Law Society AGM – Perth 31 May 2012

At the AGM there was a report on the decision of the Law Society Council to carry out a review of the Conflict of Interest Rules. This followed a motion at the 2011 AGM that the exceptions to the general prohibition on acting for different parties in conveyancing transactions be reviewed.

It was noted that the Professional Practice Committee had received a remit to set up a Working Party to carry out a review. A number of solicitors attended a Focus Group meeting in Edinburgh in August 2011 and the Working Party concluded that the existing Rule should not be changed. It was also felt that any change would result in delay to conveyancing transactions and increased costs to consumers. This view was endorsed by the Professional Practice Committee at its meeting in September 2011.

Since that date, there have been a number of other developments in relation to lenders. These revolved around reductions in Panels. Examples include Lloyds Banking Group, Nationwide and, most recently, HSBC.  Nevertheless, the view of the Professional Practice Committee remained the same. This view was put to the floor by the Convenor, Graham Mathews.

Members were informed that the Society’s Property Law Committee took a different view and a paper had been circulated. The paper was spoken to by the Convenor, Ross Mackay. There then followed discussion among members. It was pointed out that there was a groundswell of opinion in the profession  that the time was right to consider making a change and that the issue was not solely concerned with mortgage fraud.

The Meeting was advised that the matter had been debated at Council and that it had been agreed that they were minded to propose amending the Rules to prohibit the same firm acting for lenders and borrowers in all transactions (residential and commercial). To that end, a Working Party is to be established to engage with members of the Society and with lenders and other interested parties so as to promulgate standardised practice and procedures for security work. The Working Party is to report to the Special General Meeting in September 2012 with recommendations.

Professor Stewart Brymer WS

31 May 2012

Joined-Up Land and Property Information: Will the Dream Come True at Last?

Background

There have been a number of recent developments which have the potential to significantly improve the way in which information about Scotland’s Land and Property is managed and made available.  A number of inter-related initiatives are being, or are about to be, launched, which together with new governance arrangements, suggest that the original aims of the Scottish Land Information Service (“ScotLIS”) may finally be realised.  

In 2001 those involved with the ScotLIS project (http://www.scotlis.com) produced the following statements of intent:-

“The ultimate aim of the ScotLIS project is that of providing an integrated data set where the user obtains information from a range of providers by means of a single search enquiry. This will be facilitated by means of a gazetteer …….” 

“The extent to which data from different suppliers will be integrated will be determined in the course of the ScotLIS pilot and through the ongoing development of the service.”

ScotLIS never progressed beyond the pilot stage for a number of reasons, mainly to do with the available technology at the time, but also due to the way in which the organisations involved viewed their own information.  Since then a number of significant events have occurred including legislative change and most markedly the economic downturn which has led to serious review of the way in which the public sector will require to deliver services in future. For a more detailed review of the background to ScotLIS, see an article by the authors in Greens PLB Issue 97 pp1-3.

Recent Developments

In December 2009, Scottish Ministers signed the European INSPIRE Directive which places an obligation on them to publish information on a number of spatial data themes which contain environmental data.  Those themes directly related to land and property are Addresses, Geographic Names, Cadastral Parcels and Buildings and the Directive explicitly specifies what information is required to be published and how this must be done using web services. This was a very important step on the road to the goal of joined-up property information.

In 2010 a joint venture was established between the Local Government Association and the Ordnance Survey to deliver a National Address Gazetteer for England and Wales by working collaboratively to combine the best features of the National Land and Property Gazetteer and Ordnance Survey address products.  There are now plans to include Scottish data into the National Address Gazetteer and John Swinney, the Cabinet Secretary for Finance and Sustainable Growth has given his approval to seek closer integration between the One Scotland Gazetteer and National Address Gazetteer, whilst retaining a Scottish identity.  It was announced on 18 July 2011 that the National Address Gazetteer would be handled by the soon to be created Public Data Corporation.

The One Scotland, One Geography strategy for Scotland is due to be renewed in 2011 with the working title of “One Scotland: One Europe: One Geospatial” which reflects the current aspirations to consider Scotland in a more European context. This demonstrates the broad consensus that exists across Europe to deliver a unified picture of land and property information. A number of interested parties are being consulted on the content of the strategy and Scottish Government will have the responsibility for publishing it in due course.

