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Regulation and compliance in property practice

15 August 2019

This guide gives an overview of the main regulation and compliance issues that solicitors working in property will need to be aware of.

SRA Handbook

 
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The SRA Handbook sets out the requirements that you must meet. It includes:

  • the SRA Principles, which are the key ethical requirements for solicitors
  • the Code of Conduct 2011, which gives more detail and explains what compliance with the principles looks like in a law firm

On 25 November 2019, the new SRA Standards and Regulations will replace the Handbook.

Read our briefing about the changes  

Read our article on what the new regime will mean for conveyancing

Price and service transparency

 
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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.

For more details see our guide to price and service transparency and our practice note.

Conflict of interests

 
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The SRA Code sets out the rules on conflict of interests and when you should not act for clients where there is a conflict, or risk of a conflict.

For an overview of how this applies in conveyancing, see our guidance on conflict of interests in conveyancing.

Client funds

 
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You’ll need to make sure that the money you handle on behalf of clients is protected and that you follow the SRA Accounts Rules.

Complaints

 
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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 2017/18. 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.

Read our practice note on handling complaints  

Consumer Protection Regulations

 
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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 2011 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.

Arranging indemnity insurance

 
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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.

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

Read the SRA’s guidance for law firms carrying out insurance distribution activities  

Read our article about the options for compliance  

Anti-money laundering

 
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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.

Read our guidance on anti-money laundering

Fraud

 
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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.

Read our guidance on cyber security  

Tax avoidance

 
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Solicitors should not become involved in or advise clients to use schemes that are structured to avoid or reduce property taxes. The SRA has warned that it will look at the conduct of any firm that is actively involved in such schemes. They are also likely to be challenged by HM Revenue and Customs.

The General Anti-Abuse Rule (GAAR) allows the government to counteract the tax advantage of any tax avoidance arrangement that is determined to be ‘abusive’ – that is, where the main purpose of the arrangement is to avoid tax and it is not a reasonable course of action.

Read our practice note on disclosure of tax avoidance schemes  

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