Why sep rep?

I’ve received the consultation on sep rep. What is the problem with acting for a lender and a borrower?

Many solicitors wish the current exception to be abolished for several reasons, principally in recognition of the commercial reality that the interests of the lender and the purchaser are not as aligned as they were in years gone by. Lenders, who previously assumed all lending risks for themselves, now seek to place many of these on the solicitor. The solicitor, a trusted adviser of the purchaser, is usually obliged to disclose to the lender “any circumstances” which may be of interest to the lender for which he or she is also acting.

Such a wide ranging obligation creates pitfalls for a solicitor and his or her clients. Should the solicitor be aware of something told to them in confidence by their purchaser which could be of interest to the lender, they are now obliged to disclose this to the lender or cease to act for one party or both. By doing either of these, the solicitor could jeopardise the whole transaction. By doing neither, the solicitor could find themselves on the receiving end of a complaint or a claim.

In these circumstances, many solicitors feel that they cannot do right by either client and also uphold the high standards expressed by the profession and demanded by the public. A study carried out by Ipsos MORI on behalf of the Law Society of Scotland in 2011 showed that solicitors are very much trusted by the public, and the public deserves to demand their trust. The purchaser needing advice should not be treated like a suspect from a procedural crime drama, where the lawyer says: “Don’t tell me; I don’t want to know.”

I work in commercial property. How will this affect me?

Currently, relatively few commercial property transactions will be affected, given the prevalence of separate representation in that area of law.

It has been mooted, however, that certificates of title may be affected by subsequent guidance. I would encourage members practising in commercial property to consider whether or not certificates should be affected, and provide their thoughts on this as quickly as possible.

The CML is a representative body for mortgage lenders and, despite having come out in favour of separate representation in 2010, it is firmly opposed to the idea now. It would seem to me that lenders can only stand to gain from separate representation, as it should help disrupt mortgage fraud, which is costing the UK mortgage industry in excess of £1 billion a year.

It will, however, require lenders to implement new procedures at a time when mortgage lenders are already implementing a number of regulatory changes.

I hope that lenders will take time to respond to the consultation and give constructive feedback on what timescales can be managed, should the rule change be passed.

Why are some residential property solicitors against the change?

Many solicitors wish to preserve the status quo. Motivations for this vary, but it would be remiss to not acknowledge commercial interests here, as to do so would be to imply that commercial interests are of themselves not a viable consideration. The abolition of the exception to the conflict of interest rules will create organisational upheaval and a loss of income for those solicitors who act for both purchasers and lenders.

It could create more work for the solicitor, as he or she would have to satisfy another firm on title.

Commercial interests aside, there already exists a prohibition against acting in a conflict of interest situation, so, should a solicitor feel that acting for both the lender and the purchaser creates a conflict of interest, the solicitor is already able to refuse to act in this situation. There is little to argue against this except for the commercial realities of private practice. If all other solicitors are acting for both lender and purchaser, the lone solicitor wishing to make a stand by refusing to act for both out of principle may find themselves out of pocket and short on clients.