The Scottish Government recently announced the establishment of a Spatial Information Board with the remit to implement the Scottish Spatial Data Infrastructure / INSPIRE Directive requirements. The Board’s membership will be drawn from senior officers from Scottish Government, NDPBs, SOLACE, NHS, AGI Scotland, Edina and the Registers of Scotland and it is chaired by Jim Mackinnon, Director and Chief Planner, Scottish Government.  The Board is expected to report to a National Board overseeing public sector reform in Scotland.  Five theme groups have also been established under the Board, with one of these having the remit for Land, Property and Addresses, which include Geographic Names and Buildings.  Once the governance structure is established and functioning it should provide a clear reporting structure for land and property related information to Ministerial level.  This was one of the key components missing from ScotLIS in 2001, as well as the links to other spatial initiatives.

Assuming that the above all materialise as anticipated, Scotland should be well placed to develop a land and property infrastructure which will be capable of supporting greatly improved services, including eConveyancing and improved asset management.  

What does this mean for Conveyancing practice?

Up to date and readily accessible information on land and property is at the very core of the conveyancing service. It has been argued for many years that it is nonsensical for solicitors to have to have recourse to multiple data sets, some of which may not be comprehensive in their coverage or, indeed, be current. This is not in the best interests of either buyer or seller. Why should they be put at risk? It must surely be the case that in today’s information-based society that all relevant data on land and property is held in a comprehensive and easily searchable database. This initiative is the catalyst for reform that has been required. Without it, the existing systems would grind on with little or no appetite for change.

It is unclear where the role of the private sector lies in this. Perhaps there might be a case for a form of public/private partnership? This would bring together the pioneering work undertaken to date by the public sector with a number of comprehensive datasets that exist in the private sector. Unifi Scotland (http://unifiscotland.com) is a think tank that was established a number of years ago to look at ways of improving access to and use of data on Land and Property with a view to having a government-backed definitive source of information. Anyone who is interested in contributing to that debate should contact the Chair through the website.

The views expressed in this article are those of the authors and do not represent the views of their respective organisations or of the Scottish Government.

An Article by Professor Stewart Brymer WS, Brymer Legal Limited and Iain McKay, Improvement Service    

Published in Greens PLB (October 2011)

The Demise of the Letter of Obligation?

Introduction

Delivery of a disposition  in exchange for payment of the price in a conveyancing transaction does not, of itself, confer a real right. Only registration does that. See Sharp v Thomson 1997 SC (HL) 66 and Burnett’s Trustee v Grainger 2004 SC (HL) 19. Accordingly, the so-called “race to the register” dictates that the first person to acquire a real right by way of registration prevails. See also Ceres School Board v   McFarlane (1895)23 R 279.

There is, however, an attendant risk caused by the brief delay between delivery of the deed and its registration. This has come to be known as “gap risk”. That risk can be divided into (a) the risk that the granter is sequestrated, put into liquidation etc.; and (b) a risk that the granter grants a competing deed to another party and that deed is registered first. In addition, there is also a short gap between the date of the search in the registers on which the grantee relies and the actual date of settlement. This gap has been reduced considerably in recent years and, if using ARTL, (www.ros.gov.uk/artl)  the gap is virtually removed altogether. Nevertheless, the gap still exists. As stated in para 14.2 of the Report of the Scottish Law Commission  Number 222 on Land Registration  (www.scotlawcom.gov.uk/publications/reports), “Efficient conveyancing can cut down these two gap elements but experience shows that it is hardly possible to eliminate the problem altogether.”

As mentioned above, the introduction of ARTL  along with the effect of Section 17 of the Bankruptcy and Diligence (Scotland) Act 2007 have also helped reduce the gap risk but they do not provide a complete solution.

The gap risk has traditionally been covered by the seller’s solicitor granting a letter of obligation which, if in “classic” form constitutes a personal guarantee by the granter’s solicitor. In recent years, solicitors have, quite rightly, questioned why they should provide such a guarantee to make the conveyancing system operate more efficiently. As Professor Rennie has said, the letter of obligation is effectively the oil that lubricates the system and enables it to work. 

