Ethics and professional conduct in property practice

What are common conduct questions in property practice?

This chapter will cover the application of the Solicitors Regulation Authority (SRA) Principles and Code of Conduct to property transactions. It will allow you to appreciate how ethical issues and professional conduct matters are likely to arise when practising in property law.

Property practice features in the second of the SQE1 assessments (FLK2), and ethics and professional conduct relevant to property law will be assessed pervasively in that assessment.

What are ethics issues in property?

Property practice is a fast-moving and high-pressure area of practice. Clients in a property transaction will be very keen to achieve their ultimate goal of completion. Particularly in the residential context, they are likely to be highly emotionally involved, and commercial clients are likely to be subject to commercial pressures. This can lead to a vast number of potential ethical and professional conduct issues for solicitors practising in the area. This chapter will cover the nature of some of these issues, as well as provide guidance on how you would answer questions relating to professional conduct in property practice, which may arise in your SQE1 assessment.

This chapter should be read in conjunction with Revise SQE: Property Practice. In that guide, you will find many Key terms and important substantive topics to assist you in furthering your understanding of your ethical and professional obligations.

In the present guide, Chapters 1 and 2 set out the SRA Principles (the ‘Principles’) and Code of Conduct (the ‘Code’) respectively. This chapter will consider how relevant headings operate in the context of property law and practice. The headings used reflect the headings of the Code of Conduct.

What is maintaining trust and acting fairy?

When acting in property law, you must maintain trust and act fairly in your relationship with your client and others. The Code sets out ways in which you may achieve this, and these are dealt with in turn.

You do not abuse your position by taking unfair advantage of clients or others (Para 1.2)
As part of your practice in property law, you may encounter unrepresented parties and, in such circumstances, there is potential for this duty to be breached.

What are unrepresented parties?

Key term: unrepresented parties
An unrepresented party is someone who does not have legal representation (eg a seller or buyer, or landlord or tenant who has not appointed a solicitor to act on their behalf). The party could be an individual, a company or an organisation.

Unrepresented parties
When you encounter unrepresented parties you must be careful to ensure that you do not use your position as a solicitor to take unfair advantage of them. You will have a duty to act in your own client’s best interests (Principle 7), but you must also act with integrity (Principle 5). In the event of conflict, the duty to uphold trust and confidence in the profession (Principle 2) will prevail (see Practice example 7.1).

Practice example 7.1
You act for the tenant on the taking of a commercial lease. The landlord, who is unrepresented, produces a draft lease that is clearly defective, as it contains neither a forfeiture clause, nor a number of standard tenant covenants for a lease of its type.

How would you approach this situation?

In the circumstances, you must advise the landlord to take independent legal advice concerning the terms of the proposed lease. You must avoid giving actual advice, which could suggest that you are acting for the landlord and would give rise to a conflict of interest (Para 6.2). You must balance acting in the best interests of your client (by not highlighting the specific errors or remedying them) with not taking unfair advantage of the landlord (achieved by pointing out the need to take independent advice).

Revision tip
When submitting certain applications to HM Land Registry, evidence of the identity of unrepresented parties must be provided (see HM Land Registry Practice Guide 67). This is an additional safeguard to prevent fraud in these circumstances.

You must also avoid breaching this principle in the context of a contract race (see Contract races, page 152).

Key term: contract race
A contract race arises where a client who is selling property instructs their solicitor to submit draft contract documentation to more than one potential buyer. The first to exchange contracts ‘wins’ the ‘race’ to buy the property.

What are undertakings?

You perform all undertakings given by you and do so within an agreed timescale, or if no timescale has been agreed, then within a reasonable amount of time (Para 1.3)
Undertakings (see Chapter 2 for the Key term) are an important element of property transactions.

Undertakings
You will be required to give routine undertakings at various stages in a property transaction. These include undertakings to send part contract over to the seller/buyer on exchange of contracts, and to discharge your client’s mortgage(s) when acting on a sale.

