Contract race - Real Estate - University of Law PDF

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These are notes relating to the contract race scenario that may occur for the Real Estate module for the University of Law....

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Conduct - Contract Race Acting for the seller

Acting for the buyer

 Contract race occurs where seller enters the conveyancing process with two or more prospective buyers at the same time. o Buyers are competing. Winner of the race is buyer who is ready to exchange contracts first.  Paragraph 1.2 SRA CoC: “you do not abuse your position by taking unfair advantage of clients or others”.  Paragraph 1.4 SRA CoC: “you must not mislead or attempt to mislead your clients, the court or others, either by your own acts or omissions or allowing or being complicit in the acts or omissions of others (including your client)”.  Law Society practice note on Conflict of Interests: though there is no requirement in the 2019 SRA Codes to inform all buyers immediately of seller’s intention to deal with more than one buyer, it would be sensible to continue the practice provided the seller consents to the disclosure.  Where solicitor acts for seller, they must explain to their client that they are required to comply with paras 1.2 and 1.4. Seller should also be warned of danger of losing all prospective buyers, given weariness of buyers entering contract race (wasted time and expense incurred by loser).  If seller wishes to proceed, having obtained client’s authority, solicitor should disclose seller’s decision to conduct a contract race direct to the solicitor acting for each prospective buyer or, where no solicitor is acting, to prospective buyer(s) in person.  Advisable to make clear to each of them the precise terms of the race (i.e. what needs to be done to secure the property). o Commonly, terms of race are that the first buyer who presents signed contract and deposit cheque at seller’s solicitor’s office will secure the property.  If seller refuses to allow solicitor to notify all prospective buyers of contract race, solicitor cannot disclose the contract race to prospective buyers as they have a duty of confidentiality under paragraph 6.3. o Instead, if they consider that paras 1.2 or 1.4 would be breached by non-disclosure, must decline to act to avoid breaching Principle 2 (acting with integrity).  Solicitor must not accept instructions to act for both seller and any buyer in contract race. o Clear conflict of interest and paragraph 6.2 will apply.  Also, a conflict if solicitor acts for more than one prospective buyer in contract race. o In certain circs, may be possible to act under the exception in paragraph 6.2(b). o Clients have CoI but are competing for same objective, particularly where clients are sophisticated users of legal services and effective safeguards, e.g. info barriers, can be put in place. o Makes it more likely conditions in paragraph 6.2(i)-(iii) have been complied with. o When considering whether it is reasonable to act for both buyers, Law Society practice note on Conflict of Interests identifies certain relevant factors:

Withdrawal of papers

 Inequality of bargaining position.  Client vulnerability.  Whether one client has more to lose than the other.  Having supplied prospective buyer with draft contract, where seller later receives a further offer for property which he would prefer to accept, seller may withdraw acceptance of the first offer and draft papers from first prospective buyer before accepting second prospective buyer’s offer and submitting draft papers to him. o In this scenario, only one buyer is in possession of draft contract at any one time. Contract race doesn’t exist....