The Law Society of Scotland recently voted that separate solicitors should act for the purchaser and the lender in property purchases – and this could become compulsory in the next six months.
Up to now the same solicitor has been able to act for both parties, and this is currently the case in England and Wales.
The decision to ban this 'joint representation' in Scotland is a controversial one, because there are strong reasons for and against using one solicitor to manage the whole conveyancing process on behalf of the lender and the buyer.
The case for separate representation
The Law Society of Scotland and many solicitors believe that separate representation, where one solicitor acts for the purchaser and another for the lender, is the fairest for both parties. Here's why:
- It avoids any conflicts of interest between the purchaser and the lender, meaning the solicitor is extremely clear whose interests they are representing, and less swayed by commercial pressures from one party.
- There are now more complex purchase cases than in the past and these may require one solicitor concentrating their attention on the needs of just one party.
- Lenders currently have great power over solicitors because they decide which firms they will allow to act for them. Under joint representation buyers cannot always use the solicitor they want, if it is not acceptable to the lender. Under separate representation the borrower's interest is better protected, as they can choose whoever they want to represent them and are not restricted to using their lender's preferred solicitor.
- An increased risk of mortgage fraud in recent years makes it more prudent to have a different solicitor acting in the interests of the lender and the purchaser.
In favour of joint representation
However the Council of Mortgage Lenders (CML), which represents lenders across the UK, has condemned the move in Scotland, saying it will increase costs to consumers. Critics of separate representation argue that joint representation currently works well, and that there are only a few cases where separate representation is necessary:
- Currently the purchaser pays the solicitor's fees and the same solicitor usually acts for the lender, minimising the overall costs. In cases of separate representation the purchaser has to pay for the lender's and their own legal costs, potentially doubling the fees. However the Law Society in Scotland argues that market forces will reduce costs and argue it is up to the lender if they want to pass their costs onto borrowers (though it seems a pretty fair bet that they will!)
- The CML argues that this is a protectionist measure by the legal profession at a time when their profits, and business volumes, are reducing. Whatever you think about whether separate representation is better for consumers, it is certainly being welcomed with open arms by many Scottish solicitors.
- At a time when a huge amount of investment is being made into kick-starting the mortgage and housing markets it might seem strange to increase homebuying costs in such a potentially significant way.
- A solicitor acting under joint representation can ensure a smooth transaction as they are dealing with the entire purchase process. There is less to-ing and fro-ing. Separate representation could add delays to the purchase process, which isn't going to help a stuttering housing market.
Double legal costs for all?
It is unlikely that separate representation will become the norm in England and Wales, at least not in the near future. The CML – and the lenders it represents – are against the idea and view joint representation as the preferred option.
However, there has been a clear increase in separate representation transactions and this is expected to continue.
This is due primarily to the fact that lenders have culled their solicitor panels – that is the number of firms they are willing to allow to act for them.
Before the credit crunch it was no exaggeration to say that pretty much any solicitor firm could get onto a lender's panel. But now they are forced to look a lot more closely at who they do business with. Frankly, it is easier for lenders to manage a small panel of solicitors that they can keep a close eye on, than to deal with thousands of small high street law firms.
As a result, solicitors are increasingly being kicked off lenders' panels, and unable to act for them. If their clients still really want to use them, it will have to be on a separate representation basis.
In the vast majority of cases, buyers do not have strong feelings about which solicitor they use, as long as they do the job properly within an affordable budget. Plus, the interests of the buyer and the lender are usually aligned, so there is arguably no conflict of interest for one solicitor, approved by both parties, to do the whole job.
Finally, legal property work in England and Wales is also undertaken by licensed conveyancers, yet they don't fall under the catchment of the Law Society, or the Solicitors Regulation Authority. If solicitors were banned from undertaking joint representation, licensed conveyancers would still be able to do it, and this would create an uneven playing field. The nature of the different system makes the change more unlikely in England and Wales, for now.
However, there are plenty of people who believe that separate representation is a better way of looking after consumers' best interests, so it will certainly be interesting to see how it pans out in Scotland.
What do you think? Do you prefer to go for separate representation? Let us know your thoughts and experiences in the comment box below.