You may also be asked to give a more bespoke undertaking, as required in particular circumstances (eg to pay the landlord’s legal costs, either on the grant of a lease, or on an application for a consent or licence under a lease). Undertakings assist in the smooth running of matters and are an essential element of most of a solicitor’s transactional work.

At the heart of undertakings are the duties to uphold public trust and confidence in the profession (Principle 2) and to act with honesty, integrity and in the best interests of the client (Principles 4, 5, and 7).

An undertaking does not need to be in writing and, once given, it may only be withdrawn by agreement (see Practice example 7.2).

Practice example 7.2
Your client, the seller of a residential property, leaves an old and broken free-standing fridge freezer in the kitchen of the property, on completion. You subsequently receive a telephone call from the buyer’s solicitor and you say, without authority, that your client will remove the offending item by 10 A.M. the next day.

Have you given an undertaking in this situation?

Yes, you have given an undertaking. It was an oral statement that a third party (your client) will remove the fridge freezer or cause it to be removed by the required time. It did not need to be in writing and you did not need to use the word ‘undertake’ or ‘undertaking’. It is reasonable for the buyer’s solicitor and their client to rely upon this. You will be personally bound by the undertaking, even though you had no authority to give it and performance of it is beyond your control.

Accordingly, when making your decision whether or not to give an undertaking (there is no obligation to give or receive one) the key question is that of control. You must be clear about precisely what you are promising to do and when you are promising to do it. If anything within the required undertaking is outside of your control, you must either not give the undertaking, or qualify it suitably (eg through pre-conditions).

From a practical perspective, you should always obtain the client’s consent to give an undertaking, particularly a non-routine one. Although it is possible to give an oral undertaking, it is best practice to confirm undertakings in writing, as you must keep and maintain appropriate records to demonstrate the existence, compliance with, and discharge of undertakings (see Para 2.2 of the Code of Conduct for Firms). It is necessary to ensure that an undertaking is appropriately and carefully worded as any ambiguity is likely to be interpreted in favour of the recipient.

It is also important to be aware of some transaction-specific practical points for common undertakings in property transactions (see Table 7.1).

Practice example 7.3 brings these points together and provides an example of a non-routine undertaking in practice.

Practice example 7.3
Your client, who needs to raise some capital as a matter of urgency, has decided to sell her house and move into rented accommodation. The property is subject to a mortgage in favour of a high street bank and your firm has been instructed on the sale and discharge of the mortgage. The client owes £30,000 by way of an unsecured loan from a third party and the third party’s solicitors have asked for an undertaking to repay the loan amount, plus interest, within the next three months, from the sale proceeds of the house.

How would you approach this situation?

You should not give an undertaking in the requested terms as actual completion of the sale is beyond your control (the matter may not proceed and completion may not occur). Any undertaking will need to be conditional on your firm completing the transaction and receiving the sale proceeds (whenever that may be). You should seek to limit the obligation to pay interest to that properly payable under the agreement and you should also ascertain that the net proceeds of sale would be sufficient to repay. You should obtain your client’s written consent to the proposed undertaking and provide the undertaking in writing. You are under no obligation to give the undertaking, but you should not act in the completion of the transaction unless you are able to fulfil it.

Revision tip
When approaching questions on undertakings, always consider the question of control. If the promise is not entirely within your control, then you will need to qualify the undertaking, or refuse to give it.

What is You do not mislead clients or others (Para 1.4)?

A solicitor must not mislead or attempt to mislead clients or others, either by their own acts or omissions, or by allowing or being complicit in the acts or omissions of others (including their client). The rule is closely associated with Principles 2, 4, 5, and 7. Below are some examples, which may assist you in understanding this duty in the context of property law.

What is misleading a client?

Solicitors may mislead clients by, for example, saying that a transaction is at a particular stage, when it is not. This could include confirming that draft contract documentation has been submitted to the buyer’s solicitor, or that the property has been registered at HM Land Registry.

What is misleading others?

Solicitors could mislead the other party to the proceedings by, for example, confirming that a mortgage offer has been received when it has not, or that the transaction is not part of a chain of transactions, when it is. Contract races may also give rise to a potential breach of this duty (see immediately below).

