Solicitors' Account Rules 1998

Rule 24 – When interest must be paid

• (1)

  When a solicitor holds money in a separate designated client account for a client, or for a person funding all or part of the solicitor's fees, or for a trust, the solicitor must account to the client or that person or trust for all interest earned on the account.

• (2)

  When a solicitor holds money in a general client account for a client, or for a person funding all or part of the solicitor's fees, or for a trust (or if money should have been held for a client or such other person or trust in a client account but was not), the solicitor must account to the client or that person or trust for a sum in lieu of interest calculated in accordance with rule 25.

• (3)

  A solicitor is not required to pay a sum in lieu of interest under paragraph (2) above:

  • (a)

    if the amount calculated is £20 or less;

  • (b)
    • (i)

      if the solicitor holds a sum of money not exceeding the amount shown in the left hand column below for a time not exceeding the period indicated in the right hand column:

      Amount	Time
      £1,000	8 weeks
      £2,000	4 weeks
      £10,000	2 weeks
      £20,000	1 week

    • (ii)

      if the solicitor holds a sum of money exceeding £20,000 for one week or less, unless it is fair and reasonable to account for a sum in lieu of interest having regard to all the circumstances;

  • (c)

    on money held for the payment of counsel's fees, once counsel has requested a delay in settlement;

  • (d)

    on money held for the Legal Services Commission;

  • (e)

    on an advance from the solicitor under rule 15(2)(b) to fund a payment on behalf of the client or trust in excess of funds held for that client or trust; or

  • (f)

    if there is an agreement to contract out of the provisions of this rule under rule 27.

• (4)

  If sums of money are held intermittently during the course of acting, and the sum in lieu of interest calculated under rule 25 for any period is £20 or less, a sum in lieu of interest should still be paid if it is fair and reasonable in the circumstances to aggregate the sums in respect of the individual periods.

• (5)

  If money is held for a continuous period, and for part of that period it is held in a separate designated client account, the sum in lieu of interest for the rest of the period when the money was held in a general client account may as a result be £20 or less. A sum in lieu of interest should, however, be paid if it is fair and reasonable in the circumstances to do so.

• (6)
  • (a)

    If a solicitor holds money for a client (or person funding all or part of the solicitor's fees) in an account opened on the instructions of the client (or that person) under rule 16(1)(a), the solicitor must account to the client (or that person) for all interest earned on the account.

  • (aa)

    If a solicitor–trustee, whether or not in strict accordance with rule 17(ca), holds money for a trust in an account of the solicitor–trustee which is not a client account, the solicitor–trustee must account to the trust for all interest earned on the account.

  • (b)

    If a solicitor has failed to comply with instructions to open an account under rule 16(1)(a), the solicitor must account to the client (or the person funding all or part of the solicitor's fees) for a sum in lieu of any net loss of interest suffered by the client (or that person) as a result.

• (7)

  [deleted]

Notes

• • Requirement to pay interest

  • (i)

    The whole of the interest earned on a separate designated client account must be credited to the account. However, the obligation to pay a sum in lieu of interest for amounts held in a general client account is subject to the de minimis provisions in rule 24(3)(a) and (b). Section 33(3) of the Solicitors Act 1974 permits solicitors to retain any interest earned on client money held in a general client account over and above that which they have to pay under these rules. (See also note (viii) to rule 15 on aggregation of accounts.)

  • (ii)

    There is no requirement to pay a sum in lieu of interest on money held on instructions under rule 16(1)(a) in a manner which attracts no interest.

  • (iii)

    Accounts opened in the client's name under rule 16(1)(b) (whether operated by the solicitor or not) are not subject to rule 24, as the money is not held by the solicitor. All interest earned belongs to the client. The same applies to any account in the client's own name operated by the solicitor as signatory under rule 11.

  • (iv)

    Money subject to a trust is client money (see rule 13), and rule 24 therefore applies to it.

  • De minimis provisions (rule 24(3)(a) and (b))

  • (v)

    The sum in lieu of interest is calculated over the whole period for which money is held (see rule 25(2)); if this sum is £20 or less, the solicitor need not account to the client, other person or trust. If sums of money are held in relation to separate matters for the same client, other person or trust, it is normally appropriate to treat the money relating to the different matters separately, so that, if any of the sums calculated is £20 or less, no sum in lieu of interest is payable. There will, however, be cases when the matters are so closely related that they ought to be considered together – for example, when a solicitor is acting for a client in connection with numerous debt collection matters.

  • Administrative charges

  • (vi)

    It is not improper to charge a reasonable fee for the handling of client money when the service provided is out of the ordinary.

  • Unpresented cheques

  • (vii)

    A client may fail to present a cheque to his or her bank for payment. Whether or not it is reasonable to recalculate the amount due will depend on all the circumstances of the case. A reasonable charge may be made for any extra work carried out if the solicitor is legally entitled to make such a charge.

  • Liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes

  • (viii)

    Under rule 9, Part C of the rules does not normally apply to solicitors who are liquidators, etc. Solicitors must comply with the appropriate statutory rules and regulations, and rules 9(3) and (4) as appropriate.

  • Joint accounts

  • (ix)

    Under rule 10, Part C of the rules does not apply to joint accounts. If a solicitor holds money jointly with a client, interest earned on the account will be for the benefit of the client unless otherwise agreed. If money is held jointly with another solicitors' practice, the allocation of interest earned will depend on the agreement reached.

  • 
    
  • (x)

    [deleted]

  • Failure to pay interest

  • (xa)

    A client, including one of joint clients, or a person funding all or part of a solicitor's fees, may complain to the Legal Complaints Service if he or she believes that interest, or a sum in lieu of interest, was due and has not been paid, or that the amount paid was insufficient. It is advisable for the client (or other person) to try to resolve the matter with the solicitor before approaching the Legal Complaints Service.

