Scottish property, Classic Letter of Obligation and Law Society of Scotland

[stretto]

We had an offer accepted for a property whose owners were in liquidation.
6 months later we still hadn't completed due to our solicitor dragging his heels because he didn't want to grant a Classic Letter of Obligation and said he couldn't expose his partners to the risk.

We were shocked to hear on the grapevine that another offer had been accepted, 6 months after ours had been accepted. We had no idea that the property had been put back on the market by the liquidators (a reputable major company). Our solicitor failed to inform us that the property was being re-marketed by the liquidators.

It has emerged that our solictor's legal partner acted for the buyer who gazumped us. So although our solicitor claimed he didn't want to expose his partners to the so-called risk of a Classic Letter of Obligation, he was obviously happy to take the risk himself when his partner acted for the new buyer (we have gathered that the gazumper is a major client of our solictor's firm).

What can we do? Is it worth reporting our solicitor? We feel that this solicitor and his partner are crooked and we wouldn't like other people to go through what we have suffered. But we are concerned that the Law Society of Scotland may be akin to a trade union who will protect their own members.

[Roseformeplease]

I know nothing of the Law but my MiL has reported some solicitors to the Law Society and is being taken seriously. However, she complained in Jan and has just been told her case will be looked at in November. They don't move fast. She is being supported by a retired solicitor so you might need legal advice about the process.

[Blistory]

Write to the legal firm first asking them to explain the position and why they think there wasn't a conflict of interest. Address it to the client relations partner. If you're not happy with the response, write to Scottish Legal Complaints Commission and they'll take it up. And yes, conflict of interest and failure to follow client instructions are serious. Keep copies of everything and stay factual - don't get too emotionally invested.

[Blistory]

And are you sure you have it right ? A Letter of Obligation is granted by the seller's solicitors to the purchasers.

[stretto]

Thanks for the all the advice.
Blistory, the property was being bought out of liquidation so we were informed by our solicitor that he would have to grant the letter.

[stretto]

Sorry - it should have read "non-classic letter of obligation".

[stretto]

Another issue is that we have discovered the gazumper offered £5000 less than us. We had been under the impression that the liquidator is obliged to seek the highest offer.

[Blistory]

They have to accept the best offer, not necessarily the highest. Still confused about the letter of obligation and why it was needed and why it wasn't classic. Classic means that the solicitors insurance policy automatically means they are covered. Might be worth writing to the liquidators and asking for their views on why the sale didn't proceed given that your legal agents don't appear to have given you the full story.

[stretto]

Hi Blistory
Well, I found this text on the Law Society of Scotland journal, which I think explains it. I'm not a lawyer, so your interpretation would be helpful.

b) When buying from an insolvency practitioner a client will normally buy the property ?as it stands?. Given the status of the law and the very limited rights to challenge a liquidator?s or receiver?s title it is unlikely that a Letter of Obligation would give very much additional benefit. Subject to the comments in the next paragraph, if the searches are up to date there is very little further that can go wrong.

Solicitors for an insolvency practitioner should be encouraged to give such letters of obligation since they are not subject to any loading or excess if it is in the classic format, although in a commercial transaction the ?contracting out? situation could apply. Some receivers? solicitors are concerned that there might be a ?Sharp v Thomson? type disposition in a drawer, delivered but unrecorded. The Keeper has confirmed that he will not exclude indemnity on that ground and the insurers do not add any further loading or penalty, although they do expect the lawyer acting for the receiver at least to make enquiries of the former directors (even though there may be no response.

However, where the purchaser is granting an obligation to the lender?s solicitors following such a sale there is no penalty under the master policy just because there is no ?back to back? obligation from the receiver?s solicitor, so long as that (purchaser to lender) obligation complies with the ?classic? rules.

www.journalonline.co.uk/Magazine/48-4/1000479.aspx#.UWr3R0qROuI

[Blistory]

The guidance from the Law Society supports my view that something has gone wrong on the part of your solicitors. The concern is that a liquidator selling property might not necessarily know about a transaction that happened before his appointment but has not yet been recorded in the Land Register and might sell the property when he really doesn't have Title to do so. Fairly easy for your solicitor to check on your behalf and let you know the risk. If you're happy with the risk, it's up to you as the client to proceed. There was no risk to his firm. Which kind of supports your concern that something was happening in the background that you didn't know about. No way should they have acted for 2 parties given the circumstances. It's worth getting answers particularly if you've paid them but you're going to struggle to prove any financial loss. They appear to have acted unprofessionally but whether it was negligence or fraud or incompetence is very difficult to prove. I would think that a formal complaint might, if nothing else, discourage them from such poor client care.

[stretto]

Thank you Blistory. Do you think the Law Society of Scotland would take a complaint seriously? We have a paper trail the length of an arm (well quite literally half the length of a forearm!). More generally, does the Law Society ever penalise crooked lawyers?

[Blistory]

The Law Society isn't directly involved so you would need to go through the Scottish Legal Complaints Commission. I've had mixed feedback on the outcomes but you've paid fees for a professional service that you haven't received so yes, I think it's worth it. It might just be the scare they need to tighten up their attitudes.