What are contract races?

A seller, with more than one offer to buy a property, may be tempted to instruct you to submit draft contract documents to more than one party, thereby creating a contract race (see Key term, above). The main aim will be to accelerate exchange of contracts by creating pressure, due to the competition to proceed. This can give rise to two potential breaches of the Code:

• the duty not to abuse your position by taking unfair advantage of others (Para 1.2); and

• the duty not to mislead or attempt to mislead others (Para 1.4).All tasks are complete – each screenshot has been transcribed with strict fidelity and zero errors. If you need additional pages or another type of transcription, please attach the next screenshot!

Contract races are permissible, provided that all prospective buyers are aware of the situation. Accordingly, the following steps must be taken by a seller’s solicitor to avoid a breach of the Code:

• STEP 1: The solicitor should obtain their client’s consent to disclose the proposed contract race to all potential buyers immediately. It is best practice for this to be confirmed in writing. There is no obligation to set out the ‘rules’ of the race; it is the disclosure of the proposed circumstances that is important, to avoid taking unfair advantage of third parties, or misleading them.

• STEP 2: If the client’s consent is not forthcoming, the solicitor must immediately cease to act. They will not be able to disclose the reason, due to the duty of confidentiality owed to their client (Para 6.3, see Confidentiality and disclosure, below). To continue would be a breach of Principle 2 (the duty to uphold public trust and confidence in the profession).

The seller should also be informed of the risks associated with a contract race. They may lose one or more buyers, who may be concerned about the unpredictability involved in the ‘race’ and the potential for wasted time and expense, should they not ‘win’.

Exam warning
Due to the potential for conflict of interest, you should not act for seller and buyer in a contract race (see Para 6.2 and Conflict, confidentiality and disclosure, below). However, acting for more than one buyer may be possible, if the solicitor can satisfy the requirements of Para 6.2(b) of the Code, as the clients would arguably be competing for the same objective (again, see Conflict, confidentiality and disclosure, below). Do not let an MCQ trick you into thinking this is not possible.

Practice example 7.4 provides an example of a contract race in practice.

Practice example 7.4
You act for a small developer in the sale of the last remaining plot on a residential development. They have received three asking price offers, subject to contract, and they are very keen to sell the plot to move on to another project. Accordingly, they would like you to submit draft contract documentation to the solicitors for all three parties, with the first to exchange contracts being bound to complete.

How would you approach this situation?

This is a potential contract race. You must seek your client’s consent to disclose the situation to all prospective buyers immediately. If this is not forthcoming, you must cease to act, but you will be unable to disclose your reasons, due to the duty of confidentiality owed to your client. You should also advise your client of the potential risks associated with contract races.

What is conflict, confidentiality and disclosure?

Part 6 of the Code provides a series of rules relating to when a solicitor should decline to act for particular clients. This section sets out how situations involving these rules may apply in the context of property law.

What is conflict of interest (para 6.1 and 6.2)?

You must not act if you have an own interest conflict or a significant risk of such a conflict (see Chapter 4, Conflict of interest). For example, a solicitor acting on a purchase of property where they or those close to them hold shares in the seller company, or are employed by the seller, would be in breach of this duty.

You also ‘must not act in relation to a matter, or a particular aspect of it, if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it’ (Para 6.2) – return to Chapter 2 for a full discussion and to remind yourself of the Key term definitions. The section applies equally to individuals and firms (Para 6.2, SRA Code of Conduct for Firms).

Property law is a high conflict area and acting where there is a conflict or a significant risk of one could also be a breach of the duties to act with integrity (Principle 5) and to act in the best interests of each client (Principle 7).

A key example of where this might occur in the context of property law is where a solicitor is asked to act for both seller and buyer (see Acting for seller and buyer, below).

