Rule 3 Transactions: acting for both Borrower and Lender
The Solicitors Regulation Authority Code of Conduct 2011 (‘the Code’) prevents solicitors from acting for both parties in a transaction where there is a conflict of interest or a significant risk of one. An exception to this is provided by Indicative Behaviour 3.7 of the Code, which states that a solicitor may act for both a lender and borrower on a grant of mortgage of land providing:
o The mortgage is a standard mortgage (if it is provided in the normal course of the lender’s activities, where a large part of those activities consists of lending, and is on standard terms) of property to be used as the borrower’s private residence;
o The solicitor is satisfied that it is reasonable and in both of his clients’ best interests for him to act; and
o The Certificate of Title as required by the lender is in the form approved by the Law Society and the Council of Mortgage Lenders.
Providing an independent service to both lender and borrower can prove difficult. Lender’s instructions often request a more in-depth investigation of title than that required for a borrower. Solicitors must also be conscious of any attempts by the borrower to conceal information from the lender, such as cash-back incentives or a structured transaction pertaining to an SDLT avoidance scheme. If the borrower prevents the solicitor from disclosing information from the lender, the solicitor may no longer continue to act, as this non-disclosure would prevent him from providing a proper service to his lender client.
Recently, perhaps due to the influx of solicitor negligence in this area, lenders have opted more frequently to use separate representation. By the lender instructing a separate solicitor, the borrower will be required to pay the fees for that solicitor, as well as his own. Having two sets of solicitors involved in the process can also cause delays. This is due to the fact that the solicitors have differing objectives: the borrower’s solicitor is focused on exchange of contracts and may choose to take a view on certain information which is not readily available; the lender’s solicitor is looking to obtain all information possible to ensure he can report fully to his client. Delays can also be caused if a borrower’s solicitor is unwilling to proceed to exchange of contracts without the go ahead from the lender’s solicitor.
To alleviate such difficulties, the Council of Mortgage Lenders (‘CML’), on 2 July 2012, issued new instructions for solicitors instructed solely on behalf of the lender in residential conveyancing transactions. These instructions now form Part 3 of the England and Wales CML Lenders’ Handbook. The new instructions help to provide clarity and a useful guide in respect of the information lenders expect to be provided with by a borrower’s solicitor. Paragraph 1.4 of the instructions provides a standard requirements letter, which can be used by the lender’s solicitor to set out what information and which documents should be provided. The CML also provides a reply letter for the borrower’s solicitor, so he may confirm that he has complied with the lender’s solicitor’s requirements.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Andy Parker at