Is it time that the Law Society updated and republished the Law Society’s Code for Completion?
Following the decision in Edward Wong Finance Company Limited v. Johnson, Stokes and Master [1984] A.C. 1296, the Law Society introduced clause 4(ii) of the code to require the seller’s solicitors to undertake on completion to have authority of the proprietor of every mortgage or charge to be redeemed to receive the sum needed to repay the charge. This was introduced to provide protection to a buyer’s solicitor against a negligence claim where he/she had released the completion money to a seller’s solicitor who, instead of discharging the outgoing lender’s mortgage, absconded with the funds. The assurance of an agency was, it was assumed, sufficient to protect the buyer’s solicitor against a claim that he/she had parted with funds purely on trust alone, without enquiry, and therefore negligently.
Sellers’ solicitors often adopt the code, but in doing so, they undertake to be the agent for the seller’s mortgagee. This probably works where the seller’s solicitor is acting for the mortgagee, but is not an undertaking the seller’s solicitor can give if he/she is not acting. Yet many solicitors do adopt the code – perhaps without realising the implications of doing so. Further, in the light of the new Land Registry ID rules, a buyer’s solicitor may think safe reliance can be placed upon this undertaking to enable a certificate to be given, on form AP1 that that he/she is satisfied that sufficient steps have been taken to verify the seller’s lender’s identity. It would be unwise to place such reliance where the buyer’s solicitor knows that the seller’s solicitor does not act for the seller’s lender. (See next news item below http://www.propertypsl.co.uk/node/189).
Now may indeed be an opportune moment for the Law Society to re-iterate the workings of the code, and to update it in the light of current, changing practice.