Reports on Title are a Must!

All conveyancing practitioners should carefully consider the judgement of Colton J in the Matter of James Andrew Hickland as Personal Representative of the Estate of Margaret Jean Farren (Deceased) -v- Cormac McKeone, Formerly practising as McKeone and Company Solicitors [2018] NIQB 81.

This was a professional negligence action taken by the personal representative of the purchaser of a property against the firm of solicitors who acted in the purchase.

The matter was distinguished somewhat from other professional negligence actions in that there was a written retainer; the issues were identified by the acting solicitor; the issues were communicated to the purchaser; there were contemporaneous file attendance notes recording the acting solicitor’s advices; the purchaser confirmed that she understood the acting solicitor’s advices.

The purchaser (Ms Farren) was a retired lady, who was relocating from England and was purchasing with cash.

The property concerned is what is known as a “flying freehold” and was one of two apartments in a newly developed block.

Most practitioners will be aware of these types of properties and would be alert to the issues that may arise. Indeed, the acting solicitor, on receipt of the title, requested that the transaction proceeded by way of Lease, rather than the Transfer that was provided by the developer’s solicitor.

There was no doubt, pursuant to the terms of the retainer, that the acting solicitor owed a contractual duty of care to the purchaser. The acting solicitor also owed a duty in tort and this action arose due to a breach of that duty.

The acting solicitor was aware of the issues regarding the flying freehold and was, in fact, in receipt of counsel’s opinion, provided by the solicitor who acted in the purchase of the other apartment in the block.  The opinion highlighted the issues connected with flying freeholds and recommended that a Lease be prepared – so as to deal appropriately with the maintenance issues in the block in which the apartments were located.

Despite the initial concerns of the acting solicitor and despite being in receipt of counsel’s opinion highlighting the difficulties, the acting solicitor did not appear to insist on the matter proceeding by way of Lease.

In his Judgment Colton J, states at Paragraph [11]:-

“The effect of the property being conveyed by way of freehold in this purchase is that the mutual covenants in the deeds between the owners of the apartments relating to the obligations to clean, maintain and repair party walls, the roof, external walls, floors and foundations would, in effect, be unenforceable.”

It is not the case that Freehold title cannot contain enforceable rights and covenants. Article 34 of Property (NI) Order 1997 provides that, in a scheme of development of two or more properties, freehold covenants can not only be enforced by the covenantee against the covenantor but also by the respective owners of parcels of land in the scheme of development against each other.

 

The judgement does not outline the nature and extent of the covenants appearing in the transfer of the property from the developer to the purchaser, however it is noted that the acting solicitor stated in evidence that a freehold title in these circumstances was “not acceptable in any shape or form.”

The acting solicitor consulted with the purchaser on 27th March 2008. The acting solicitor’s attendance note, outlined at Paragraph [13], stated:-

“Explained risks re not taking a lease and that her future purchaser’s (sic) market will be limited – she is aware of risk and appreciates the difference between freehold and leasehold and what I was explaining to her. Wants to go ahead – doesn’t plan on selling as this is retirment (sic) – told her things could change but she still wants to go ahead as has looked at many apartments and this is the only one she would buy. Queried re who is responsible for the repairs of the roof – read docs with clinet (sic) – arguabl (sic) the owners above are responsible but told client this is not clear cut – we will try and get clarification but told her worst case scenario is that she will be caught for 50% of the costs of repairs. Wants to complete on 17 April 08.”

It is clear that the issue with the flying freehold was explained to the purchaser and she was adamant that she wanted to proceed, regardless of the advices that were being provided by the acting solicitor.

The acting solicitor raised the issue of the roof repairs with the developer’s solicitor, by way of correspondence on 2nd April 2008. By way of replying correspondence, dated 4th April 2008, the developer’s solicitor stated:-

“Further to your letter of 2 April in relation to the above we would draw your attention to the reciprocal easements contained in paragraph 4 of the second schedule and paragraph 5 of the third schedule together with the covenants (i), (o) and (t). You may consider that these would suffice in this case.”

The reply, seemingly, had the effect of the satisfying the acting solicitor. No further queries were raised and the matter completed on 22nd April 2008.

The purchaser died on 15th April 2013. The Grant of Probate issued on 15th August 2013 and the Plaintiff, acting in his role as the executor of the estate, began marketing the property for sale.

The property was agreed for sale on a number of occasions, but no matters proceeded due to concerns with the property being a flying freehold. Several solicitors refused instructions from prospective purchasers. An attempt was made to rectify the title, involving the owner of the upstairs property, but this proved to be unsuccessful.