In England and Wales, it is possible to obtain an “official search with priority” which provides a period of 30 business days (a period equal to 42 days). Under that system, the use of advance notices is optional but they are widely accepted as part of the conveyancing process as they afford a degree of protection to purchasers. A registered advance notice involves a notice being placed on the Register stating that the owner (A) is intending to grant a deed to a third party (B). This notice does not confer a real right on B. What it means is that if a deed is, in due course, granted to B and that deed is registered, then anything in the Land Register in favour of another party (C)  that is registered between the date of the advance notice and the deed of the registration of the deed in favour of B is postponed to the said deed in favour of B – the advance notice being capable of being seen on a search of the Register carried out by a prospective purchaser.

Proposed Reform

A recommendation for reform to the Scottish system to deal with problems associated with floating charges was suggested a number of years ago. See Greens PLB Issue 45 at pp 1-3. In response to calls for reform of the system generally  from The Law Society of Scotland amongst others, the Scottish Law Commission carried out an investigation into possible reform. This involved a consideration of the systems of advance notices used in England and Wales and in Germany. See Scottish Law Commission Discussion Paper 130 and the aforementioned Report on Land Registration.

A brief outline of the proposed reforms is as follows:

1.     An advance notice may be registered whether or not there are antecedent missives.

2.     It is recommended that the advance notice system will apply only to properties registered in the Land Register. Scottish Ministers will, however, have power to extend it to first registration.

3.     The draft Bill which forms part of the Scottish Law Commission Report does not specify the form of an advance notice which, in practice, is likely to be electronic. It will be possible to lodge the notice in paper however. It is expected that the exact form of the notice will be regulated by rules to be promulgated by Scottish Ministers.

4.     An advance notice would normally be granted by the party named as proprietor in the title sheet but third parties, who are not heritable proprietors but who can validly grant the deed in question, may also register an advance notice. It is also recommended that the notice can be granted by any other person, so long as the notice bears the consent of the person who could validly grant the deed in question. This accords with the German approach. In a standard conveyancing transaction, the missives will require to provide for an advance notice to be applied for.

5.     Advance notices will enter the Application Record in the Land Register and would not be registered in the title sheet. Unlike at present, the Application Record will be one of the four recognised parts of the Land Register if the recommendations of the Scottish Law Commission are followed. See SLC Report paras 4.9 and 4.35.

6.     The Scottish law Commission recommended that the advance notice would subsist for a period of 5 weeks (35 days) – not “business” days. The Bill envisages that the period can be varied by secondary legislation.

7.     It is recommended that the protection afforded by advance notices should extend to entries in the Register of Inhibitions that appear within the protected period.

Conclusion

In broad terms, an advance notice would cover the risks covered by a typical letter of obligation. It is not envisaged that it would protect against a notice of potential liability for costs and other possible exceptions as may be listed by Scottish Ministers.

It is suggested that the introduction of advance notices in Scotland is long overdue. The Scottish Law Commission are to be congratulated for carrying out an in-depth investigation of the background to the current system and of the options available for reform as part of their research into the reform of the land registration system. Under the proposed system, there would still be a “race to the register”. Under that system the first person to register would prevail “but with the possibility of the result being changed if that registration happened during the currency of a notice in favour of another person” – SLC Report para 14.49.

Conveyancing practice would obviously require to change. The prospective grantee will require to ensure that the advance notice is entered on the Register a reasonable time before the intended settlement date. Then immediately prior to settlement, the Register can be checked to confirm the entry of the notice, to confirm that no competing deed has been registered (as now) and to confirm that no potentially competing advance notice has been entered.

The Scottish Law Commission envisage that the new system will be relatively straightforward to operate and that it will be of considerable benefit both to the legal profession and to members of the public alike. Assuming a clear search, the transaction can be settled and the deed in favour of the grantee registered without fear of challenge. In a normal conveyancing transaction, it is envisaged that there would potentially be two advance notices – one in respect of the Disposition and the other in respect of any Standard Security.  This is seen as being a low cost solution to the potential harm caused by the gap risk – especially where the letter of obligation, for whatever reason, does not provide an assurance. 

It will be interesting to see whether or not letters of obligation will become redundant. It is hoped that they are no longer required. They have served their purpose and should be laid to rest – or as could otherwise be said: “Their time has came and went”!

An Article by Professor Stewart Brymer WS, Brymer Legal Limited.

Published in Greens PLB (August 2011)

What do clients want from the conveyancing process?

