Leasehold Conveyancing – The Duty to Explain

Redstone Mortgages Ltd v B Legal Ltd [2014] EWHC 3398 (Ch) a decision of Norris J has, according to Westlaw, not been cited in any subsequent case although it has, rightly, featured in a number of authoritative textbooks. Nonetheless it is a case that could easily pass one and, indeed, it did pass me by when I was writing my part of the Law Society’s CQS (“Conveyancing Quality Scheme”) 2018 Update Leasehold Module. In part this was because it’s a case  about the duty a conveyancing solicitor owes to mortgagees (actually not so much “a” case because, although a single claim, it concerned 4 purchases in which one solicitor had acted for the same mortgagee). Notwithstanding that, it is a useful case because, in emphasising the need for risks to be identified and explained to the client, it applies every bit as much to purchasers as mortgagees. At paragraph 94, Norris J reminded himself:

Mr Chaisty QC placed reliance upon a passage in County Personnel v Pulver [1987] 1 WLR 916 at 922 in
these terms:—

“…legal advice, like any other communication, should be in terms appropriate to the
comprehension and experience of the particular recipient. It is also, I think, clear that in
a situation such as this is the professional man does not necessarily discharge his duty
by spelling out what is obvious…. If in the exercise of a reasonable professional
judgement a solicitor is or should be alerted to risks which might include even an
intelligent layman, then plainly it is his duty to advise the client of these risks or explore
the matter further”.

He then went on to apply that guidance to the facts of the case before him (I have added some emphasis to highlight the more general statements of principle)-

95 In my judgment the Howard Memorandum fell short of what was required. First, it did not use
the trigger words “shared ownership”. Second, and more importantly, a decision about the adequacy of the title to the security and its conformity to the valuation simply could not be taken in the absence of knowledge about the terms of what was potentially a “shared ownership” lease. This was the fundamental point that had to be got across. Instead the impression was given was that there was a bit of paper missing (“the original lease is not available”) but the answer might lie with the valuer (“I assume you will need to refer this to UW and/or the valuer and a new offer may be issued”): but neither valuer nor underwriter could do anything without the lease. This report was inadequate. A client being asked for instructions whether or not to proceed was entitled to adequate information as to the circumstances in which the choice to proceed or withdraw was being made (though not under the Retainer to advice as to what choice should be made).

97 B Legal did obtain a first legal charge over the property: the difficulty is that the charged interest was so restricted as not to be “good and marketable”. B Legal was not under a duty to ascertain that Mr Howard had only a 50% interest. It was under a duty (when the time for completion came and the Certificate of Title was called for) to explain what the position was: in summary, that it was necessary to see the lease in order to investigate title and express an opinion upon it, that a complete executed lease had not been seen, that what had been seen was part of an unexecuted draft which indicated that this was a shared ownership lease, but no opinion could be given upon the restrictions on disposal. It was under a duty to set out the difficulties standing in the way of giving a Certificate of Title. It was not under a particular duty to explain that a shared ownership lease fell outside Beacon’s internal underwriting criteria: it is not the task of the conveyancing solicitor to know the detailed lending policy of a client lender. It is the task of the conveyancing solicitor to certify title if that can properly be done, and if not either to state the qualifications on the certificate or to seek instructions having reported accurately the position. It was not under a duty to explain that the assumptions in the valuation were wrong: B Legal’s only duty was to report that as matters stood they could not be confirmed. But I consider that B Legal failed in its duty to report (though not in the exact manner pleaded) and its provision of an unqualified Certificate of Title.

So the individual failings which lead to the conclusion that the solicitors had failed:

(1) in their duty to report, and

(2) in providing an unqualified Certificate of Title:

were the following:

• • A client being asked for instructions whether or not to proceed is entitled to adequate information as to the circumstances in which the choice to proceed or withdraw was being made
  • A solicitor is under a duty (when the time for completion came and the Certificate of Title is called for) to explain what the position is
  • A solicitor is under a duty to set out the difficulties standing in the way of giving a Certificate of Title.
  • It is the task of the conveyancing solicitor to certify title if that can properly be done, and if not either to state the qualifications on the certificate or to seek instructions having reported accurately the position.