A consultation on introducing separate legal representation for borrowers and lenders in Scottish property transactions has revealed that 51 per cent of respondents are against the measure. Questions have been raised by The Council of Mortgage lenders about potential delays and extra costs for borrowers.


The surveyconflict of interest.jpg, carried out by the Law Society of Scotland, garnered 279 responses from solicitors, consumer interest organisations and other interested parties including banks and building societies. Currently the same solicitor can act for both buyer and lender.

Vice President of the society, Alistair Morris said: 'There has been tremendous change within the property market since the financial downturn and as a result many lenders have introduced new requirements on solicitors representing the borrower, which has led to a significant move away from the 'execution only' approach of the past.

'Many solicitors now believe that the interests of the buyer client and their mortgage lender are no longer in alignment so, in order to represent their clients fairly and with true independence, there should be mandatory separate representation in both commercial and residential property transactions.'

The issue was initially raised at a Law Society annual general meeting in March. Solicitors voted in principle to remove the current exception to its conflict of interest rules and bring in mandatory separate representation in property transactions. As a result the Society must now bring forward a proposed rule change for its members to vote on at a special general meeting on 23 September.

The Council of Mortgage lenders were against the move, 'although some of their members are already practising separate representation,' said Morris.

Regarding the question of whether a change in the rules could adversely affect borrowers Morris said: "We are well aware of the fears that have been raised around potential for delay or possible increased costs for the borrower. While these issues have to be considered, we have calculated that any potential cost increase would be a small percentage at around 0.1% of the overall price of buying a new home. If indeed the lenders do decide to pass on costs to their customers.
'It's worth noting that, in the Republic of Ireland, where separate representation is mandatory, banks are legally prohibited from passing on their legal fees to purchasers.'

Assessment of individual responses in the survey showed that 47.5% are in favour while 52.5% are against. Responses from organisations showed 59.1% are for a change to the rule, while 40.9% are against.

As it stands currently there is an exception to the conflict in interest rule in Scotland - which prohibits a solicitor from acting for more than one client - to allow solicitors to represent lender and borrower clients in residential property transactions.

(image:thelawsocietyofScotland)