If they are fortunate, one of the few times in their lives that many people come across the legal profession is when they buy and sell property. The process of investigating a property's title, ensuring that all formal requirements are complied with and registering the transaction at Land Registry ("conveyancing") is too complex for most individuals to attempt by themselves. In recent years the conveyancing process has become more commoditised, and so the costs of the process have been driven down. However, there has also been a significant increase in recent years in fraudulent property transactions. This gives rise to the question - how does one keep conveyancing costs down for consumers, but also ensure that they are protected against the possibility of fraud?
A "traditional" property fraud often involved a husband who owned property jointly with his wife misleading a mortgage company into lending against the matrimonial home by forging his wife's signature. Modern property fraud is much more sophisticated. The cases have included fraudsters setting up bogus solicitors firms who would purport to act for the sellers of property and cases in which solicitors were duped into transferring funds meant for their client into alternative bank accounts.
One of the most common recent frauds has involved fraudsters impersonating the true owners of property registered at Land Registry so as to "sell" the property to a purchaser who thinks they are getting a fantastic deal, and then leave the purchaser to discover the truth only once they themselves are refused registration as the property owner (and after the purchase money is long gone). Such a fraud is made all the more plausible by the fact that both parties are represented by genuine solicitors firms acting in good faith (albeit not always with appropriate caution).
In almost all these cases it is not possible for the victim of the fraud to recover their funds from the fraudsters. So who, if anyone, should be liable to the innocent consumer who has lost their money? Should it be their own solicitors who acted on the transaction?
Or perhaps the "seller's" solicitors, who thought they were acting for the owner of the property, but turned out to be receiving their instructions from a fraudster? Or should it be the estate agent who perhaps initiated the transaction in the first place, by telling the purchaser that they were acting for the seller and that the deal was one too good to miss? In any of the above cases, should not the purchaser be entitled to expect that as professionals involved in the sale of valuable properties, they would take reasonable care to make sure that the purported seller of a property is who they say they are?
Members of the Property Bar Association have recently been arguing these points in front of the Court of Appeal in two cases which were heard together: P&P Property Limited v Owen White & Caitlin LLP and Dreamvar (UK) Limited v Mishcon de Reya. In short, a solicitor who acts for a fraudulent seller of property is in a risky position - when they are transferred the money by the purchaser's solicitor to complete a property purchase, they will be held to be in breach of trust (and therefore liable to reimburse the purchaser) if they release the money to the fraudster.
Their only means of escape will be to try to convince a Court that they acted reasonably and ought fairly to be excused liability, a test which it will be very difficult for them to satisfy. The solicitors acting for the purchaser victim will also be liable, although there might be greater scope for them to rely on the discretion of the Court. The estate agents, however, do not owe any duty to the purchaser, even if they have failed to undertake basic checks so as to establish the identity of their purported client.
The effect of the above cases might be to make the conveyancing process a little slower, as solicitors satisfy themselves of the identity checks, but this is necessary to ensure consumers are protected against the increased prevalence of property fraud.
Henry Webb, Treasurer, Property Bar Association