Introduction

Conveyancing has long been viewed by many as something of a “black art” or secret process carried out only by the “initiate and their acolyte”. That is largely the result of the language and terminology used by conveyancers and those in the residential property business. The conveyancing process is essentially straightforward however, insofar as it involves the transfer of title to a heritable property from A to B free of any real burdens or other restrictions that might render the title unmarketable.

What do clients want?

In no particular order, it is suggested that clients want:

•      a job well done, on time and for a fair fee;

•      to know that they have someone who is on their side;

•      someone who will guide them through the process; and

•      to whom they can speak to and ask for advice as and when required.

From past experience, clients want their solicitor to communicate with them regularly and to keep them updated on progress. In many respects, the solicitor’s role is to translate the legal language that they are accustomed to into language that their client understands. Having a constant contact is also very important so that clients do not feel that they are being passed from pillar to post at a time of high anxiety for them.

Some have often cynically said that all that clients really want are the keys to the property. That may often appear to be the case but it is, with respect, a gross simplification of the role of the conveyancer as well as being quite condescending to the buyer.

How are these objectives achieved?

There are, unfortunately, many examples of how not to provide a good service to clients. The biggest source of complaints against the profession and of claims on indemnity insurance generally is currently as a result of poor conveyancing. The “stack them high and sell cheap” approach may work in conveyancing if appropriate systems and safeguards have been built into the process. There are, however, more examples of such approaches that do not work rather than those that do. That is not to say that it is not possible to create a system that minimises risk to the consumer and yet keep costs down. Case management systems continue to become more refined. 

Any good conveyancing system will use a number of different approaches including Client Guides / Information Sheets and, indeed, web-based services such as podcasts. It is good to see examples of innovation designed to keep the client suitably well-informed. This can be done in a tailored manner to suit the needs of a particular client.

A substantial part of the conveyancing process is relatively standard and is therefore capable of being commoditised so that properly trained staff can undertake much of the work. Immediately a problem arises however, it is essential that the matter is referred for specialist input. This could be where the title defect is discovered or where the title or how it has been assembled is simply complex or is being transferred for a high value. Such transactions can often require more in-depth attention.

It should not simply be high value or complex transactions that merit a personal service however. That should be the objective for every client. It is suggested that the essence of a successful conveyancing business is its ability to provide a seamless, personal service to all its clients be they large or small, seller or purchaser, and irrespective of the value of the transaction. This is easy to say but how is this objective best achieved? The answer is in the use of good systems and comprehensive training – including training and communication skills and client care for all those involved in the conveyancing process – not just reception and estate agency staff. Buying or selling a dwelling house can be a very stressful time and the good conveyancer will seek to minimise and certainly not add to this by increasing stress levels. In my opinion, it is essential for a personal link and a bond of trust to be formed between solicitor and client so that important matters such as missives; real burdens; servitudes and the conveyancing process generally can be communicated properly. Terms of Business only take matters so far. They are an essential requirement in any transaction and act for the benefit of both the client and the solicitor. It could be said however that Terms of Business are more for the benefit of the solicitor as there is, after all, rarely any consultation with or revisal to such documents. 

It is suggested that opportunities exist for solicitors to differentiate themselves from competition by being better at selling their services and explaining why it is often worthwhile paying a little more for a better quality service. The importance of face to face meetings rather than dealing with a call centre cannot be under-estimated. Clients often want emotional support throughout the course of a transaction – handholding can be a big part of the job and an element that you never know when a fee is quoted. Why not make that a unique selling point?

What does this mean for the future?

I believe that there is a future for a well-structured personal service in residential property conveyancing. Such a service can often be found, but not exclusively, in higher value transactions where the client expects a more “hands-on” service. There is no reason why such a service should be the exclusive domain of such transactions however. Clients can often make choices based on price. This is not the only consideration however and solicitors need to examine their service and sell that better. It is a service that is being sold after all. 

The effective use of technology and much improved methods of communication allow for a much better standard of service to be provided across the board – even in so-called volume conveyancing businesses. There is a perception that volume conveyancing service providers offer a lesser service. While there are examples of poor service, is that really the exclusive domain of those service providers and is it really fair to describe such providers in this way? One way for volume business to operate more efficiently is for it be run on a panel system with conveyancing firms selected after a rigorous application system. Member firms would then undergo common training and then agree to meet the standard laid down in a Service Level Agreement. Such a model could be operated under the umbrella of the Scottish Solicitors’ Property Centres’ portal. The SPCs already have a common brand and the perception of quality in the marketplace. That can be built upon given the recent announcement by the SPCs of closer collaboration and is a positive development. Some would say that it has been a long time coming.

