#14740 - Professional Conduct Issues - Property Law and Practice

Professional Conduct Issues

Lenders & Draft Certificates of Title

A certificate of title will be sent to the lender’s solicitors before the contracts are exchanged to ensure the lender has the appropriate funds to discharge the mortgage. On completion the signed and dated certificate will be sent to the lender’s solicitor.

Acting for Lender & Borrower

If a borrower requests their solicitor to act for both the lender and the borrower this creates a professional conduct issue. Under P(4) the solicitor is under a duty to act in the best interests of each client.

O(3.5) clearly states that a solicitor should not act where there is an actual or risk of a client conflict unless one of the exceptions in O(3.6) or O(3.7) applies. The Glossary defines ‘client conflict’ as where the duty to act in the best interests of each individual client conflicts. In this case there is a potential conflict because…

IB(3.7) clearly applies here and states that acting for a lender and borrower can only achieve the outcomes where there is a standard mortgage for a private residence. In this case it is not a private residence and therefore IB(3.7) does not apply…

There are two exceptions to O(3.5), the first of which is O(3.6) which states that a solicitor may act where there is a client conflict when the clients have a substantially common interest. The Glossary defines ‘substantial common interest’ as where the parties have a clear consensus as to how a common purpose is to be achieved. However, in lender-borrower cases O(3.6) almost never applies because IB(3.11) states that where clients interests in the end result are not the same, the solicitor cannot act. In this case… Merely wanting to complete the deal is not a valid ‘substantial common interest’.

The second exception to O(3.5), is O(3.7) which allows solicitors to act for clients if the clients are competing for the same objective if they have confirmed in writing they want the solicitor to act. The Glossary defines ‘competing for the same objective’ as where one party attains the objective (being an asset, contract or business opportunity) it becomes unattainable to the other party. In this case…

Finally, IB(3.3) states that solicitors should decline to act where the solicitor will need to negotiate on matters of substance on their clients behalf. In this instance, there will be a variety of issues of substance (such as the loan agreement or mortgage) that the solicitor will need to negotiate on and clearly a negotiation cannot be conducted by one sole solicitor.

Therefore, for all the reasons stated above, it is not possible to act for both the lender and borrower in this case without failing to meet any of the outcomes and principles of the SRA Code of Conduct.

Breach of Mortgage Condition

There will be confidentiality and disclosure issues if a client intends to breach mortgage conditions. Failure to disclose this to the lender means the solicitor may risk aiding and abetting mortgage fraud.

P(4) states that a solicitor has a duty to act in the best interests of your client and the lender. If these duties conflict then issues arise: a solicitor has a duty of disclosure to the lender under O(4.1) which means disclosing the intended breach. However, the solicitor also has a duty of confidentiality to the borrower under O(4.2) to keep the intended breach private.

Therefore, O(4.3) states that the duty of confidentiality overrides disclosure. If the borrowers do not consent to the solicitor’s disclosure to the lender of the intended breach of mortgage condition then the solicitor must stop acting for the lender.

If the lender’s new solicitors probe and investigate into this issue and the borrowers continue to refuse to disclose the intended breach, you must stop acting for the borrowers as well otherwise they will not achieve P(2). If the solicitor continues to act for the borrower they risk aiding and abetting mortgage fraud and not meeting P(1).

Undertakings

O(11.2) defines undertakings as a binding promise from one solicitor to another. A breach can lead to disciplinary action.

Undertakings can be oral or in writing and must be a statement to do, or not to do, something that is reasonably relied upon in the course of practice.

Contract Races

A solicitor has a duty to keep their client’s affairs confidential (O(4.2)). If this conflicts with another duty, such as informing the buyer there are other buyers involved (O(11.3)) then the solicitor must stop acting for their client.

Solicitors are under an obligation to disclose to their client (O(4.2)) but solicitors cannot contact an individual who has a lawyer except in certain circumstances (IB(11.4)).

Customer Due Diligence

Regulation 3(1)(d) MLR 2007 requires customer due diligence to be carried out by legal professionals who are involved in property transactions. If it is a one-off transaction, Reg. 9(2) requires the customer due diligence to be carried out prior to the transaction.

If the due diligence cannot be carried out in time, the transaction must not be carried out using bank accounts (Reg. 11).

Third Party Instructions