Urgent need to change Terms of Business for property sales and tenancy transactions – a practical guide

Urgent need to change Terms of Business for property sales and tenancy transactions – a practical guide

Although the Consumer Protection Unfair Trading Regulations (CPR) have been in force since 2008 and the amendment that brought ‘immoveable property’ within its scope has been in force since 1 October 2014, it is only now that the full effect of those regulations on solicitor conveyancing businesses has been recognised. The Law Society issued a Practice Note dated 25 February 2016 which attempts to provide guidance on a very unclear situation.

Solicitors are already under a duty not to take unfair advantage of a third party (Outcome 11.1) and a duty to advise their client on what disclosures should be made to third parties in a sale or tenancy transaction. If your client is so advised, but chooses to risk the contractual consequences of keeping information back, then a solicitor would traditionally abide by their instructions.

These Regulations now extend that duty making it a requirement for a solicitor in the transaction (and estate agent come to that) and not just the trader client, to disclose any information that might cause the average consumer to take a different transactional decision had they been aware of it. It is the solicitor’s duty to make reasonable enquiries to find out if material information exists, and even if they don’t know the exact contents, only its existence, it could still be a misleading omission not to disclose the fact of its existence to the consumer. The Regulations have teeth: for breaches the criminal Courts have the power to fine and/or imprison an offender for up to two years.

The Practice Note lulls the reader into a false sense of security at the beginning by stating that:

“Many of the obligations placed on you as a solicitor under the CPRs are already covered by your obligations under the SRA Code of Conduct and, provided that you treat consumers fairly, you are unlikely to be in breach.”

The problems arise when the solicitor’s duty to follow clients’ lawful instructions and to treat those instructions confidentially conflicts with these new duties to also treat the purchaser/ tenant/consumer fairly. At the moment there does not appear to be any clear guidance on what a solicitor should do when faced with this dilemma. The Law Society explain that the CPR is silent on the subject, and there have been no cases to provide guidance yet. The Law Society suggests that a solicitor may have to withdraw from the retainer when faced with such a conflict and, given the penalties for getting it wrong, I believe I would be certainly erring on the side of caution if I was in that situation.

To enable a solicitor to later extract themselves from a retainer it is necessary to make the client aware of their own duties if they are a trader and, even if they are not, the solicitor’s duties to the purchaser or tenant to disclose material facts and information. It makes sense to do so in the Terms of Business and possibly in any explanatory documentation that is sent to the client with enquiry forms for them to complete. The Practice Note has some general guidance on what to include in documentation but I would suggest something along the following lines. If anyone has suggestions for improvement I would be very grateful for feedback.

The Consumer Protection from Unfair Trading Regulations 2008 (as amended) (CPRs)

Under the CPRs there is a duty on all sellers and landlords if they are traders, and upon their solicitors and estate agents even if they are not, to make disclosure of any material information within their knowledge to any consumers who are buying or renting property from them. The criminal penalties for failing to abide with these CPRs ranges from fines to imprisonment of up to two years.

Information withheld would be deemed to be ‘material’ if it would have caused the average consumer to take a transactional decision he would not otherwise have taken. Historically such withholding of relevant information might have led to civil Court proceedings for breach of contract, but now the penalties are much more severe.

It is important to note that neither you as seller/landlord or this firm, acting on your behalf, must mislead the buyer or tenant by providing incorrect or ambiguous information, or by omitting to provide information. Please remember that certain information will be revealed through searches, surveys, valuations and other enquiries made by the buyer or tenant and so it is important to make all known disclosures as early in the transaction as possible to prevent delays.

Because these duties of disclosure apply to us as your solicitors we may no longer be bound by our duty of confidentiality to you if we become aware of any material information. If you ask us to withhold any such information we may be forced to withdraw from our retainer and stop acting for you in this transaction.

Chris Cann, Head of Risk & Compliance at Assure Law Risk & Compliance

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