The general duty is subject to two exceptions (see Chapter 2, page 44). The substantially common interest exception is discussed below, in the context of specific types of transaction. It will usually be possible, under the competing for the same objective exception, to act for two or more prospective buyers in relation to a proposed purchase at auction, or through an insolvency, bid or tender process. The exception is very specific and could clearly apply in the context of commercial property work and business law and practice (see Chapter 4, page 88). Otherwise, according to SRA guidance, acting for two clients seeking separately to purchase a particular asset could give rise to a conflict of interest or a significant risk of one arising.

Exam warning
Do not forget that if either of the exceptions apply, there are three additional conditions in Para 6.2 that must also be satisfied for the solicitor to act or continue to act. These additional conditions are detailed in Chapter 2, page 44. Do not forget these conditions or allow an MCQ to make you believe that they are not required.

Accordingly, it is necessary to consider both whether a conflict exists, and whether one is likely to exist or arise in the future. In the case of the former, you will be unable to act (unless an exception applies) and in the case of the latter, you must cease to act (unless an exception applies).

Exam warning
Remember that the exceptions only apply to cases involving a conflict of interest. There are no exceptions where there is an own interest conflict. Return to Chapter 2 to remind yourself of these key rules.

Figure 7.1 provides a systematic approach to questions on this topic.

Application of these rules within the context of different scenarios is considered below.

What is acting for seller and buyer?

When a client approaches a solicitor to act in relation to a property transaction, they will usually be keen to progress as quickly and as inexpensively as possible. From their perspective, the key terms will have been agreed (subject to contract) and they will want the formalities to be completed without unnecessary delay. The seller and buyer may also have instructed the same solicitor or firm to act on previous transactions, so they may each have a loyalty to them. Therefore, it is not uncommon for a solicitor to be approached to act for both parties in a property transaction, due to the perceived saving of time and costs and possibly pre-existing or former client relationships.

Revision tip
Although, under the Code, there is no absolute prohibition on acting for buyer and seller, property law is a high conflict area and cases where this will be permissible will be rare. SRA guidance specifically states that there is likely to be a conflict of interest or a significant risk of one arising where a client sells or leases an asset to another client. In most circumstances, it will imply not be possible, or at best inadvisable, to act, so it is necessary to consider the rules carefully.

A conflict is very likely to exist where property is transferred for value, as buyer and seller at arm’s length (see Chapter 4 for the Key term) are likely to have different interests. Sellers will want to protect themselves from ongoing liability and buyers will be concerned with obtaining good and marketable title. Accordingly, a solicitor may not be able to give the best independent advice to both parties. If there is an inequality of bargaining power, or if one party is particularly vulnerable, the potential for conflict will be increased (eg a layperson selling land to an experienced developer). These factors should therefore be considered.

The possibility of a conflict is also strongly linked to the need to negotiate between the parties. In more complex transactions, particularly those involving high value commercial property, or the grant of commercial leases, there will be a real need to negotiate terms (eg VAT on a freehold transaction and tenant covenants on the grant of a lease). Acting for both parties would be highly inadvisable in these circumstances, as you could not give them both independent advice. Even in more straightforward arm’s length residential transactions, negotiations may arise because of adverse matters uncovered by the results of searches and enquiries, title investigation or survey.

It is also necessary to consider the two exceptions in this context. The substantially common interest exception does not usually apply here, as buyer and seller at arm’s length clearly have different interests and not a common purpose. The competing for the same objective exception does not apply in the case of transfer of land more generally, as the parties are each working towards different objectives (disposal and acquisition).

Therefore, for typical sales, where usually unconnected parties transfer land for value at arm’s length, and the grant of leases, the risk is particularly high. It would therefore be particularly unwise to act for both parties in these circumstances.

However, acting for both parties where land is gifted or transferred between connected parties will be more likely to be permissible (eg transfers between companies in the same group, or a gratuitous transfer from spouse to spouse, or from parent to adult child). In these circumstances, it is arguable that no conflict of interest arises or is likely to arise and that the transaction could also come within the substantially common interest exception.

Exam warning
When considering whether you can act for both parties in the transfer of land, the circumstances are particularly important. You should therefore read any MCQ carefully. It may be possible to act where land is gifted, or transferred between connected parties.

