Conveyancing Law - Distinction grade assignment

Fellow professionals, you are here today because you are interested in achieving trouble free transactions when serving your residential vendor clients and because you would like to spend more time playing golf than defending a negligence action.  You have both financial and altruistic aspirations and my talk today will reconcile those two aims.  I will convince you that in order to streamline your practice and to avoid the pitfalls of our prior colleagues, it is necessary to adhere to some simple principles of conveyancing whilst acting for your vendor clients, with whom you have a fiduciary and contractual relationship.

Lord Templeman once stated that “conveyancing is a complicated business”[1] So you may presume that you are required to be a skillful conveyancer.  However prudence and good procedure is a worthy substitute for raw skill in this practice of the law.

Vendors Duty to Show Good Title

Justice Barwick stated that “under the Real Property Act the vendor under such a contract must place the purchaser on settlement in a position to have himself immediately registered as the proprietor of the land for an estate in fee simple.”[2]  Barwick again affirmed that this was an obligation under the contract.[3]

However a defect in the title prevents the vendor from discharging this obligation.  For example, a vendor should show good title in the property and they are unable to do this if they cannot show that they have paid their land tax liabilities.  The vendor cannot insist that the purchaser accept an undertaking that they will pay the outstanding the land tax after completion of the contract.[4]  Therefore you should ensure that land tax liabilities are assessed and paid prior to completion. 

Many defects are as a result of ignorance, inadvertence or accident.[5]  So as the vendors solicitor you should ensure that there is no impediment to giving the purchaser, (who is not your client), a clear title in the property.  These have been described as patent defects.  However a vendor must also disclose all latent defects in title and if they fail to do so and these defects are material or substantial the purchaser may terminate the contract.  The judge Mason stated that “the focus of attention is upon the vendor’s capacity to deliver title having regard to the subject matter of the contract of sale.”[6]    For example, although the failure to provide a building certificate of compliance is not a defect in title, it may nevertheless be a latent defect in title giving the purchaser the ability to terminate the contract if the property would need to be demolished, since this means that the subject matter of the contract is substantially different.  This may also result in the price of the property being abated/reduced by the court which will result in a very unhappy vendor client.

And although some issues have not been held to be defects in title, it is worthwhile reminding us of some of these to avoid unnecessary trouble.  Firstly, although the lack of insurance did not give such an impediment[7], it would be advisable that vendor’s solicitors ensure that a copy of the home owners insurance warranty can be passed to the purchaser, if applicable.  Meanwhile a caveat has been held not to amount to a defect in title but does prevent the purchaser from becoming the registered owner[8], so it is good procedure to check the register for the existence of any caveats.  Furthermore that the mere potentiality of affectation does not amount to a defect in the title.[9] 

Errors and Misdescriptions

It is the duty of the vendor to produce land that corresponds substantially with the description contained in the contract.  Therefore it is important to ensure as the vendors solicitor that there are no misdescriptions in the particulars relating to the property that are material or substantial and would be seen to affect the purchasers decision to purchase the property, that would give the purchaser the right to rescind.[10]

Therefore the subject matter of the sale should be clearly identified in the contract of sale.  If your client is giving title in the land and not the building, ensure the subject matters of the contract in the particulars clearly indicate that the sale is for the land only and does not imply they are giving title in the building that may be situated on the land.[11]  The vendors solicitor in the case of Abraham v Mallon[12] may have prevented litigation if they had instructed their client upon this issue.  The lessons learned from these cases is that it is essential that the solicitor obtain clear instructions as to what to include in the particulars of the contract of sale.  And whilst it is ultimately the responsibility of the purchaser to obtain a survey of the land[13] it would nevertheless be prudent to obtain a survey of the land to ensure that buildings and improvements are situated within the boundaries of the land to ensure that the vendor can give title to the purchasers upon completion.

Therefore the general rule as a vendor should be to avoid misdescriptions altogether.  Otherwise even though there might be some latitude provided to the vendor, once a misdescription is established the purchaser is entitled to be fully compensated.[14]

Vendor Disclosure

A vendor has a statutory duty to attach to the contract certain prescribed documents.[15] The vendor must also state exhaustively the various schemes and planning provisions that affect the property.[16]  The vendor must also hand over title deeds and other muniments of title.[17]   Meanwhile they also have a contractual duty to disclose all matters listed for disclosure in the contract and failure to do this may give the purchaser the right to rescind the contract.  However the mere attachment of council certificates is not sufficient.[18]

Therefore you should advise your client to avoid fraudulent misrepresentations or lack of disclosure.  The lesson to be learned from the case of Anderson v Daniels[19] for a solicitor to strongly advise that the vendor not be involved in dealings with the purchaser.  Obviously it goes without saying that in all dealings the solicitor must be honest.  Therefore solicitors must be mindful of this, particularly if a property has recently been renovated.  They must ensure that no actions by the vendor can be seen by the court to amount to concealing defects in the quality of the property that would be patent.  So you should be particularly vigilant when a property has been newly renovated to ensure the vendor has not taken steps to actively conceal a defect, since this may also expose the vendor or their agent to a suit for false and misleading conduct.[20]

Time clauses

You must discuss with the vendor whether or not they wish to make time the essence of the contract, and the benefits and risks.  If they decide to make time the essence then they must not be fault for delay themselves.[21]  Furthermore the fixing of time must be reasonable in all the circumstances.[22] Finally, in drafting the contract, if you have decided that time is of the essence, although it is not essential that these words be actually used[23], it would be advisable to make it extremely clear that time is of the essence to comply with an obligation under the contract.