Rule 25 – Amount of interest

• (1)

  Solicitors must aim to obtain a reasonable rate of interest on money held in a separate designated client account, and must account for a fair sum in lieu of interest on money held in a general client account (or on money which should have been held in a client account but was not). The sum in lieu of interest need not necessarily reflect the highest rate of interest obtainable but it is not acceptable to look only at the lowest rate of interest obtainable.

• (2)

  The sum in lieu of interest for money held in a general client account (or on money which should have been held in a client account but was not) must be calculated

  • on the balance or balances held over the whole period for which cleared funds are held
  • at a rate not less than (whichever is the higher of) the following
    • (i)

      the rate of interest payable on a separate designated client account for the amount or amounts held, or

    • (ii)

      the rate of interest payable on the relevant amount or amounts if placed on deposit on similar terms by a member of the business community

  • at the bank or building society where the money is held.
• (3)

  If the money, or part of it, is held successively or concurrently in accounts at different banks or building societies, the relevant bank or building society for the purpose of paragraph (2) will be whichever of those banks or building societies offered the best rate on the date when the money was first held.

• (4)

  If, contrary to the rules, the money held for a client or other person is not held in a client account, the relevant bank or building society for the purpose of paragraph (2) will be a clearing bank or building society nominated by the client (or other person).

• (5)

  If, contrary to the rules, money held by a solicitor–trustee is not held in a client account, the solicitor-trustee has a particular obligation to comply with the requirement in paragraph (1) to account for a fair sum in lieu of interest.

Notes

• • (i)

    The sum in lieu of interest has to be calculated over the whole period for which money is held – see rule 25(2). The solicitor will usually account to the client at the conclusion of the client's matter, but might in some cases consider it appropriate to account to the client at intervals throughout.

  • (ii)

    When looking at the period over which the sum in lieu of interest must be calculated, it will usually be unnecessary to check on actual clearance dates. When money is received by cheque and paid out by cheque, the normal clearance periods will usually cancel each other out, so that it will be satisfactory to look at the period between the dates when the incoming cheque is banked and the outgoing cheque is drawn.

  • (iii)

    Different considerations apply when payments in and out are not both made by cheque. So, for example, the relevant periods would normally be:

    • from the date when a solicitor receives incoming money in cash until the date when the outgoing cheque is sent;
    • from the date when an incoming telegraphic transfer begins to earn interest until the date when the outgoing cheque is sent;
    • from the date when an incoming cheque or banker's draft is or would normally be cleared until the date when the outgoing telegraphic transfer is made or banker's draft is obtained.
  • (iv)

    The sum in lieu of interest is calculated by reference to the rates paid by the appropriate bank or building society (see rule 25(2) to (5)). Solicitors will therefore follow the practice of that bank or building society in determining how often interest is compounded over the period for which the cleared funds are held.

  • (v)

    Money held in a client account must be immediately available, even at the sacrifice of interest, unless the client otherwise instructs, or the circumstances clearly indicate otherwise. The need for access can be taken into account in assessing the appropriate rate for calculating the sum to be paid in lieu of interest, or in assessing whether a reasonable rate of interest has been obtained for a separate designated client account.

  • (vi)

    For failure by the solicitor to pay a sufficient sum by way of interest, or in lieu of interest, see note (xa) to rule 24.

Rule 26 – Interest on stakeholder money

When a solicitor holds money as stakeholder, the solicitor must pay interest, or a sum in lieu of interest, on the basis set out in rule 24 to the person to whom the stake is paid.

Note

• For contracting out of this provision, see rule 27(2) and the notes to rule 27.

Rule 27 – Contracting out

• (1)

  In appropriate circumstances a client and his or her solicitor may by a written agreement come to a different arrangement as to the matters dealt with in rule 24 (payment of interest).

• (2)

  A solicitor acting as stakeholder may, by a written agreement with his or her own client and the other party to the transaction, come to a different arrangement as to the matters dealt with in rule 24.

Notes

• • (i)

    Solicitors should act fairly towards their clients and provide sufficient information to enable them to give informed consent if it is felt appropriate to depart from the interest provisions. Whether it is appropriate to contract out depends on all the circumstances, for example, the size of the sum involved or the nature, status or bargaining position of the client. It might, for instance, be appropriate to contract out by standard terms of business if the client is a substantial commercial entity and the interest involved is modest in relation to the size of the transaction. The larger the sum of interest involved, the more there would be an onus on the solicitor to show that a client who had accepted a contracting out provision was properly informed and had been treated fairly. Contracting out is never appropriate if it is against the client's interests.

  • (ii)

    In principle, a solicitor–stakeholder is entitled to make a reasonable charge to the client for acting as stakeholder in the client's matter.

  • (iii)

    Alternatively, it may be appropriate to include a special provision in the contract that the solicitor–stakeholder retains the interest on the deposit to cover his or her charges for acting as stakeholder. This is only acceptable if it will provide a fair and reasonable payment for the work and risk involved in holding a stake. The contract could stipulate a maximum charge, with any interest earned above that figure being paid to the recipient of the stake.

  • (iv)

    Any right to charge the client, or to stipulate for a charge which may fall on the client, would be excluded by, for instance, a prior agreement with the client for a fixed fee for the client's matter, or for an estimated fee which cannot be varied upwards in the absence of special circumstances. It is therefore not normal practice for a stakeholder in conveyancing transactions to receive a separate payment for holding the stake.

  • (v)

    A solicitor–stakeholder who seeks an agreement to exclude the operation of rule 26 should be particularly careful not to take unfair advantage either of the client, or of the other party if unrepresented.

Rule 28 – [repealed]