A practical way forward with the "early completion" policy?
We have added comment from one of PLC Property Consultation board members, Andrew Campbell of Clarke Willmott LLP to Your thoughts: Land Registry early completion policy (www.practicallaw.com/2-385-9243) and set this out in full below.
We think this view accords with what many law firms have decided to do as a result of the early completion policy.
Do you agree?
Would you endorse this approach or do you have a different view?
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"In my view, this issue is, in substance, the one that arose in Patel v Daybells. In what circumstances is a buyer's conveyancer negligent in relying on an undertaking in the Law Society's recommended form in relation to the discharge of the seller's mortgage(s)?
In summary, the Law Society's view of the law, post-Patel, as expressed in the May 30th 2002 Gazette article was that it was reasonable (hence not negligent) in a standard case and, by implication, not reasonable in an exceptional case.
This was an admirable attempt to square what had already become a circle, given that the list of exceptional circumstances was not closed. I suggest that, in the light of the Land Registry's new "early completion" policy, the presence of a restriction protecting a seller's mortgage is another such exceptional circumstance. The difference is that restrictions are now so common that the exceptional has now become normal.
On the basis of the Law Society's 2002 guidance, no solicitor can now be sure that it is ever safe, either for the firm or the client purchaser and its mortgagee(s), to rely on an undertaking if the seller's mortgage is protected by a restriction. Doing so is no longer "reasonable" in the Patel sense.
Buyers' lawyers therefore face being caught between Scylla and Charybdis. If they insist on a contract provision to the effect that the seller will not be ready, able and willing to complete unless executed discharges are in the seller's solicitor's possession or control, they will be accused by the seller and its lawyers of undue pedantry, excessive caution or having an unbusinesslike attitude - and probably all three. On the other hand, if they accept the risk that the buyer's Land Registry application is rejected for want of a DS1, they expose the firm to a negligence action if the DS1 is not forthcoming in time, a risk the client and mortgagee will be only too willing for them to undertake.
There is little disagreement amongst lawyers about what the "right" position is in the light of the Land Registry's new policy. DS1s should be executed as escrows in advance and the lawyers holding them authorised to release them to the buyer on receipt of the sale proceeds.
Lawyers acting for the buyer need support in insisting that the contract is phrased accordingly.
Sellers' lawyers are in equal need of support in conceding the point and telling a seller's mortgagee(s) that completion will not happen and their loans will not be repaid, unless the relevant DS1(s) are executed in advance.
The Law Society is uniquely well-placed to give that support and the Patel decision provides proper grounds for doing so.
I suggest that the Law Society's forthcoming guidance to the profession should say that, where a restriction protects a mortgage, it is no longer reasonable to rely on undertakings, in the light of the Land Registry's new policy and the decision in Patel. Such guidance will fortify lawyers for both seller and buyer, who will find it much easier to persuade all parties to agree that the seller's mortgagees are to provide DS1s at the appropriate juncture.
Such a standpoint is principled. Insistence on a DS1 can be dispensed with if either there's no restriction or the seller's solicitor is able to provide the buyer with an unconditional withdrawal of it on completion. In these circumstances the risk is probably no greater than it was before, provided the transaction is not otherwise "exceptional" in a Patel sense. But applying such guidance to all transactions where there is an unwithdrawn restriction that survives completion will put pressure on lenders on both sides to address the issue themselves, which is what ought to happen.
Moreover, the current economic climate is the right one in which to apply this pressure. Depressed property prices make negative equity more common. There are many fewer transactions, both residential and commercial. Chains are shorter and less frequent. From the profession's point of view conveyancing margins are much tighter so there's much less financial "cushion" to accommodate increased risk. In addition, the public odium being heaped on banks and other lenders means that, in the "court of public opinion" to borrow Harriet Harman's phrase, the Law Society ought now to be on the moral high ground and in a much better position to force this issue in this way than hitherto." (11 June 2009)
For further information on Patel v Dabells, see Practice note, Undertakings to discharge a mortgage - Law Society guidance (www.practicallaw.com/7-107-4379).
For details of who is on the PLC Property consultation board, see Consultation board (www.practicallaw.com/4-200-5918).