Vacant Possession

The vendor should be made aware that subject to the contract and any existing leases, they may be required to give vacant possession.  And although minor items will not prevent the giving of vacant possession[24], and must amount to a substantial breach of this condition[25] impediments that amount to a substantial interference with the use and enjoyment of the property will prevent the giving of vacant possession.[26]

Exchange of Contracts

As the vendors solicitor, Lord Greene aptly stated that “when you are dealing with contracts for the sale of land, it is of the greatest importance to the vendor that he should have a document signed by the purchaser, and to the purchaser that he should have a document signed by the vendor.”[27]  However, subject to express instructions, the solicitor has the implied authority to make the contract binding upon his client.

However notwithstanding the existence of this general authority, you should establish with your client how they would like exchange to take place, and if no instructions are given to you , ensure that you inform the client that exchange will take place according to accepted conveyancing practice, which could include phone or post.  Lord Templeman even suggested that the client is not interested in the machinery of exchange and stated that “these are matters for the solicitor and the general law.”[28]  However that is all well and good until a dispute arises.  Therefore best practice would be to discuss the issue of exchange with your client, including their options and arrive at the most suitable method for them.  This pitfall was experienced by the solicitors for the vendor in the case of Domb v Isoz[29] which involved the issue of exchange of contracts via the telephone.  The solicitors sleepless nights could have been avoided by simply insisting that their client clearly communicate to them how they would wish exchange of the contract to take place, instead of taking the matter into their own hands.  Therefore you should advise your client that once you have a signed copy of the contract, in the absence of an express agreement you have ostensible authority[30] to effect exchange of the contracts.  Alternatively make it clear what the scope of your authority is in relation to exchange.

Furthermore, the lesson learned from the case of Longpockets[31] is that a solicitor should generally ensure that at the time of exchange the contracts are identical if the terms of a contract have not been settled prior to exchange and that it is the intention of the parties to treat the exchange as the completion of the settlement of the terms of the contract.  Ultimately it is a question of intention.[32]  Although it is not essential to the binding nature of the contract the contracts be identical at the time of exchange if the parties have agreed to these terms prior to exchange, it would have saved costly litigation in the case of Longpockets if this had been adhered to.  So I urge you, read and compare each contract line by line and ensure they are identical in every way at the time of exchange.

Insurance

Historically, it was the purchaser who had an “insurable interest”.[33]   However this has now changed and under s.66K[34] the risk does not pass to the purchaser until the time of settlement s.66K(1)(a), or the date specified in the contract s.66K(1)(b)  Therefore the vendor should be advised to insure or continue to insure the property up to the date of settlement and that they have a duty to ensure no injuries are done to the property after signing.[35]  Failure to adhere to this could give right to the purchaser to rescind the contract – s.66L if the property has been substantially damaged.

Requisitions & Objections

We must also remind ourselves that not all requests by the purchasers are requisitions as to title.  Nevertheless this does not mean that a request that is not a requisition must be ignored as it may still give rise to a right to rescind and it may serve as a reminder for the vendor to perform their contractual obligations under the contract.[36]

Rights of Rescission

Both the vendor and purchaser may have the right to rescind in certain circumstances.  However it could be argued that the task of the vendors solicitor should be to ensure that the vendor has the right to rescind the contract , meanwhile limiting the rights of the purchaser to rescind.  However in limiting the purchasers right to rescind the contract it must be remembered that there are still common law rights of a purchaser which give them the right to rescind and that the vendors right to rescind can be lost.  Simply because the contract contains the right rescission does not mean that the vendor will retain this right if it is unconscionable to do so.[37]  a vendor in seeking to rescind must not act arbitrarily, or capriciously or unreasonably.”[38]  Therefore it must be remembered that contractual right of rescission can be lost.

Therefore contracts should not be drafted that could be seen as unconscionable since this may result in a vendor losing their contractual right to rescind.[39]

Ensure that you draft the contract which provides the vendor with the ability to annul/rescind the contract without notice.[40]  However ensure that if you cannot comply with an objection or requisition by the purchaser that if your client chooses to rescind the contract they can do so and that the requirements to rescind are present.[41]

Conclusion

Overall the vendor must perform their statutory and contractual obligations under the contract and as the solicitor of the vendor you must ensure that the vendor knows how to comply with these obligations and understands the consequences for non-compliance.