different lawyers. This is because, the mortgage documents such as facility letter and the charging document is a subject matter of negotiation. However, if the deal is done between related parties, it is up to the lawyer to decide if a conflict of interest exists or is likely to arise. It can also happen that the lender may divide the job between two solicitors; he may ask the buyer’s conveyancing solicitor to investigate on the property’s title, whereas, he may ask another (independent) solicitor to prepare loan documents.
Irrespective of the fact that the transaction is residential or commercial, it is important that a lawyer representing the borrower and the lender should cease to represent both parties if he is sure that there exists, or there is a likelihood of a conflict of interest, or the conflict of interest no longer remains marginal. Instances of such conflict of interest include:
- The mortgage terms are not fair to the borrower,
- The buyer may have breached one or more terms of the mortgage,
- The borrower is unable to provide the balance of the purchase price from his own funds,
And during the course of inspection, if the conveyancing solicitor finds that his buyer client is doing any fraud, he must stop acting for that client immediately.
Photo courtesy: seier+seier
