Regulation and compliance in property practice
This guide gives an overview of the main regulation and compliance issues that solicitors working in property will need to be aware of.
The SRA Standards and Regulations set out the requirements that you must meet. They include:
- the SRA Principles – seven principles of ethical behaviour
- the Code of Conduct for Solicitors, RELs and RFLs, which covers the standards expected for individuals
- the Code of Conduct for Firms, which covers the standards and controls expected for law firms
- the Accounts Rules, covering client money
- the Transparency Rules, covering information on prices and services
They replaced the SRA Handbook from 25 November 2019.
If you offer residential conveyancing services, you need to follow the Solicitors Regulation Authority (SRA) Transparency Rules. You must publish information about your prices and services and your complaints policy on your firm’s website.
Your firm should have a written complaints procedure and effective internal processes for resolving complaints. You must tell clients about your firm’s procedure and about their right to complain to the Legal Ombudsman.
The Legal Ombudsman’s data shows that residential conveyancing was the largest source of complaints to the ombudsman about solicitors in 2018/18. The most common causes of complaint were failure to advise, and delay or failure to progress.
This is partly due to the high number of transactions and the complexity of property sales. However, you should consider how you might be able to prevent complaints or resolve them before they escalate.
The Consumer Protection from Unfair Trading Regulations 2008 (as amended) prohibit trading practices that are unfair to consumers. This includes:
- misleading actions
- misleading omissions
- failing to act with the appropriate standard of care and skill
In conveyancing, misleading actions could include giving wrong information about whether a property is fit for purpose, or about the results of a survey.
Misleading omissions could include not telling a buyer about a defect with the property. To comply with the rules, you should make full disclosure to buyers or tenants, or to their solicitor, about defects and any other “material information” that you know of relating to the property. You’ll need to get your client’s permission to do this.
Information is “material” if the average consumer would need the information to make an informed decision about the transaction.
Explain to your client that:
- you or the client must not mislead the buyer or tenant by providing incorrect or ambiguous information, or withholding material information
- certain information about the property is likely to be revealed through searches and enquiries
- their buyer will have rights under the regulations, and may be able to claim damages from the client if they were misled about the property
Confidentiality and disclosure
Under the SRA Code of Conduct for Solicitors, RELs and RFLs, you have a duty of confidentiality to your client. This could conflict with your duty of disclosure under the Consumer Protection from Unfair Trading Regulations 2008. For example, your client might tell you about a defect with the property, but instruct you not to tell the buyer.
In these circumstances, you should strongly advise the buyer to disclose the information, and if they refuse, consider whether you can continue to act for them while meeting all your professional and regulatory obligations.
For more information, see our practice note on Consumer Protection Regulations in conveyancing.
If you carry out “insurance distribution activities”, such as arranging or advising on indemnity insurance or other types of insurance connected with a property transaction, you must comply with the Insurance Distribution Directive (IDD).
The IDD is designed to ensure fairness in the insurance market and to strengthen consumer protections for clients, such as improving the information they receive.
You’ll also need to tell the SRA that you carry out insurance distribution. The SRA will pass the information to the Financial Conduct Authority, which maintains a register of firms.
The SRA updated its Handbook in October 2018 to reflect the IDD. This is now covered in the SRA Financial Services (Scope) Rules and the SRA Financial Services (Conduct of Business) Rules.
You’ll need to make sure that:
- you appoint an insurance distribution officer
- all staff at your firm who are involved have the knowledge and skills they need
- you have in place a qualifying policy of professional indemnity insurance
- you comply with the rules about the information you give your clients
- you act honestly, fairly and professionally in the client’s best interests
- any insurance contract that you propose meets your client’s needs
- if you recommend a particular insurance product, you explain to your client why it best meets their needs
As a solicitor involved in property, you have duties to verify who your clients are and identify the source of their funds. You must report suspicious activity if you know or suspect that someone is involved in money laundering.
Fraud is a common issue in property transactions. This includes:
- identity theft and impersonation
- title fraud
- mortgage fraud
- cybercrime including ‘Friday afternoon fraud’
You will need to be aware of the warning signs and your responsibilities so that you can protect your clients.