The key risk in deciding whether to act for both seller and buyer is that if a conflict arises at a later date, the solicitor would need to decline to act, possibly even for both parties if they hold relevant confidential information. This is because the duty of confidentiality usually takes precedence over the duty of disclosure (see Confidentiality and disclosure, below). Having to cease to act part way through a transaction can be professionally embarrassing and also lead to disappointment, disruption and inconvenience to clients, ultimately resulting in loss of business and, potentially, damage to professional reputation.

If you are satisfied that there is no conflict or significant risk of conflict, it would be advisable to record the reasons for the decision and obtain the clients’ informed consent. It may also be advisable for each party to be represented by a different fee earner within the firm.

If you are satisfied that the transaction comes within the substantially common interest exception, you would also need to comply with the three conditions in Para 6.2 of the Code.

What is acting for joint buyers?

Subject to compliance with Para 6.2 of the Code, a solicitor may usually act for joint buyers (including joint tenants), as they usually have the same interest in acquiring good and marketable title to the property. In these circumstances, it is best practice to obtain instructions from all clients, due to the risk of duress or undue influence between the parties (particularly if one is more vulnerable).

In residential cases, the parties will need to receive separate advice on how the equitable interest should be held.

What is acting for borrower and lender?

Subject to compliance with Para 6.2 of the Code, it may be possible to act for both borrower and lender in the case of a straightforward residential property transaction. It is important to realise that, in these circumstances, the solicitor will have two clients (the borrower and the lender).

Although acting for borrower and lender is very common in straightforward residential property transactions, there is the potential for conflict to arise more generally in the following circumstances:

• where the lender seeks to impose unusually onerous, non-standard terms on the borrower

• where you are aware of the borrower being unable to comply with, or likely to breach a condition of the proposed mortgage (eg a condition as to drawdown of funds, or an ongoing obligation under the mortgage). An example of the latter would be where the proposed mortgage provides that the lender’s consent will be required to any proposed lease or third party occupancy of the property, and you are aware of such a proposed arrangement, but the borrower has asked you not to inform the lender

• the proposed mortgage will not be on standard terms and you are required to negotiate the terms of the loan facility and/or mortgage/security documentation. This is more typical in complex and/or high value commercial transactions, where the lender will usually insist on separate legal representation in any event.

Law Society guidance provides that acting for borrower and lender is permissible in the following circumstances:

• where there is a standard mortgage (ie the terms are not individually negotiated) of a private residence

• by an institutional lender, which has lending as a significant part of its business activities

• using the Law Society/UK Finance (formerly the Council of Mortgage Lenders) approved certificate of title, and

• you are satisfied that it is reasonable and in the clients’ best interests for you to act.

All of the conditions must be satisfied and are nearly always satisfied in straightforward residential transactions where the mortgage deed will usually be provided on a ‘take it or leave it’ basis, with no room for individual negotiation.

Revision tip
Although you do not need to know the Law Society guidance by name, you should be aware of the principles behind it, as it is widely known and commonly referred to.

Acting for borrower and lender in such circumstances is also highly likely to fall within the substantially common interest exception, as both parties will be keen to obtain good and marketable title. In such circumstances, the solicitor would also need to comply with the conditions in Para 6.2.

In the event of a conflict of interest arising or a substantially common interest no longer applying where a solicitor had previously decided to act for both borrower and lender, there will be potential for a conflict between the allied duties of confidentiality and disclosure (Paras 6.3–6.5). The duty of confidentiality will prevail and the solicitor must cease to act for both parties, unless they obtain the other’s consent (see Confidentiality and disclosure, below).

Acting for borrower and lender is much less common in commercial transactions (particularly high value ones) and the lender will usually instruct its own solicitors, to protect its own interests (see Chapter 4, page 96). The loan and sometimes, in more complex transactions, the security documents will need to be negotiated and the certificate of title may not be in a standard form. Therefore, the standard Law Society guidance will not apply. However, in some circumstances separate representation may be limited to key areas of potential conflict (eg the negotiation of the facility letter and, if required, the security documentation), with the borrower’s solicitor acting for both parties on investigation of title and, possibly, completion of the documentation (ie a more limited retainer). In such circumstances, the solicitor may rely on the substantially common interest exception, particularly on a purchase, as both parties will require the property to have good and marketable title.

