Acting for both sides on a property transaction; Either “how is that possible” or “surely this is easy?”!
A lot of potential clients or existing clients ask us whether it’s possible for us to act on both sides of a transaction. This tends to be between people who know each other or, in a commercial setting, between companies in the same group. In other words, there is already an inbuilt element of trust and it’s not an arm’s length transaction.
And you would think it would be easy for the lawyers to agree to this, wouldn’t you? The trouble is we have standards; who knew?
Two of the principal standards that the Solicitors Regulation Authority requires us to comply with are the separate duties of first, acting in the best interests of our clients and second, the duty to keep our client’s affairs confidential.
Those two duties can clash, giving rise to a conflict of interest and principally these come up in a property setting when asked to act for both seller and buyer in the sale and purchase of a property, or between landlord and tenant in the grant of a lease, or in completing a loan acting for both the lender and the borrower.
And you can see, on reflection, how in any apparently straightforward transaction something might arise that causes those two principles to clash.
One good example is on the sale and purchase of a property let’s say between members of the same family where people think that a blood relationship will overcome any difficulties and that people can be trusted. (You can tell I’m not a family lawyer!).
Let’s imagine that Bleak House is being sold by Ada to Richard. They’re family and there is some tax reason why this should happen. They ask the family solicitor, Mr Tulkinghorn, to act for them and on the face of it this is fine because surely blood is thicker than water and their love and affection for each other will overcome any issues.
The trouble is that Ada who is selling the property tells Mr T. that she is in a dispute with a neighbour because the neighbour says that he owns the right of way to the property and he’s trying to make Ada pay for the use of that right of way. Mr T. has a duty to keep Ada‘s affairs confidential and therefore not to tell anyone, including Richard. On the other hand, he has a duty to act in the best interest of Richard by telling him that the property he is about to buy has a problem.
The trouble is he just can’t comply with both his duties and has to withdraw from the transaction leaving both Ada and Richard irritated and upset. He hasn’t been able to tell Richard why he’s had to pull out so he’s full of all sorts of conspiracy theories and he wishes that Ada hadn’t told him about the issue.
You see, it just doesn’t work and it’s normally best in all matters to have separate solicitors acting for each party.
It can work, however, with a loan arrangement since for the most part both parties are trying to achieve the same thing. However even then we are aware of circumstances where solicitors have come to us asking us to act for one or another of the parties that they’ve originally started acting for because an issue has arisen.
This is just another example of where on the face of it, life has got unduly complicated but where, on analysis, it’s best to keep matters simple and straightforward even though it may be a little bit more expensive.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.