Buyers’ solicitors need not make credit checks against a seller, unless they are instructed to do so. However, the risks of paying deposits to agents must be properly explained and understood.

Due diligence in conveyancing transactions has changed enormously over the years. The range of searches now available to conveyancers is much greater and practitioners now investigate title before, rather than after, contracts are exchanged. However, some essential searches are traditionally made in the period between exchange of contracts and completion. An official search at the Land Registry will indicate whether any new entries have been made on the registers of title to the property – or, if title to property is unregistered, the buyer should make a land charges search against the estate owners. The results of both such searches will reveal any bankruptcy entries against the seller and will protect buyers for a limited period, giving them time to register themselves as the new proprietors of the land. Should practitioners make bankruptcy searches and official searches without priority much earlier in the process to check the position, followed by the usual pre-completion searches before a transaction completes, to check for any changes and to secure a priority period for the buyer to register its purchase? In Kandola v Mirza Solicitors LLP [2015] EWHC 460 (Ch; [2015] PLSCS 70, a buyer sought damages from his solicitors to cover the loss of a 22% deposit paid to the seller’s solicitors as agents, which was released to the seller on exchange of contracts. The seller did not complete, was made bankrupt and the deposit was lost. The buyer’s solicitor had advised his client not to proceed with the transaction on those terms, had explained the risks of doing so, and had obtained written instructions to proceed despite the risks. However, the buyer claimed that the advice was insufficient. He argued that his solicitor should have taken additional steps to evaluate the extent of the risk that he was running by paying the deposit to an agent, as opposed to a stakeholder. He suggested that his solicitor should have made a Land Registry search, or a bankruptcy search against the seller, before contracts were exchanged and that these would have disclosed the existence of a bankruptcy petition against the seller. The judge noted that this would have been unusual and that the Law Society’s Conveyancing Handbook does not recommend that a buyer’s solicitor should make such searches before exchange – either generally, or if the deposit is to be released to the seller on exchange. In such cases, the handbook suggests only that the client should be advised of the risks before proceeding – and the buyer’s solicitor had gone further than this by positively advising his client against doing so. The buyer was a commercially sophisticated client and the judge decided that the risks had been properly explained and understood. Buyers’ solicitors are not under a general duty to check the credit status of a seller, even if the circumstances are unusual – for example, because the deposit is being paid to an agent – unless they are instructed to do so. Nor can such a duty arise merely because a client might lose money if the other party were to become insolvent since this might happen in most, if not all, transactions, and the decision in whom to place one’s trust in business is a commercial decision for the client, not his solicitor.   Allyson Colby is a property law consultant