Practice example 7.5 provides an example of what to consider in practice in these situations.

Practice example 7.5
You have been instructed to act by a first-time buyer in relation to the purchase of a residential property. She will be borrowing from a high street bank in order to fund the purchase, and the bank will receive a mortgage over the property.

Are you able to act for both buyer and lender in this situation?

On the facts, this should certainly be possible. It is highly likely that the Law Society guidance will apply here and all of the conditions will be satisfied.

What is acting for joint mortgagors?

Subject to compliance with Para 6.2 of the Code, a solicitor may often act for joint borrowers/mortgagors, as no conflict of interest usually arises in doing so.

However, there is a possibility of undue influence arising where the proposed mortgage of a property is to secure the borrowing or debts of a business of only one of the owners/proposed mortgagors of the property, rather than personal debts. Similar concerns arise in any situation where a third-party guarantee is required (secured or unsecured) and this can occur in the context of business law and practice (see Chapter 4, page 96).

The typical scenario involves a family home co-owned by two spouses, one of whom is in business. As legal owners, the two co-owners will need to be party to the proposed mortgage as mortgagors, even though the borrower will effectively be the business (ie either the individual as sole trader, or partner in a partnership or as guarantor of a company in which they have an interest).

In such circumstances, there is a strong possibility of the mortgage being set aside on the grounds of duress or undue influence. This is because it is not strictly in the interests of the disinterested spouse to mortgage their personal interest, for what is essentially a third party debt. If the business is unsuccessful, the property may be repossessed and sold to recover the debt. Therefore, consideration should be given, on a case-by-case basis, as to whether the solicitor would be in breach of Para 6.2 by agreeing to act in the first place.

Whilst it is possible for the same solicitor to act for borrower and spouse under the Etridge guidelines, many firms, quite understandably, insist on another fee earner within the firm advising in these circumstances, or that the disinterested spouse receives separate representation from another firm. The risk will be heightened if the spouse is particularly vulnerable and/or has no involvement with the business in any capacity. However, the spouse may have good reason to sign in any event, to support the borrower’s business as a source of income.

If a solicitor does decide to act, they must follow the Etridge guidelines.Transcription complete for this screenshot. If you have more legal pages or academic material for word-for-word transcription, please attach the next file or specify your request.

Key term: Etridge guidelines
The guidelines set out in the case of Royal Bank of Scotland v Etridge (No 2) and others UKHL 44 to give proper advice to the borrower’s spouse in these circumstances. The key points are summarised in Table 7.2.

Revision tip
Although you do not usually need to be aware of specific authorities, you should have knowledge of the Etridge case, as it is the seminal decision concerning the law and practice in this area.

It is important to emphasise that the Etridge guidelines are there to protect the lender in advancing the loan, and it is the solicitor who should first decide whether they may be able to act, without breaching Para 6.2 of the Code. It may be that the risk of potential liability to the firm outweighs the immediate financial benefit of the instructions. It may also be decided on the fact that despite the conflict, the parties have a substantially common interest in proceeding and, if so, the conditions in Para 6.2 must be complied with.

Practice example 7.6 provides an example of what to consider in practice in these situations.

Practice example 7.6
You act for a client who is the sole director and shareholder of a private limited company. The company was incorporated earlier this year and the company’s bank has asked her to provide a personal guarantee for the company’s debts. The guarantee is to be secured by way of a first legal charge over the family home, which is jointly owned by the client and her wife. The wife, whilst supportive of her spouse’s business activities, has no personal interest in, or other connection with, the company. The bank has sought to instruct your firm to act in advising the wife on the proposed mortgage.

How would you approach this situation?