Conclusion

In my opinion, the best way to answer the question posed in the heading to this article is to put yourself in the shoes of the client. What would you want? I suggest that it would be someone to speak to; someone who will return your calls; provide updates unprompted and who is prepared to use technology to its and your best advantage e.g. scan and email documents for signature if required. In short, someone who makes the transaction smooth and who takes some of the pressure away from you during what can be a very stressful time. As Simon Greig said in a recent article (November 2011) in Back to Basics for Lawyers (a monthly business management briefing written for partners of law firms): “Know your Client and make sure your Client knows you”.

It is often said that there is little client loyalty these days. This is regularly blamed on difficult economic times and the growth of consumerism. While I understand this point of view I can only say that in my own experience, both directly and indirectly over the years, this is not the case. The most successful solicitors are those who communicate with their clients in an open and informative manner. Clients remember that and tend to go where they feel they are being looked after.

There have been major developments in technology over the past 30 years or so. We can only guess what the future may bring. Of one thing we can be sure however and that is that change will happen. There surely cannot be a better time to review working methods and processes with a view to ensuring that your business is the best that it can be – for both you and your clients.

An article by Professor Stewart Brymer WS, Brymer Legal Limited.

Published in Greens PLB (January 2012)

Real Burdens and Planning Law

Prior to the coming into force of the Title Conditions (Scotland) Act 2003 (“the 2003 Act”) on 28 November 2004, there was little authority on the subject of interest to enforce and a tendency to consider such matters in accordance with the praedial rule. While the praedial rule looks in the abstract at whether a burden is for the benefit of an identified property and at the nature of the obligation, the rule on interest to enforce relates to whether an individual with ownership of a specific property can enforce in respect of a specific contravention of a real burden. The general rule on interest to enforce can now be found in Section 8 (3) of the 2003 Act. It is provided in Section 8 (3) that interest to enforce will exist if “in the circumstances of any case, failure to comply with the real burden is resulting in, or will result in, material detriment to the value or enjoyment of the person’s ownership of, or right in, the benefited property.”


As anticipated by a number of commentators on the provisions of the 2003 Act, the interpretation of the phrase “material detriment” has provoked debate both in the Courts and in the Lands Tribunal for Scotland. See, most recently the article entitled “Real burdens revived” and the cases referred to therein in the November 2011 Issue of the Journal of the Law Society of Scotland.  The most recent case is Kettlewell v Turning Point Scotland 2011 SLT (Sh Ct) 143 which has been described as having redressed the balance somewhat from what some described as the extreme position in the case of Barker v Lewis 2207 SLT (Sh Ct) 48; and 2008 SLT (Sh Ct) 17.


In Kettlwell, the pursuers were a group of proprietors of 20 dwelling houses in a  quiet cul-de-sac in a residential housing estate. A common scheme of real burdens was imposed in the title to the development so as to seek to protect the residential quality of the development. The common scheme included a burden to the effect that each dwelling house was only to be used as a “private dwelling house for occupation by one family only and for no other purpose whatsoever.” Turning Point Scotland, a charity working to prevent social exclusion and to provide care in the community, acquired one of the dwelling houses with a view to obtaining planning permission in respect of its conversion into a care home for up to six unrelated individuals. The pursuers on becoming aware of this proposal decided to try to prevent Turning Point Scotland from changing the use of the dwelling house on the basis that their plans were in breach of the real burden restricting use to that of a private dwelling house for one family only.


The first point to be examined by the Court was whether or not the pursuers had a title to enforce.  It was accepted that a valid title to enforce did exist by virtue of inter alia the existence of the common scheme of real burdens. That then meant that the issue of whether or not they had an interest to enforce required to be examined and, in particular, whether the failure to comply with the real burden would result in material detriment to the value or enjoyment of the pursuers’ ownership of the benefited properties. This was, as it was always intended to be, a factual question which depended on the particular circumstances of the case. In Kettlewell, the Court considered whether material detriment could be shown either in relation to (a) value or (b) enjoyment of the pursuers’ properties.