It is noted by Colton J that the defendant did not owe any duty of care to the beneficiaries of the purchaser’s estate, however the Plaintiff, in his role as executor, stood in this shoes of the purchaser and had the standing to issue proceedings. A limitation defence was dismissed.

The Plaintiff claimed, inter alia:-

  • There was a failure to properly advise the purchaser of to the problems involved in purchasing a “flying freehold”;
  • There was a failure to explain to her the implications these problems would have on her; and
  • There was a failure to ensure that the purchaser understood the limited advice that she was given.

The property was described by Counsel for the Plaintiff as “being unmarketable” and it was claimed that the acting solicitor’s advice that the future market may be limited, was a gross understatement. To illustrate this point, Counsel for the Plaintiff, referred the CML Handbook and indicated that there were only two of forty-five lenders who gave an unequivocal “yes” when asked “do you lend on freehold flats?”

Of course, this was a cash purchase, so it is unlikely that the acting solicitor would have consulted the CML Handbook, at the time of the purchase.

Counsel for the plaintiff also suggested that the acting solicitor should have advised the purchaser about the effect the issues affecting the property may have on the beneficiaries of the deceased estate.

Colton J, however, was not satisfied that the acting solicitor was negligent in the title advices given to the Purchaser, stating at Paragraph [64]:-

“However on balance and with some reservation I am not prepared to find that there has been negligence in respect of how Ms McGinley conducted the meeting.”

The case hinged on the way in which the acting solicitor’s advices, and follow up advices, were communicated to the purchaser.

The Plaintiff relied on the Regulation 8A Part (II)(i) of the Law Society of Northern Ireland’s Solicitor’ Practice Regulations 1987, which states:

“When acting for a purchaser in a transaction to which Regulation 8(A) applies a solicitor shall…

[t]        report to the client from time to time as may be required and, in particular, report to the client;

(i)         when the title is received to provide the client with details of the premises, easements, owner’s covenants etc to enclose copy map of the premises;”

and claimed that this meant that the acting solicitor was duty bound to provide a written report on title to the purchaser. This was accepted by Colton J, stating at paragraph [76]:-

“..Ms Farren should have been written to in clear terms after the meeting of 27 March”

At paragraph [79]

“Given the particular difficulties with this title I consider that there was an onus to ensure that Ms Farren was fully informed and fully understood these difficulties. I consider that on the facts of this case that Ms Farren should have been provided with written advice setting out the difficulties clearly and providing her with the clarification she sought on 27 March.”

And at paragraph [83]

“…it was negligent not to have formally written to her after clarification was sought, confirming and setting out the many potential difficulties in clear terms, advising her of the potential problems and advising her at the very least to consider these carefully and fully before committing to the purchase”

This is notwithstanding that it is acknowledged by Colton J at paragraph [79] that:-

“Undoubtedly Ms Farren was determined to proceed notwithstanding the problems identified and explained to her at the meeting on 27 March.”

The decision raises a number of issues for consideration:

  1. Do the written advices have to be provided in a Report on Title format or would a solicitor’s duty, in respect of Regulation 8A, be discharged, for example, by providing a series of email to the client throughout the transaction, highlighting any issues?
  2. Are written advices any easier to understand than verbal advices? If so, how is the duty discharged if the client does understand the written advices?
  3. Should an acting solicitor get written confirmation, in all matters, from the client confirming that the client understands the solicitor’s written advices?
  4. The point was raised that the verbal advices, given by the acting solicitor, were given to the purchaser in a short meeting lasting 30 minutes at most. The suggestion was that this was not enough time for the purchaser to process and understand the advices given.

Would a report on title hastily drafted, and supplied to the client, the night before a consultation allow the client enough time to consider and understand the advices, for purpose of Regulation 8A?

  1. Should there be a period between the time written advices are given to client and the time when a client signs the contract (similar to the “cooling off period” imposed by the Mortgage Credit Directive)?
  2. It is stated by Colton J, in his judgment, that it is arguable that Ms Farren should have been expressly advised, by the acting solicitor, against proceeding.

Has the role of the solicitor now shifted from that of advisor to that of policing the reckless decisions of a fully informed client?

  1. Should an acting solicitor now refuse instructions from a reckless client, due to the potential of proceedings issuing, not by the original client, but by person(s) so entitled to act on behalf of the original client’s estate?

For obvious reasons, the purchaser was not available to give evidence, so no-one will ever know for sure what she did or did not understand about the title defects. It is, however, clear that any solicitor who does not provide advices in written form, could now potentially be liable in negligence, even if these advices have been communicated to and understood by the client.

It remains to be seen whether the decision will be appealed.