Moving nightmares part 2
Some further risk management issues for property lawyers, this time focusing on issues that arise in relation to practice after a transaction settles
Two months ago (Journal, March 2019, 44) we contributed an article entitled “Moving nightmares”, which addressed boundary and access issues as two of the errors most commonly encountered by professional negligence lawyers when dealing with claims arising from property transactions.
Unfortunately there are a myriad ways in which such transactions can go wrong, so this follow-up article focuses on some of the problems most commonly encountered following settlement and which can result in a failure to achieve registration of a clear and unencumbered title.
In the clear
Arguably the buyer’s solicitor’s most crucial task is to check that an unencumbered title is delivered to the buyer. Sadly this routine task is often missed, particularly where there is (unexpectedly) more than one secured loan to be discharged.
There is almost never an excuse for a buyer’s solicitor who fails to achieve a discharge of all prior securities. The documents to hand will almost always reveal the existence of any encumbrances and those need to be considered carefully. A cursory glance at the letterhead or fax cover and an assumption that the contents will be “as expected” has led to many a claim.
While here the primary obligation is undoubtedly on the buyer’s solicitor, the seller’s solicitor should still be wary of any issues disclosed by their own file, given that the seller could end up facing an action for failure to provide a clear title, typically under breach of missives or warrandice. The seller’s solicitor will then invariably face the expense of becoming embroiled in a dispute between the buyer and seller, whether on the sidelines or as a key player.
Registration – what could possibly go wrong?
Generally speaking, the task of registering a deed following completion of a transaction should be relatively simple, and it is often regarded as being little more than an administrative job. This does not stop it being a regular source of claims against conveyancing solicitors, however.
Again the cause of this offence is almost never a failure to understand what is required, but instead the familiar culprits of pressure of business coupled with inadequate systems or procedures. Sometimes busy solicitors simply do not get around to sending off the required documents, and typically there is no system in place to kick in and force their hand.
In itself this is not necessarily a significant problem, as when the failure to register a title is discovered, nine times out of 10 the executed deed can simply be duly registered. There may be some consequential losses suffered by the client, if the issue causes delay to an onward sale, for example, but the difficulty is often capable of being easily remedied.
The failure to register a deed becomes far more problematic when the solicitor does not have the principal document to hand: a surprisingly common problem. Again that can generally be rectified by having the original granter execute a further copy by reason of their continuing contractual obligations. This becomes a much more significant problem, however, when the original granter cannot be contacted, cannot execute a further deed or no longer exists, for example where the granter was a company that has since undergone any restructuring or merger, or perhaps even been dissolved. Suddenly the conveyancer is in the territory of having to persuade that entity or its representatives that it should sign a further legal document, or perhaps even contemplating restoring a company to the register in order to try and then have it execute a deed. Any of those steps would involve additional cost and is not always possible to achieve, perhaps most notably where the six-year deadline to restore a company to the register has expired.
Even where the seller no longer exists, all is not necessarily lost. The land will be bona vacantia and have fallen to the Crown, being administered on its behalf by the Queen’s & Lord Treasurer’s Remembrancer (QLTR). The intricacies of dealing with the QLTR could justify a separate article, but the short point is that the QLTR may be willing to dispose of the property to the defeated purchaser in some scenarios, though success is far from certain and fees will inevitably be incurred in the process. A claim for those costs and damages for inconvenience will usually then follow against the buyer’s solicitor.
If at first you don’t succeed…
An application for registration can of course be rejected, for example where a plan setting out the boundaries of a property does not accurately delineate the property, and property lawyers are well aware that “floating shapes” with little or no surrounding detail are bemoaned by the Keeper. This problem is not helped by the abolition of pre-registration enquiries. Although it has to be said the issue is often flagged when an advance notice is rejected, good practice dictates obtaining a plans report from the Keeper.
Once again registration can still generally follow, so long as the missives are clear as to what is being disponed, and, of course, the parties still exist and are able to agree and produce an amended title plan. However, agreeing an amended plan is rarely simple and, at the very least, delays are inevitable, increasing the risks of costs and inconvenience to the client and the possibility of a claim. In addition, whenever registration fails at the first hurdle, additional effort is required to make sure it ultimately succeeds. Having to take additional steps always makes the final goal yet more elusive.
Managing the risk
The perfect storm of problems discussed above, whereby registration fails and then there are “disappearing principals” (in the form of both the original deed and the granter), might sound fairly unlikely to some readers. However professional negligence lawyers and their indemnity insurers will attest to the fact that this can and does happen. After all, problems often come in threes (or more).
As alluded to above, and in our earlier article, these issues are rarely the result of technical incompetence, but rather are almost always caused by failings in a firm’s processes or systems. Key issues have slipped under the radar, and in the case of registration at least, the solicitor has no doubt moved on to more urgent matters, unaware that the final crucial steps have not been carried out.
All practices should have a system which prompts the required attention to detail and suitable follow-up steps. Once again, and particularly in the world of volume transaction management, basic questionnaires or checklists have a crucial role to play. Get into the routine of documenting that search results have been properly checked, and include prompts on the sorts of items to look for in those search results, such as the existence of second ranking securities.
Suitable follow-up steps must also be diarised following completion. This cannot be a passive reminder that pops up on a desktop only to be ignored, but rather must require active participation from whoever is responsible for getting the transaction over the line. Perhaps principal deeds are managed centrally to prompt the person responsible to do something with them; and the date of registration might be a prerequisite for a matter closing form, such that if one cannot be provided, the file remains open and follow-up reminders are then created.
Particular attention should be paid by a solicitor acting for purchasers where there are corporate sellers, given that resolving any issues can be made much more complicated if that entity has undergone any significant changes since the transaction settled. It is therefore especially important that all the necessary steps are taken to register a conveyance by a corporate entity as soon as possible after settlement. That way any problems with the registration will hopefully be identified at an early stage, minimising the chance of the seller undergoing any changes that could make execution of a further deed challenging, or even impossible.
Although a purchaser’s solicitor will carry much of the risk in that scenario due to their obligation to achieve a registered title for their client, the selling solicitor must also watch out. He or she might well become embroiled in any dispute that arises if the transaction is not concluded promptly, particularly if it is suggested that a letter of obligation has not been fully implemented or the corporate seller’s former principals become involved.
Above all, find the time to stop and think about what needs to be done in each transaction, however routine those steps may seem. Create a suitable process, adopt a system and ensure that everyone follows it. The steps will soon become second nature and the risk of claims can only be reduced.
The article was co-authored for Lockton by Louise Kelso (partner) and James Jerman (associate) of Brodies’ Dispute Resolution team, specialising in professional indemnity claims