Detriment to the enjoyment of the neighbouring properties was considered under three heads: (a) behaviour of the residents of Turning Point’s dwelling house; (b) increased traffic around the house; and (c) parking difficulties. Of the three heads and on the particular facts of this case, greater weight was given to parking and traffic issues.  In addition, as one would expect , the issue of material detriment to the value of the pursuers’ property was addressed through evidence provided by valuation surveyors. Comparable evidence demonstrated that an average diminution in value of 10% per dwelling house could be expected. The Court held that such a reduction in value was significant and found in favour of the pursuers.


It was always accepted that the provisions of the 2003 Act would require to be developed as a result of decided case law. Kettlewell is the latest case to help conveyancers establish some precedents as to what may and may not be deemed to be an acceptable level of interest to enforce. As stated above however, each case must be considered in light of its own facts and circumstances and questions of materiality must be assessed against the whole factual matrix of each particular case. When considering the purchase of a property by a third party or the development of a  property by the owner for a purpose other than that which is permitted in terms of that property’s title deeds it is important to recognise that questions of title and interest to enforce remain  significant issues to consider in addition to making an application to the local authority for planning permission for change of use. Indeed, it has always been thus.  As well as the consent of the Planning Authority, it may also be necessary to obtain formal waivers from benefited proprietors in order to restrict or remove the offending real burden. That, in turn, of course, leads to a consideration of who qualifies as a benefited proprietor and that is a question for another day.




Article by Scott Brymer, Solicitor, Brymer Legal Limited, Edinburgh
Published in Scottish Planning & Environmental Law - Issue 149 - Feb 2012

Should the same solicitor act for both Borrower and Lender?

Introduction

For many years it has been common practice for the same solicitor to act for both the borrower and the lender in a residential property transaction in circumstances where “the terms of the loan have been agreed between the parties before the solicitor has been instructed to act for the lender, and the granting of the security is only to give effect to such agreement.” See sub-clause 5(1)(f) of the Solicitors (Scotland) Practice Rules 1986. This rule, which is an exception to the principle against conflict of interest, has worked well over the years and has helped keep costs down for the borrower/purchaser. It has also allowed transactions to operate smoothly and, in general terms, has been beneficial for both borrower and lender. It is suggested however that times have changed or, at least are changing, and that it is now perhaps time to consider whether there is not an underlying conflict of interest that merits the respective parties having separate legal representation. It is acknowledged that such a suggestion may not be popular in certain quarters but that is not a valid reason for preserving the status quo. The introduction of separate representation in commercial conveyancing provoked initial protest but is now accepted. Indeed, it is argued that the legal profession and their clients benefited overall.

Why change?

The traditional criticism of separate representation in security transactions in residential property conveyancing is that it will result in delay and increased cost to the borrower. In turn, this is likely to delay conclusion of missives and thus threaten the traditional attraction of the Scottish system. In reality, however, do we not already experience considerable delays – some caused by lenders – but on many occasions caused by our clients, or dare I say, by us as solicitors? Indeed, how different is our conveyancing system from that in England and Wales? See “House Buying and Selling – Do we have the English System?” Prop L.B. 70-4 and “The Future of the Scottish Missive” Prop L.B. 75-1. 

There will undoubtedly be increased costs for buyers as a result of any change which would be difficult at a time when economic conditions are tight.  Is it not the case however that the true cost of security transactions are not passed on to the borrower at present thus creating a false impression? The classic defence of the present system is that the buyer’s solicitor has examined the title and undertaken the necessary searches already so to assume the role of representing the lender is not onerous and represents good practice and thus good value for the buyer. That argument sounds persuasive but does it withstand critical analysis in times of increasing fraud and an alleged drop in conveyancing quality?

The fact of the matter is that there are increasing claims on the Master Policy for losses sustained by lenders as a result of poor conveyancing, or at worst, dishonesty or fraud on the part of the solicitors representing them. In such cases, it has often been questioned whether or not the solicitor concerned considered that the lender was also his/her client. A review of correspondence files in cases involving claims for professional negligence often discloses what at best might be described as naivity on the part of the solicitor complained against. The fact of the matter is that the solicitor often does not appear to have considered the full extent of the obligations assumed by him/her under the CML Handbook – obligations the extent of which often result in the solicitor owing a greater duty of care to his/her lender client that he/she owes to the borrower client. As has ben said recently, it is important that you take care to ensure that you do not make what might be your client’s problem, your problem.

