V. Charles Ward looks at the issues thrown up by the COVID-19 pandemic in relation to exchange of contracts, transfer of funds, and due diligence identification.
If there is one thing certain about the Coronavirus emergency, it is the way it has forever changed the way Britain works. Forced social-distancing has become a way of life. If you have become accustomed to working from home, why would you exchange that for the rush-hour commute? Why would you exchange our glorious 2020 summer for a stuffy office?
It is those same changes which have accentuated the differences between private practice and the way in which most local government lawyers work. Although both operate under the same professional rules, the differences between private practice and in-house have never been more marked. None more so than for the transaction-lawyer whose work involves a daily diet of contract-exchanges and completions.
Even before the Coronavirus outbreak, the process of change had already begun. Although office-working was still the norm, there were increasing opportunities for staff to work from home. Virtual on-line meetings were fast replacing the conference-call as a workable and more convenient alternative to sitting round a table. All that the Coronavirus emergency has done is to force the pace. Within three months, home and remote working has become the new norm.
With electronic-signatures now part of the mainstream, the next revolution must be in the way contracts are signed and exchanged – and transactions completed. The need to work remotely has already meant that the transaction-lawyer won’t have a signed or executed document in front of them at the point they exchange or complete. So for the time being it is about having someone else within the office who can be relied upon to check that the document has been properly executed, before dating it and posting it out.
Whilst an electronic signature may suffice to get a contract exchanged, Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 still requires a Deed to be attested by a wet-ink signature in the presence of a witness. However the Land Registry has now said that it will accept mercury signatures on deeds submitted for registration.
With a mercury signature, a complete copy of the finalised document is emailed across to the signing party. That person will then print off only the signature page, which will then be physically signed by that person in the physical presence of a witness, who will add their own details. That completed signature page will then be scanned and emailed back to the conveyancer, for collation with the rest of the document.
Transfer of funds
Exchanging contracts or completing a transaction becomes more difficult when a lawyer does not have access to a solicitors’ client account. If you don’t have direct control over deposits and completion monies coming in and out of an account, how can you ever undertake to another party to ‘hold funds to order’? Without a client account, every exchange of contracts or completion involving simultaneous monetary-transfer becomes a cumbersome work-around.
Even the Standard Conditions of Sale and the Standard Commercial Conditions, which govern all conveyancing transactions in England and Wales, make the contractual assumption that any monies transferring will go through a solicitors’ client account. Likewise the Law Society’s Code for Completion for Post 2019 requires solicitors to take personal responsibility for completion monies received and paid away.
For these reasons, changes to the Solicitors’ Accounts Rules, which took effect last November, must be welcomed. The changes mean that conveyancers can now hold client money in a third party managed account as an alternative to the traditional solicitors’ client account. It offers the same client protection but without the expense and compliance-issues of having to maintain a client account directly. Instead, the conveyancing firm will pay the fundholder a monthly retainer plus an additional fee per-transaction. At present the only financial institution known to be offering this service to local authorities is Shieldpay. As Geoff Dunnett, Shieldpay’s Professional Service Director explains,
“We currently have a lawyer base of around 70, almost all of which are in private practice but with a few lenders. As well as the third party managed accounts, Shieldpay also offer project accounts. As far as I’m aware no one else is currently providing third party managed accounts, though there are others who are providing escrow accounts and want to get into the market. Five new firms signed up with us last month. Many of those firms are niche or high-end law firms. It must also be remembered that in return for the monthly retainer, we deal with all the due-diligence compliance-issues which would normally be associated with operating a traditional client account.”
Due diligence identification
Because most in-house lawyers only act for one client they are spared the routine anti-money laundering identification which other lawyers are required undertake whenever they take on a new client. But that doesn’t mean that other due-diligence identification is never required. Due-diligence identification will always be required when a conveyancer is dealing with an unrepresented third party, particularly in relation to a transaction which is registerable.
Land Registry form AP1 requires an applicant for registration to confirm that they have carried out the required identification due diligence in respect of any unrepresented party involved in transaction. But Form AP1 is not prescriptive as to what identification evidence is required. Instead it places responsibility on individual conveyancers to confirm that they have done enough to satisfy themselves that the person with whom they were dealing was entitled to enter into that particular transaction.
Such identification might under normal circumstances involve meeting that person face-to-face and checking and recording their ID. Or alternatively requiring completion of a Land Registry Form ID1 or ID2, in which the unrepresented party would present their identification documents to an independent solicitor, who would then sign it off. But under the current lockdown, how can you insist on either? It’s a judgement call. The Law Society has provided detailed advice on the electronic-alternatives which are available.
One cannot help feeling that at a time when many thousands of lawyers have been laid-off or furloughed because of the lockdown, local government remains the safe place to be. Yes - many good colleagues have been laid off. But for most of us, there is still enough work to keep us going. And the fact that legal jobs are still being advertised, means that the market is not completely dead. But things will never be quite the same.