Or why is my solicitor suddenly so interested in who I am buying my property from?

  • Identity fraud and the property market
  • Who pays for the losses?
  • How can you reduce your risk?

Reports of a rise in identity fraud may cause concern to those purchasing property.  Clients can however take comfort that, provided they use an authorised and regulated conveyancer (ie a firm of solicitors or licensed conveyancers), recent case law very much puts the risk in this respect on the shoulders of the professionals acting.  

Firstly to look at the facts underlying a recent case (Dreamvar UK Limited v Mishcon de Reya [2016] EWHC 3316 (Ch)- “Dreamvar”):

In September 2014 a “Mr David Haeems” approached London Estate Agents, Douglas & Gordon, saying that he wished to sell a property – 8 Old Manor Yard, Earls Court, London SW5 (“the Property”).  The offer price was to be £1.1M and “Mr Haeems” wanted a quick sale.

A buyer was found – Mr Erman Vardar, acting through his limited company Dreamvar (UK) Limited (“Dreamvar”).  Mr Vardar (or, rather, Dreamvar) instructed solicitors on the transaction– Mischon de Reya (“MdR”).  The seller also instructed solicitors –Mary Monson Solicitors (“MMS”).

The two sets of solicitors interacted with the customary efficiency and completed the transaction within the restricted time-frame required by Mr Vardar (and “Mr Haeems”).

On completion (which took place on the same day as exchange) the purchase money (consisting in the greater part of a loan from Mr Vardar’s father) was paid over from MdR to MMS and from there (in accordance with Mr Haeems’ instructions) to another firm of solicitors (Dennings) and then on to China (purportedly in connection with another transaction). 

Mr Vardar/Dreamvar took possession of the Property and began to prepare extensive renovation works.    It was only then that the problem became apparent – the gentleman who had been putting himself forward as “David Haeems,” registered owner of the Property, had not been David Haeems at all and the documents which he had produced to MMS, who had complied with standard money laundering confirmation of identity  requirements, had been forgeries.

Mr Vardar’s purchase was void and the transfer would not be registered.  The money used for the purchase was, however, long gone.

The question which came before the Court in Dreamvar was who would end up paying for the losses of over £1M?

The High Court decision in P&P Property Ltd v Owen White & Caitlin LLP [2016] EWHC 2276 (Ch) (“P&P”) puts forward that the “warranty of authority” given by a seller’s solicitor (and indeed by his estate agent) does not extend, when acting for someone purporting to sell a property, to warranting that their client is the registered title holder.

On the other hand MdR had not been negligent.  There is no provision in the Law Society Code for Completion by Post for a warranty to be given by the seller’s solicitors that they have valid authority from the registered owner of the property or that they have exercised reasonable care and skill in establishing their client’s identity as the registered owner.  Failure to seek such a warranty cannot therefore be said to have been negligent.

However case law establishes that a buyer’s solicitor holds purchase funds (whether provided by their client or by a lender) on a bare trust to complete the transaction.  In Dreamvar the trial judge (David Railton QC sitting as a Deputy High Court Judge) was willing to accept that this trust extended to an obligation to only release the funds on a genuine completion of the purchase not one where the contract was a nullity.

Judge Railton therefore held that there had been a breach of trust. 

MdR sought relief from the resultant liability by way of s.61 Trustee Act 1925 under which a trustee can be relieved from personal liability for losses flowing from a breach of trust if he has acted honestly and reasonably and ought fairly to be excused.

Judge Railton, whilst accepting the MdR had indeed operated honestly and reasonably throughout, turned his attention to MdR’s professional indemnity policy.  He felt that, “In terms of balancing the relative effects or consequences of the breach of trust, it is apparent that MdR (with or without insurance) is far better able to meet or absorb it than Dreamvar.”  Relief under s.61 was therefore refused and MdR were ordered to pay.

This is a position which must be worrying to all authorised conveyancers (who are required to have insurance cover) and, indeed, to their insurers and regulatory bodies and matters are unlikely to be allowed to rest here. 

Permission has been given to take P&P to the Court of Appeal (where it is likely to be heard towards the end of this year).   That decision is now likely to be joined by Dreamvar. 

In the meantime buyer’s solicitors are racking their brains as to how risks to their clients (and indeed, if Dreamvar is followed, to themselves) can be reduced.

HM Land Registry has put forward its Property Alert service as a partial solution.  This service allows owners to register their properties and receive notification when official searches are undertaken or applications received. 

This may be particularly useful to owners who are relinquishing physical control of their property for lengthy periods, whether to tenants or when going into care etc (although the importance of keeping contact details at HM Land Registry up to date should not be overlooked).   Nonetheless in a scenario such as that in Dreamvar – where no institutional lender was involved  and exchange and completion took place on the same day – it is unlikely that this would have assisted.

Guidance from the Law Society as to further undertakings to be sought during the conveyancing process will no doubt follow.  In the meantime, however, clients can take comfort that, providing they are using a regulated and authorised conveyancer to carry out their transaction (be it through a firm of solicitors or licensed conveyancers) the risk in a Dreamvar type situation remains firmly on the shoulders of the conveyancer acting.

So, if you are planning to buy a property, expect your solicitor to take a keen interest in who you are buying the property from.

The Reynolds Report

Old Restrictive Covenants Over Land – Do You Need To Be Bothered?

How do you like them apples?

What is 2 plus 2?

Look where I found Pikachu

If at first you don’t succeed…?

The only constant thing is change…

I have written a book about business law…

To download a free copy of the book go to Martin Reynolds’ Book on Business Law. If you would prefer to meet face to face to discuss your business needs call 0118 958 9711 to fix an appointment or book a meeting online.


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