SRA Standards and Regulations: contract races

The Solicitors Regulation Authority introduced new Standards and Regulations on 25 November 2019 to replace the SRA Code of Conduct 2011. The Code of Conduct had itself replaced an earlier 2007 edition and, before that, the old Solicitors Practice Rules 1990.

The Standards and Regulations are shorter than the 2011 Code of Conduct as many of the prescriptive rules affecting solicitors have been removed to make the regulations to which solicitors are subject “shorter and more targeted”, less prescriptive, and more flexible. One notable absence from the new Standards and Regulations is the practice to be adopted where a client sets up a “contract race”.

What is a contract race?

A contract race is where a seller has two or more buyers lined up for the same property. There may not be a race, as such, in which more than one buyer is invited to buy a property on a “first come first served” basis. A contract race, as understood for professional conduct purposes, comes about whenever a seller intends to deal with more than one prospective buyer, or where contract papers are issued to more than one prospective buyer. It can arise where a prospective sale appears to have gone cold and another buyer arrives at the negotiating table. It is only fair that all prospective buyers are informed of a seller’s intention to deal with more than one buyer so that each can make a decision as to whether or not to continue incurring costs in an attempt to acquire the property. Even though a sale may appear to have gone off, it seems correct to inform that buyer that the seller is no longer continuing with that transaction, assuming that to be the case. Care needs to be taken, however, not to disclose matters in breach of the duty of client confidentiality.

Rules on contract races

Contract races used to be covered by highly prescriptive rules. Those rules have been watered down over the years. In Chapter 11 of the Code of Conduct 2011, it was stated that: “where you act for a seller of land, you [must] inform all buyers immediately of the seller's intention to deal with more than one buyer.” (Outcome 11.3). This was far more concise than was set out in the 2007 Code of Conduct, which was itself more concise than the original rule, Rule 6A of the Solicitors’ Practice Rules 1990. The original rule was not only detailed but was supported by comprehensive guidance notes.

Rule 6A SPR 1990

Under Rule 6A, a seller’s solicitor was required to disclose the seller's intention immediately to the solicitor or other conveyancer acting for each prospective buyer, or direct to the prospective buyer if acting in person. The rule was expressed to apply “where a seller instructs a solicitor to deal with more than one prospective buyer” but the guidance notes stated it was the seller's decision to deal with more than one prospective buyer that had to be notified: “The seller's solicitor must not wait until contracts are actually submitted but must notify the appropriate parties immediately upon receiving instructions to deal with a prospective buyer (other than the first).” Under the original rule, a prospective buyer was to continue to be treated as such “until either the prospective buyer or the seller gives written notice (either by letter or by fax) of withdrawal from the transaction”. Guidance notes advised that particular care was necessary where a contract has been submitted but nothing had been heard from the prospective buyer's solicitor for some time. Where a seller then decided to deal with another buyer, Rule 6A was nevertheless required to be complied with unless notice of withdrawal had been given. Disclosure of the seller’s intentions was only possible if the client consented. If the seller refused to authorise disclosure, the solicitor was required immediately to cease to act. Guidance made it clear that the rule did not just apply to sellers dealing with more than one prospective buyer, but landlords dealing with more than one prospective tenant, and clients negotiating to grant incompatible rights (e.g. grant of a lease to a tenant/sale of the freehold with vacant possession). A solicitor was expressly forbidden from acting for more than one of the prospective buyers, recognising “the inevitable conflict of interest which makes it impossible for a solicitor to act for more than one of the prospective buyers”.

The 2019 Code of Conduct

The 2019 Code says nothing at all about contract races. However, this does not mean that solicitors can ignore the ethical issues involved. Core principles require a solicitor to act with integrity, honesty, and to uphold public trust and confidence. Misleading third parties by allowing them to believe that they are the only party interested in an acquisition may infringe the principle of integrity. One would certainly expect an aggrieved purchaser to feel it has cause for complaint if it incurred cost without knowing that the seller was selling to someone else. As previously, where instructed that a client intends to deal with more than one prospective buyer or tenant, conveyancers should consider whether they should be disclosing this immediately to all buyers (i.e. to each party’s conveyancer), having first obtained the client's consent. Compliance Officers in firms may still need to remind colleagues of the principles underlying the original rule.

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