"Arm's length" conveyancing transactions
When is a conveyancing transaction "at arm's length"? Rule 3.07(2) provides that you must not act for more than one party in a conveyancing transaction other than as permitted by rules 3.08 to 3.15. This case study is based on real events dealt with by the SRA.
Unless you are acting for a seller and more than one prospective buyer, rule 3.08 of the Solicitors' Code of Conduct permits you to act for a seller and a buyer if the parties are not at arm's length—provided there is no conflict or significant risk of conflict. The guidance to the rule goes on to describe how to judge when a transaction is "at arm's length". For example, a transaction is not likely to be at arm's length if the parties are related by blood, adoption or marriage, or are living together. It is important for each case to be judged on its own facts.
The Solicitors Disciplinary Tribunal considered a case in which two solicitor partners of a practice, situated at the same address, acted in a conveyance in which one partner represented the seller and the other the buyer. The respondents argued that the transaction was not at arm's length because the sale was not a transfer of land for value at arm's length.
The seller had originally purchased the property from the buyer's parents. The agreement between the seller and buyer was that it would be sold at an undervalue. The respondents submitted this was indicative of the trust and relationship between the parties. The agreement was that the buyer's parents would continue to reside at the property. The property had never been marketed and the agreement between the parties was a private one finalised before the solicitors became involved.
The guidance provides that whether a transaction is at arm's length will depend on the relationship between the parties and the context of the transaction; it will not necessarily follow from the fact that a transaction is at market value or stated to be at arm's length. The respondents argued it was therefore implicit that, if a transaction was at less than the market value, it was unlikely to be at arm's length. They submitted that, with its features of trust and confidence, the relationship between the parties was comparable to the relationships described in the examples.
The tribunal decided the relationship between the parties was not of the nature described by the examples; the context of the sale and the undervalue did not make it "not at arm's length." The tribunal found the parties of this type of transaction required independent advice from the start.
This case demonstrates the care with which you need to consider each party's interest and the need for independent advice.