Under the new SRA Code of Conduct, there is no longer a specific conflicts rule regulating acting for a lender and borrower. Hence, the issue is simply whether there exists a conflict, or a significant risk of a conflict, between two or more current clients. However, Indicative Behaviour 3.7 can be seen as giving licence to a residential conveyancer to act for a buyer and its mortgagee, provided no conflict of interest exists or arises.
“IB(3.7) [You tend to show compliance if] acting for clients who are the lender and borrower on the grant of a mortgage of land only where:
(a) the mortgage is a standard mortgage (i.e. one provided in the normal course of the lender’s activities, where a significant part of the lender’s activities consists of lending and the mortgage is on standard terms) of property to be used as the borrower’s private residence;
(b) you are satisfied that it is reasonable and in the clients’ best interests for you to act; and
(c) the certificate of title required by the lender is in the form approved by the Society and the Council of Mortgage Lenders.”
Unfortunately, commercial property lawyers are left searching for an equivalent Indicative Behaviour in relation to a commercial acquisition and mortgage. Under the SRA Code of Conduct 2007 (Rule 3.16) a solicitor could not act for lender and borrower on the grant of a “standard mortgage” of land if the lender’s mortgage instructions extended beyond the limitations contained in Rules 3.19 and 3.21. Acting for both parties on the grant of an individual mortgage of land at arm’s length (i.e. a mortgage that needs to be negotiated/is not on standard terms) was prohibited, simply because it was, and is, a classic case where conflicts will exist.
The status of IB 3.7 is that it is only an indicative behaviour (although the use of the word “only” is unfortunate). The question may therefore remain: is there a conflict, or a significant risk of a conflict, between two or more current clients – the lender and the borrower. The answer to this question may lie in what the lender is instructing the lawyer to do, and whether that will cause the lawyer to encounter a conflict.
• Is the charge deed to be the subject of negotiation, or is it in standard form?
• Are any associated documents relating to the lending facility to be the subject of negotiation?
• Are the lawyer’s instructions limited to checking the title, searches and enquiries, obtaining execution of the charge, and securing registration?
The Law Society’s practice note on conflicts states:
“There is no specific mandatory outcome in chapter 3 of the SRA Code in relation to acting for clients who are the lender and borrower in individual or corporate matters. However, you must only act for borrower and lender where there is no client conflict or no significant risk of a conflict occurring (outcome 3.5). The risk of conflict is high if non-standard terms are being used or in the case of a standard mortgage the approved certificate of title is not being used.”
Banks will require separate representation where the loan amount exceeds certain thresholds (e.g. £1m/£2m). Some firms will take the view that separate representation is now necessary because of the ever-present risk of a conflict of interests in commercial lending. Some firms will take a view, in small transactions, as to whether there is a risk of conflict, and whether the interests of the borrower client are best served by avoiding duplication of work.