Skip to main content

New Code for Completion by post


The Law Society has now published a new Code for Completion by post (“the Code”), which will come into effect on 1 May 2019.

The changes follow the Court of Appeal ruling in the 2018 Dreamvar [1] case, which reinforced the position that it is incumbent on a seller’s solicitor to detect a fraudulent seller. The Code has evolved to deal with an emerging risk in conveyancing transactions made apparent by the facts of this case: the imitation of sophisticated fraudsters posing to be true owners of property.

The Dreamvar case involved fraudsters who posed as the owners of property in London. A buyer for the property was found, contracts were exchanged and completion of the sales and purchases took place on the basis of the provisions of the Law Society Code for Completion 2011. After completion, and after the monies had been transferred to the fraudsters, the scam was discovered. The buyers took action to recover the purchase monies by claiming against the seller’s solicitors for breach of trust and breach of undertaking. The seller’s solicitors were found to be liable to the buyer for breach of trust since they were holding the completion funds on trust for a genuine completion. The seller’s solicitors were also found to be liable for a breach of the undertaking to the buyer’s solicitor implied by the 2011 Code for Completion, which required the seller’s solicitor to use the completion money for a genuine completion. The fact that the proceeds were in fact used for a scam meant that the seller’s solicitor had breached their undertaking. This was despite the seller’s solicitors having no knowledge that their clients were not the genuine owners until after completion had taken place.

The new Code enshrines that if parties in a conveyancing transaction agree to adopt the Code and it transpires that the sellers are fraudsters who are not the true owners of the property and completion takes place, the seller’s solicitor will be ‘on the hook’. Whether the seller’s solicitor believed that the sellers were or were not the true owners of the property is immaterial.

To effect this, the key change brought about by the Code, is to elucidate the meaning of “seller” to mean “the person or persons who will be at the point of completion entitled to convey the legal and/or equitable title to the property” – in other words the true legal owners, not the fraudsters. Accordingly, the undertakings made by the seller’s solicitor are made on the basis that they act for the true legal owners.

WM Comment

The Code leaves no doubt as to the nature and scope of undertakings that solicitors who act for sellers on conveyancing transactions will be obliged to provide (if they agree to adopt the Code). It will therefore be all the more important for solicitors to carry out thorough client due diligence at the ‘know your client’ stage of instruction.

___________

[1] See our earlier briefing for more information