The primary benefit of the Handbook is perceived to be  that a practitioner would have a comprehensive set of 'standard' instructions to which most lenders would adhere but in cases where a particular lender had a particular policy, the matter would be disclosed in that lender's Part 2, and thus would avoid the need  to cope with different sets of instructions from every lender. Lenders were to be encouraged to minimise their Parts 2 and Part 1 was only to be amended as necessary  (and not more regularly than annually).  The Handbook is only available online and individual lenders’ terms do change from time to time. It can often be the case therefore that solicitors are unaware of a particular variation in an individual lender’s terms and, as a result, omits to advise the lender of a particular fact or circumstance which ought to have been disclosed. There is technology available which can help mitigate that risk  - see http://www.completionmonitor.com but is that sufficient reason why the present position should continue? Indeed, it can be argued that technology itself could allow lenders to amend terms almost on a whim. Could that therefore result in the position being worse?  In my opinion, a solicitor representing the interests of a lender should receive a proper fee commensurate with  the work undertaken in creating the security and certifying that the title is valid and marketable and suitable for security purposes. Do solicitors receive such a fee at present? Would there possibly not be more business if separate representation was the norm?

Lenders’ Panels

This has been an emotive subject in recent months and many firms were rightly concerned by what amounted to unilateral decisions to restrict the size of panels. It is worthwhile considering however why some lenders were considering change in the first place. The traditional approach was for there to be so- called “open” panels. Many lenders are moving away from this however – largely due to the increase in mortgage fraud. That is not to say that every lender is in favour of separate representation. Nevertheless, there has been an increasing drive to improve risk control. In addition, the Financial Services Authority now expects lenders to do much more vetting of solicitor firms on their panels than was traditionally the case.  As a result, firms are being removed from panels where there are issues of competency or even limited conveyancing activity in a particular legal practice. Why shouldn’t lenders seek to ensure that their interests are so protected? It is understood that there is an increasing debate around the use of central panel management as a tool to assist better risk control. This may avoid the necessity of individual lenders undertaking checks and may also decrease the scrutiny that solicitors receive from lenders but is it not likely that this will result in so-called “super” or specialist lending panels? If such panels, rather than “open” panels are to become the norm, should we not recognise the direction of travel and promote (rather than resist) separate representation of borrower/lender, even in residential property transactions?

Developments in Practice

Conveyancing case management systems are now much more efficient and their use ought to assist in mitigating the risk of negligence. This has to be a positive development. In England and Wales, the Conveyancing Quality Scheme (“CQS”) was introduced by the Law Society in an attempt to drive up standards among its members and thereby improve lender and consumer confidence in the legal profession generally. Firms wishing to achieve accreditation must be able to demonstrate that they comply with a number of enhanced standards covering the competence and probity of staff; the financial standing of the firm; and the existence of appropriate supervision, safeguards and processes. In addition, accreditation under the scheme will entail the Law Society of England and Wales undertaking extensive identity and other checks on all individuals employed by legal firms. Firms will be monitored to ensure that standards are maintained. This will be done by way of audit on both a random as well as on a risk–based basis. The scheme has been well received by lenders who will, of course, remain free to choose their own panel entry requirements. It is anticipated however that it is likely that lenders  will require accreditation under the CQS as a prerequisite for an application before they apply their own additional criteria. 

The principle underlying the CQS is sound but that does not mean that it should be considered in Scotland. While the accreditation of residential property conveyancing practice as a specialism is worthy of consideration (given the range of specialisms already the subject of Law Society accreditation) there are a number of arguments against the introduction of CQS in Scotland. These include:

