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  6. Can I act for borrower and lender in a property purchase with a buy-to-let mortgage?

Can I act for borrower and lender in a property purchase with a buy-to-let mortgage?

I have received an enquiry from an existing client asking me to act in his purchase of a property with a buy-to-let mortgage. Is it acceptable to act for both the borrower and the lender in this transaction?

Chapter 3 of the SRA Code of Conduct 2011 deals with conflicts of interest.

Indicative behaviour (IB) 3.7 deals with situations where you can act for the lender and borrower on the grant of a mortgage of land only where:

  • the mortgage is a standard mortgage (such as 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
  • you are satisfied that it is reasonable and in the client’s best interests for you to act, and
  • the certificate of title required by the mortgage lender is in the form approved by the Society and the Council of Mortgage Lenders.

Indicative behaviours are non-mandatory but are indicative of how you might seek to achieve the outcomes.

The buy-to-let situation does not strictly fall under (IB) 3.7 and there is no further reference to it in Chapter 3.

If you are considering acting for both lender and borrower in a buy-to-let situation, it may be prudent to take the following steps:

  • assess each case individually
  • consider the risk of a conflict arising
  • document your reasoning if you choose to proceed to act for both borrower and lender
  • check the lender's position with regard to acting for both parties
  • have separate files for both lender and borrower

Outcome 3.4 specifies that you must not act if there is any risk of an own interest conflict, for example, one where the best interests of your client may conflict with your own interest in relation to that or a related matter.

Under outcome 3.1, you should also ensure that you have effective systems and controls in place to enable you to identify potential conflicts of interests.

In doing so, you should be able to assess all relevant circumstances, including whether the clients' interests are different and your ability to give independent advice.

If there is a conflict, you may still be able to act for both parties if you adhere to the exceptions in outcomes 3.6 and 3.7, which include the following:

  • explain the relevant issues and risks to the clients
  • obtain informed consent in writing from all clients that you may act for both, and
  • you are satisfied that it is reasonable for you to act for all clients and that it is in their best interests to do so, or that the benefits of doing so outweigh the risks.

You should closely consult chapter 3 of the Code if you are considering acting for two parties with the same or competing objectives.

For further information, see the Law Society’s practice note on conflicts of interests.

Disclaimer: While every effort has been made to ensure the accuracy of the information in this article, it does not constitute legal advice and cannot be relied upon as such. The Law Society does not accept any responsibility for liabilities arising as a result of reliance upon the information given.

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