Client -v- commercial interests

Recent months have seen a build up in the frustrations of those involved in the conveyancing process, with estate agents wanting solicitors to get better at communicating with them, solicitors being unhappy with having to regularly update estate agents, many solicitors being unhappy with the payment of referral fees, and a general push by estate agents to speed up the completion of transactions without understanding that other third parties can create delays.

So, let’s take a simplistic look at a seller’s journey using an estate agent and solicitor where a referral agreement is in place.

1. A seller approaches an estate agent to sell their property and the agent gets them to sign up to their terms and conditions saying that they must use the recommended solicitor; these include a requirement for the seller to pay upfront legal fees of ￡500 to the agent, and an agreement that details will be shared between the solicitor and agent.
2. The agent sends the solicitor details of the seller in line with the referral agreement signed by both parties.
3. The solicitor sets up a file and makes contact with the client to move forward with the transaction; the client care letter states that the matter is subject to a referral arrangement with the agent and a fee of ￡500 will be paid to them at the end of the transaction.
4. During the transaction the solicitor updates the agent as laid out in the referral agreement with the agent telling the solicitor they are unhappy with the time it is taking to complete and that the solicitor should ‘pull out all the stops’, which it attempts to do. ??
5. The transaction completes with no referral being paid by the solicitor.

Now let’s look at where the solicitor is in breach of their regulatory obligations in this process.

• Stage 1

o?? A seller must be given the freedom to choose which solicitor they wish to use, and if they are not given this choice the solicitor should either get the agent to change their terms, or they must withdraw from the referral arrangement if they don’t.

o?? Legal fees must be paid to the solicitor and lodged in the client account so they are appropriately protected; this payment is in fact the referral fee dressed up to mislead the client so the agent gets the referral fee upfront, which helps with their cashflow, and negates the need to chase the solicitor for it at the end of the transaction. By allowing the agent to retain this fee and mislead the client the solicitor will be in breach of SRA Principles, Codes of Conduct and Accounts Rules; the solicitor cannot rely on the basis that the client agreed this with the agent before the referral, and it is therefore nothing to do with them. The Solicitors Regulation Authority (SRA) has said that solicitors must look at the matter in its wider context and where something is not in the best interests of the client must bring this to their attention so they can make an informed decision as to how to proceed.

o?? The seller must not be forced to waive their confidentiality, or be subject to a blanket consent covering multiple areas; where a solicitor is asked to provide the agent with a client’s information, the SRA has said that this must be subject to specific written consent at the time disclosure is requested; the solicitor should use their independent judgment as to whether this is in the client’s best interests.

• Stage 2

o?? When signing the referral agreement a solicitor must ensure that the terms of the agreement and its application allow the solicitor to:

1. Uphold public trust and confidence in the solicitors’ profession
2. Act with independence
3. Act with honesty
4. Act with integrity
5. Act in the best interests of each client

• Stage 3

o?? By allowing the client to be misled over the referral fee - knowing it has been dressed up as upfront legal fees and is not protected by being in the client account - the solicitor has breached the Principles outlined in Stage 2 and other regulatory obligations.

• Stage 4

o?? As already mentioned, written consent to disclose a client’s information must be sought and obtained from them before any information is released; the SRA has said that there shouldn’t normally be a need to provide referrers with client information.

o?? A solicitor must remain independent at all time and not be influenced by referrers, so they should not be swayed by requests/demands to ‘pull out all the stops’; it is for solicitor to meet their regulatory obligations taking account of a client’s attributes, needs and circumstances.

• Stage 5

o?? As mentioned above, the referral fee should normally be paid by the solicitor at the end of a transaction and not by the client either described as a referral fee, upfront legal fees, or something else (searches, etc.).

Another ploy used by some estate agents in referral agreements is to apply a referral fee to future work requested by a seller (client) within a specific timescale (six months), for example, the seller (client) asks their solicitor to prepare a will a week after the initial referral, and therefore the firm has to pay an additional referral fee for this. On the basis that the solicitor must inform their client of the referral fee paid this could cause confusion as the client didn’t get referred for this piece of work; it also raises issues around whether the best interests of the client are being served as the costs for the will could be cheaper if a referral fee wasn’t paid.

The above are just some of the issues that led to the banning of referral fees being paid for personal injury work in 2013, and it continues to be a bone on contention as to why they aren’t banned for conveyancing work as well!

Remember, the best interests of clients take precedence over commercial gain and trading ?relationships!