Among the changes the Solicitors Regulation Authority is intending to make as part of its move to outcomes-focused regulation (OFR) in October 2011 is the removal of the detailed provisions, under rule 3 of the current Code of Conduct, on conflicts of interest, relating to when a solicitor may or may not act for more than one party in a conveyancing transaction.

The rules on conflicts of interest now fall under principle 4: ‘You must act in the best interests of each client.’ The detail of this principle says: ‘Most importantly, you should observe … our obligations with regard to conflicts of interests…’. The potential conflicts it highlights are whether:But are these circumstances not present, to a greater or lesser degree, in all conveyancing transactions? Don’t all conveyancing transactions therefore have a potential for a conflict of interests to arise?

  • the clients’ interests are different;
  • your ability to give independent advice to the clients may be fettered;
  • there is a need to negotiate between the clients;
  • there is an imbalance in bargaining power between the clients; and
  • any client is vulnerable.

Conveyancing is not just a matter of transferring the legal title. Solicitors are routinely required to consider planning and building regulation issues, fixtures and fittings lists, the possibility of indemnity insurance, and so on. It is very common for conflicts to arise relating to these issues. For example, if you were acting for both parties, how should you handle price negotiations? Should you make optional searches, such as for flood risks (since a seller will not appreciate his solicitor carrying out an optional search which identifies a risk which puts off the buyer)?

There are a number of arguments both for removing/relaxing rule 3, and for keeping it (or something as close as possible to it, taking into account the need to change to OFR).

Removing the ruleLicensed conveyancers are entitled to act on both sides of a transaction, provided there is no conflict of interest and each client is, at all times, represented by a different ‘qualified person’, so why should solicitors be under any greater duty? However, does this not cause prejudice against sole practitioners or small firms?

Allowing a solicitor to act on both sides of a transaction is likely to lead to both time and cost savings for clients; most clients are more interested in speed, economy and convenience than in theoretical or perceived conflicts of interest. Statistically, the overwhelming majority of conveyancing transactions would appear to proceed to completion without significant conflict.

Keeping the ruleThe rule is well known to conveyancers (apart from some minor amendments, it has been in place since 1973), and has the advantage of certainty, as the rule and related guidance are very specific and detailed.

It protects the interests of clients by avoiding potential conflicts of interest.

By preventing conflicts at the outset, it minimises the potential for a conflict arising during a transaction, with the attendant delays and extra costs to one or both parties.

Under the new principle, and given the current commercial pressures on conveyancers, potential conflicts may not be identified at the outset. This is particularly likely where much day-to-day work is carried out by individuals who are not qualified or experienced enough to identify such conflicts; this may be more common once alternative business structures are allowed.

If the detailed rule is removed, it may well no longer be feasible for small firms to continue taking ­conveyancing work; they will be put out of business, leading to less choice for consumers and reduced access to legal services, particularly in rural areas.

The more ‘relaxed’ wording of the new principle will put more pressure on firms to pay ever increasing referral fees to attract work, and will allow greater potential to commit fraud.

ConclusionsBoth the consumer and the profession benefit from the certainty and detail of the existing rule 3. One reason why there has thus far been little evidence of conflicts of interest problems ­arising in residential conveyancing transactions is because of this rule, which is well established and understood by solicitors. Furthermore, even if the new rule enables solicitors to act on both sides of a conveyancing transaction or act for both lender and borrower, would you be prepared to take the risk, knowing that, if a conflict were to arise, you might well be in breach of the rule, with the consequences that may then follow? This latest SRA consultation invites responses by 13 January 2011. If you have concerns on this issue, you have a short while to make them known.

Nick Gurney-Champion is Law Society Council member for residential conveyancing and a member of the Property Section executive committee

  • Property in practice
    • This article was first published in the December issue of Property in Practice, the magazine of the Law Society’s Property Section. A representative membership association of the Law Society, the Property Section provides best practice information and support to solicitors on areas including e-conveyancing, housing, land registration, money laundering, planning and environment, tax and revenue. Benefits include a quarterly magazine; regular electronic newsletter with case law updates; interactive website; CPD-accredited events; and discounts on related products and services. For more details about the section, call 020 7320 5873 or email propertysection@lawsociety.org.uk.