• the profession north of the border is not the same as in England and Wales; that, as a result of the Master Policy and Guarantee Fund, lenders in Scotland are not exposed to the same level of risks as in England and Wales; and, thanks to the LSS risk management strategies, the claims record in Scotland is not nearly as bad as in England and Wales. CQS was the LSEW reaction to driving up its members standards (thereby improving lender confidence in the legal profession south ofthe border). If LSS joined CQS, would that not be an admission that the existing situation was failing and that we are just as bad as England & Wales?
• the CQS is not popular. After one year, it has only received just over 1,300 applications (out of a possible 11,500), and accredited only 589 to date.
• the CQS is expensive. The initial joining cost for a sole practitioner is £350. Thereafter, there will be an annual re-accreditation fee.
• membership of CQS does not guarantee access to lenders' panels nor obviate the need to pay to be on a lender’s panel.
• increasingly, there will be tension between the representative role of LSS to promote the Profession (e.g. through initiatives such as CQS) and its regulatory role. For example, would a (remediable) breach of the Accounts Rules which came to the Society's attention during a routine Guarantee Fund inspection nevertheless be a matter which "in the reasonable opinion of the Law Society, could be detrimental to the reputation and integrity of the CQS and its brand" thus entitling LSS to terminate or suspend membership of CQS which, in turn, could directly jeopardise the livelihood of solicitors (particularly those in rural areas) if CQS membership is hailed as being (only one) pre-requisite of panel membership?
• CQS is more likely to result in the creation of “super” or specialist lending panels rather than a return to “open” panels.

Is it change for the sake of change?

It is argued by many that the current system works and that there would undoubtedly be an increase in costs for consumers if two firms were to examine title thus leading to delay. Does that argument not fly in the face of the statistics from the National Fraud Authority and anecdotal evidence generally as to mortgage fraud etc? In short, are we not defending a system that has outlived its usefulness? Why should solicitors and through them the Master Policy and ultimately the Guarantee Fund underwrite a system which is essentially flawed? In my opinion, the interests of both the consumer and the solicitor would benefit from the same solicitor not acting for both borrower and lender. Claims are on the increase and lenders are increasingly looking to their solicitors to make good losses incurred on the occasion of borrower default. From their perspective, that is effective risk management. Is that a risk that solicitors should assume when, as a general rule, they have not received suitable remuneration for undertaking the work in the first place? Lenders would argue that that is not a matter that need concern them – and they are quite correct. The fact of the matter is, however, that solicitors do not, as a general rule, receive a fee that is commensurate with the risk that they are assuming. This can change of course but consumer reaction is hardly likely to be positive. As a result, it is argued that the existing exception to the conflict of interest rule should be removed and separate representation be the norm. Whether that be through bespoke lender panels is a matter for the market to decide. There are differing views among lenders as to separate representation and any change would require the solicitors acting for the borrower and the lender respectively to have a clear understanding of the division of responsibilities between them. That is likely to result in a specific version of the CML Handbook which would apply in the case of separate representation. It is understood that there are plans to introduce such a Handbook in England and Wales in Quarter 1 of 2012. See draft on CML website.  If this, in turn, leads to specialist lender panels, is that really such a bad thing?

In Scotland, we can, of course, point out that the Master Policy and Guarantee Fund have created a much better background  than the English experience of inter alia  fraudulent sole practitioners running off with the cash. It is interesting to note however that mortgage fraud can usually be found more in process failings at the brokerage stage or within the lending institutions themselves. There are therefore many who would argue that no change is required. Can that delay what appears to the author to be an inevitable change in practice? In my opinion, we are experiencing what has been described as “liability creep” – usually as  a result of more onerous obligations being imposed on solicitors under the CML Handbook. As a result, many solicitors wonder if they are not now being viewed as an “easy target” when a lender suffers loss. In many cases, this claim is completely unfounded.  For an interesting recently reported case, see Blemain Finance Limited v Balfour & Manson (www.scotcourts.gov.uk and Scottish Legal News 28 September 2011). On occasion, however, it is unfortunately the case that the solicitor complained against has simply not acknowledged the contractual obligations assumed under the CML Handbook and that his/her failure to adhere to these obligations may result in a claim for breach of contract – a claim that does not require negligence to be proved.

Conclusion

It is acknowledged that this is an emotive topic and that there are strongly-held differing views on the matter – especially with regard to access to solicitors in remote areas. This is precisely why the subject should be debated. If we do nothing, the incidence of claims will rise and change will be introduced anyway. Change is coming and it is suggested that the Law Society should be proactive and encourage debate. If it does not, who else will – and who else cares?


An Article by Professor Stewart Brymer WS, Brymer Legal Limited.
Published in Greens PLB Issue 115 (December 2011)