Case summary
A young couple, Rosie and Jim, were buying their first home together. They had been together for a couple of years. They hadn’t talked about marriage, but they were blissfully happy and ready to take the plunge into home ownership.
The couple had built up some savings in their time together, but without the ‘bank of Mum and Dad’ there was no way Rosie and Jim were going to be able to buy a property. As luck would have it, Rosie’s parents were wealthy and decided to provide the rest of the money needed to allow the couple to buy a modest two bedroom flat.
Rosie and Jim instructed Lochs & Co Solicitors to deal with their purchase. Tom, an associate in the conveyancing team, was given the file. An offer was made and duly accepted, and Tom got on with the conveyancing. All went smoothly and Rosie and Jim took entry to their new home. Lochs & Co received their fee, and Tom wished the couple well.
Fast forward to two years later, and sadly Rosie and Jim have decided to end their relationship. The split, difficult enough at the best of times, has been made all the more difficult because the couple are now in dispute about their flat.
Rosie has contacted Tom in a panic. Jim is adamant that the house needs to be sold and that the proceeds of sale should be split equally between he and Rosie.
Rosie is distraught and her parents are very angry. They maintain that they intended to provide the money as a loan and that they want it back.
Rosie and her parents now say that they thought this was understood by everyone involved and that they should have been given advice about this by Lochs & Co. They are very unhappy and are considering a complaint and, potentially, a claim against the firm.
Underlying cause of claim
This case study highlights a fairly typical scenario that can arise in a property transaction. In this scenario we do not yet know if Rosie or her parents do indeed have a valid complaint or claim, and this will depend on the discussions with Rosie and Jim at the time of their purchase.
Here, it seems that Tom may have failed to consider the situation in enough detail to provide comprehensive advice to Rosie and Jim. He hasn’t looked behind the basic facts of the purchase or anticipated problems that could arise in the future. Specifically, he has not ascertained whether Rosie’s parents intended the money they contributed to be a gift to Rosie, a gift to Rosie and Jim jointly, or whether it was a loan. Tom may also have also failed to fully consider the significance of a couple contributing unequal shares to a joint purchase.
The case study tells us that Rosie’s parents are unhappy with Tom, and Lochs & Co as a firm. This suggests that her parents may have thought that they were being represented, or advised, by Lochs & Co at the time of the purchase. This, of course, was not the case, as Rosie and Jim were the only clients. However, the complaint suggests that her parents may not have understood this.
Lessons to be learnt
As soon as it was apparent that Rosie’s parents were providing financial assistance, Tom would have had to contact Rosie’s parents at an early stage of the transaction, to undertake all AML, source of funds and source of wealth checks in respect of the funds from Rosie’s parents. He should also have explored with Rosie and Jim whether they understood the money to be a loan or a gift and then clarified this with Rosie’s parents when contacting them.
Had Rosie and Jim been purchasing with the assistance of a mortgage this issue would have crystallised earlier, as the mortgage lender would require proof that the funds from Rosie’s parents were a gift, in the form of a gifted deposit letter. With no lender requirements to satisfy, this opportunity to clarify the situation seems to have been missed.
When contacting Rosie’s parents, the best course of action would have been for Tom to include clear statements that there were legal implications surrounding providing the money for the purchase, that they should seek independent legal advice, and that Lochs & Co were not acting for Rosie’s parents nor providing any advice. Despite everyone having been in agreement at that point in time, Tom should have confirmed to Rosie’s parents that he was not acting for them and explained that they should seek separate advice.
If Tom had written to Rosie’s parents in these terms at the outset this could have avoided any misunderstanding and there would have been a written record of the position. It would then be very difficult for Rosie’s parents to argue that they thought they were being advised by Lochs & Co.
Another important lesson to take from this scenario is that sometimes it is important to ask the difficult, awkward questions. We can probably assume from the unhappy outcome that Tom did not ask Rosie and Jim how they expected to deal with the property in the event that they separated. This is understandable; Rosie and Jim consulted Lochs & Co when they were very much together and planning an exciting joint purchase; it can seem alien to a conveyancer to tackle the thorny issue of separation! However, it is important to do so in certain situations, this being one of them.
Where a couple, whether married, in a civil partnership, or planning to cohabit, are contributing unequal shares to a property purchase, the best course of action is to bring to the clients’ attention that this can have implications if they separate in the future, and that they should take separate legal advice on this. Best practice would therefore have been for Tom to explain that he cannot provide either Rosie or Jim with advice on the implications of the unequal contributions, while making it clear to them that they should seek such legal advice.
If Rosie and Jim had elected to get separate family law advice they may have been advised to enter into a cohabitation agreement dealing with division of the value of the property. That, of course, requires separate representation. It would not be appropriate for a family lawyer at Lochs & Co to act for either Rosie or Jim. The firm as a practice unit is acting for Rosie and Jim as clients in the joint venture of purchasing a property. If, for example, the firm’s family law team acted for Rosie, this would put the firm in a position of conflict with Jim, who is still a client of the firm.
It is always best to refer back to the Law Society of Scotland’s Guidance, B2.1: Conflict of Interest Generally (opens a new window):
“First, if you would give different advice to different clients about the same matter there is a conflict of interest between them. It does not matter that the clients may be agreed about what they wish to do. Second, if your actings on behalf of one client would have an adverse impact on a matter you are dealing with for another client, there is a conflict, even if on the face of it the matters are unrelated. Third, if you are unable to disclose relevant information to one client because of a duty of confidentiality to another client there is a conflict of interest.”
The Law Society’s Guidance, B2.1, Pre-nuptial, Cohabitation and Separation Agreements (opens a new window), gives further clarification:
There is a clear conflict of interest in representing the parties in a cohabitation agreement or prenuptial agreement and they should be treated precisely the same as separation agreements under this guidance.
In the event that Rosie and Jim chose not to obtain family law advice and to continue with the joint purchase without any cohabitation agreement in place, it would be possible for Tom to continue to act in the joint purchase. However, it would be important to have a clear record that Rosie and Jim were advised to seek separate legal advice, and that they elected not to do so.
How to prevent these issues
The following action points could have avoided this complaint and potential claim:
Taking more detailed instructions; had Tom delved further and ascertained exactly how the money from Rosie’s parents was to be treated, the later dispute could have been avoided.
Always remembering the key Law Society rules and guidance on conflicts of interest; in particular:
Rule B1.7 (opens a new window).
Rules B2.1.1, 2.1.2 and 2.1.7 (opens a new window).
Guidance B2.1, Conflict of Interest Generally (opens a new window).
Guidance B2.1, Pre-nuptial, Cohabitation and Separation Agreements (opens a new window).Confirming in writing that Lochs & Co were not acting for Rosie’s parents or providing them with advice.
Advising Rosie and Jim to seek separate legal advice from a family law practitioner and ensuring that this advice is recorded in writing.
Keeping detailed file notes of all discussions. Remember – if it isn’t written down, it didn’t happen!
Lockton tools:
The following resources may provide practical help and guidance:
Property purchase questionnaire (opens a new window). This includes detailed questions for clients as to how they are funding their purchase, and confirmation that you may need to contact any third party providing funds if you believe they need to take independent legal advice.
Template letter of non-engagement (opens a new window) . This template includes sample wording that could be used when writing to certain parties to a transaction to clarify that you are not acting for them and to advise them to take separate legal advice.