There were 279 responses from solicitors, consumer interest organisations such as Which?, and other interested parties including banks and building societies and the Council of Mortgage Lenders (CML), on a proposed rule change which would mean that borrowers and lenders would each need to have their own solicitor. Currently the same solicitor can act for both buyer and lender.
The responses showed 49% in favour and 51% against the proposed rule change as it was drafted in the consultation document.
‘Given the many changes that have happened in the property market, this has been an essential debate to have. For most of us buying a home is the biggest purchase we will ever make and it’s important that people get the legal advice they need, that their interests are protected and that solicitors are not compromised in representing their clients,’ said Alistair Morris, vice president of the Law Society of Scotland.
At a Law Society annual general meeting in March 2013, solicitors voted in principle to remove the current exception to its conflict of interest rules and bring in mandatory separate representation in property transactions. As a result the Society must now bring forward a proposed rule change for its members to vote on at a special general meeting (SGM) on 23 September.
‘The high number of responses shows the level of interest in this issue and, while no clear consensus has emerged, the consultation has given us very useful feedback. This will allow solicitors to consider the issue further in advance of the SGM and take into account the views of their fellow practitioners and other stakeholders who have a key interest in this debate,’ explained Morris.
‘There has been tremendous change within the property market since the financial downturn and as a result many lenders have introduced new requirements on solicitors representing the borrower, which has led to a significant move away from the ‘execution only’ approach of the past. Many solicitors now believe that the interests of the buyer client and their mortgage lender are no longer in alignment so, in order to represent their clients fairly and with true independence, there should be mandatory separate representation in both commercial and residential property transactions,’ he pointed out.
‘It is the buyer who pays the fees and should be able to have absolute confidence and trust that their solicitor will put his or her interests first, rather than those of their mortgage lender who can have different requirements which need to be met.
‘We have actively sought the views of key stakeholders out with the legal profession and are keen to engage with the lenders and their representative body to ensure that if there is a vote for change, this would be managed effectively to ensure that there would be minimal impact on Scotland’s home buyers,’ he added.
Which? has stated that it believes the consumer should be better informed to make the decision on whether they should have a separate solicitor from their lender and that there should be further discussion around solicitors only being able to act for banks on an ‘execution only’ basis, ie not providing legal advice to the bank. The CML is opposed to the move, although some of their members are already practising separate representation.
Morris said that the Law Society Scotland is well aware of the fears that have been raised around potential for delay or possible increased costs for the borrower. ‘While these issues have to be considered, we have calculated that any potential cost increase would be a small percentage at around 0.1% of the overall price of buying a new home if indeed the lenders do decide to pass on costs to their customers. It’s worth noting that, in the Republic of Ireland, where separate representation is mandatory, banks are legally prohibited from passing on their legal fees to purchasers,’ he added.
In response to the feedback the rule as currently drafted is likely to be modified. However, prior to going before members at the SGM next month, it will be considered by the Society’s Regulatory Committee and Council, before a recommendation is made.
‘Given the strong views that have been put forward during the consultation and the importance of the issue, it is vital that our members are as informed as possible and we would urge them to vote at the SGM,’ concluded Morris.