Competition for conveyancing services is increasing. At the same time conveyancers are under continued pressure to provide top quality service at reduced prices. Although this is good news for consumers, the potential for claims against conveyancers will increase as transactions become more complex and fast paced. This bulletin looks at some of the main claims seen against conveyancers and gives some tips as to steps that can be taken to lower the risk of claims.
Many firms, both large and small, have been the victims of conveyancing fraud over the last few years. An increasingly common identity scam involves rogue individuals posing as the owners of a property. They instruct solicitors or licenced conveyancers to act for them and provide them with false identity documents. The transaction “completes” and the fraudster absconds with the money, leaving the duped buyer without a property and a large mortgage to repay. The duped buyer will often try to recover their losses from the professionals involved in the transaction. In some recent cases the court has found the conveyancers involved to be in breach of duty for failing to take reasonable steps to check the seller’s identity.
Friday afternoon fraud
As a result of most people wanting to move house on a Friday, Friday afternoons can be the busiest time for conveyancing departments in terms of money being received from clients, and sent to various bank accounts. There is an increasing trend in fraudsters taking advantage of this busy period to trick firms into sending money to their account rather than the seller’s solicitors.
Usually an email is received from the ‘client’ asking that sale proceeds be paid to a different bank account to the one on file. Alternatively the client may receive an email from a fraudster posing as their solicitor asking that completion monies be paid to a different client account – sometimes those emails are sent from the actual firm involved following a hack of the firm’s IT systems.
It is always important to verify bank details (in a phone call) before transferring money from client account, and to ensure that your firm’s IT systems are protected from cyber attacks.
Failure to advise properly in relation to:
The terms of a lease or tenancy agreement
Examples of this include failing to advise properly as to the operation of rent review clauses (particularly where the rent may be increased significantly), or failing to advise the purchaser that they will be required to pay for some or all of the cost of major works to the property. In addition to the purchaser facing an unexpected bill, they may also have lost the opportunity to negotiate a lower purchase price with the seller to take into account these clauses.
The existence or absence of a right of way / failure to ensure the plan shows the correct boundaries of the property
Whilst such claims have been around for years, mistakes on issues surrounding title to property still occur frequently. It is important that title documents are checked carefully and the client advised of any issues. Title indemnity policies should always be considered if there are doubts as to the nature or extent of title to a property that can be covered by title insurance.
Failure to ensure that certain entries on the property register (including charges) are removed upon completion of the transaction
The most serious example of this is the seller’s solicitor receiving funds from the buyer and passing them on to the seller without using them to offset any remaining charges against the property. The buyer is then left with a property encumbered by a charge, which may be enforced by the charge holder. The buyer risks having their home repossessed and the seller’s solicitor is at risk of a breach of undertaking claim by the buyer’s solicitor.
Top tips to minimise the risk of claims
- In addition to complying with anti-money laundering regulations, ensure that the risk of each transaction is assessed and due diligence carried out according to that risk. The courts increasingly require evidence that the professionals involved have acted ‘reasonably’ and not just paid lip service to the regulatory requirements for client identification
- Always ensure the client’s instructions are genuine. If an email is received advising of a change in bank details, follow this up with a telephone conversation or a meeting with the client to ensure the instruction has definitely come from them
- Record and follow up all advice in writing, and keep clear attendance notes of all conversations and meeting with the client in respect of the operation of the lease or tenancy agreement
- Confirm new instructions in writing and keep the client advised as to costs of any transaction.
This article was written in partnership with Beale & Company, Construction and Insurance Law Specialists.
For further information please contact Martin Ellis, Head of UK Professions and Legal Practices Group on +44 (0)20 7528 4704 or email firstname.lastname@example.org