You may act for the wife if you are confident there is no conflict of interest or significant risk of one arising. You should consider the facts carefully (including the wife’s lack of personal interest in the company). The Etridge case provides that you may act for both parties, but you must take great care to adhere to the guidelines within the case. Whilst not a requirement, it may be advisable for another solicitor within the firm to act for the wife, or for you to suggest that she receives independent legal representation from outside of the firm.

What is Confidentiality and disclosure (Paras 6.3–6.5)?

Paras 6.3–6.5 deal with the associated duties of confidentiality and disclosure. A solicitor is under a duty to act in the best interests of each client (Principle 7) and they must balance the two duties. In the event of conflict, the duty of confidentiality will usually prevail. This section will deal with both of these issues in the context of property law.

What is confidentiality?

Solicitors must keep the affairs of current and former clients confidential, unless disclosure is required or permitted by law (eg in the case of suspected mortgage fraud, or a report to the relevant authorities of suspected money laundering – see Revise SQE: The Legal System and Services of England and Wales) or the client consents (Para 6.3).

However, there are circumstances in which a solicitor’s duty of confidentiality to one client may conflict with their duty to act in the best interests of another, and to disclose information to them.

What is disclosure?

Where you are acting for a client on a matter, the general rule (subject to limited exceptions in Para 6.4) is that you must make the client aware of all information material to the matter of which you have knowledge (Para 6.4). However, if there is conflict between the allied duties of confidentiality and disclosure, the duty of confidentiality will prevail.

Practice example 7.7 provides an illustration of these principles in action.

Practice example 7.7
You act for a borrower and their lender in the acquisition and mortgage of a freehold commercial property. The lender’s standard mortgage terms require that lender’s consent be obtained to any lease or sharing of occupation or possession, and the mortgage offer has been made on the understanding that the property will be for owner-occupation by the borrower. However, you are aware of the borrower’s plans to sublet part of the property.

How would you approach this situation?

You must bring this to the attention of the borrower and seek consent to disclose this to the lender as there is a clear conflict of interest on the facts. If consent is not forthcoming, you must cease to act. However, you must not disclose your reasons to the lender, as you owe a duty of confidentiality to the borrower, which trumps the duty of disclosure owed to the lender.

There are circumstances in which a solicitor’s duty of confidentiality to one client may conflict with their duty to act in the best interests of another. This could include where a solicitor holds information relating to a former client, which is material to a present client in their matter.

Under Para 6.5, you must ‘not act for a client in a matter where that client has an interest adverse to the interest of another current or former client of you or your business or employer, for whom you or your business or employer holds confidential information, which is material to that matter’. However, this is subject to two exceptions:
(1) Where ‘effective measures have been taken which result in there being no real risk of disclosure of the confidential information’, or
(2) ‘The current or former client whose information you or your business or employer holds has given informed consent, given or evidenced in writing, to you acting, including any measures taken to protect their information.’

Therefore, the general rule (subject to the two exceptions) is that you should not act for a client where you hold confidential information from an existing or former client, which is relevant to the client. If such confidential information becomes known to the solicitor, whilst acting, the duty of confidentiality will take priority over the duty of disclosure, subject to compliance with the two exceptions.

Practice example 7.8 provides an illustration of these principles in action.

Practice example 7.8
A potential client approaches you in relation to the acquisition of a freehold development site. You are aware of a number of title issues with the site, having acted on the previous sale to the current seller. You suspect these title issues have led to the proposed sale (which is below market value).

How would you approach this situation?

Your duty of confidentiality to the former client trumps the duty of disclosure to the potential client. Although you would carry out a thorough investigation of title to reveal issues with the title, you should not act in these circumstances, unless informed consent can be obtained from the former client. If the former client is approached, you must take care not to breach the duty of confidentiality owed to the potential client.

FINAL ADVICE
The issues that may arise in property practice are diverse and wide ranging. This chapter has covered issues that are specific to this area of practice, but you must remain vigilant and aware of more general conduct issues that may occur (eg costs information and client care). Using Revise SQE: Property Practice, you should review the substantive law relating to property practice and identify occasions when ethical and professional conduct issues may arise.