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Wasted costs question - II

19 October 2017

[Note: Refer to the original article and the subsequent comments made in Wasted costs question]

Most Offers to Purchase, Agreements of Sale etc. contain a provision that “transfer of the property shall be effected by the seller’s conveyancer at the cost of the purchaser”, or words to that effect.

In terms of our law a person who sells something must deliver it to the purchaser, and if the delivery involves costs, then it is up to the seller to pay such costs in order to effect the delivery. This legal obligation can be shifted to the purchaser by mutual agreement. Accordingly the abovementioned provision that the purchaser shall pay the costs has the effect of shifting the responsibility to pay for the transfer from the seller to the purchaser. Note that this is an agreement only between the seller and purchaser. It is not binding on any third party, e.g. the conveyancer.

A problem sometimes arises when the transaction is cancelled before it is concluded. The usual reason for this is because the seller has cancelled the sale on the grounds that the purchaser is in default, but there could also be a cancellation by mutual consent.

Many purchasers and sellers appear to be under the impression that because the purchaser is paying the costs, the conveyancer is his lawyer. This is not the position at all. As set out in the Agreement of Sale or Offer to Purchase, the conveyancer, whether he is nominated by the seller personally or by the estate agent on the seller's behalf is the seller’s lawyer.

Although fees and disbursements are paid "up front" before registration, before the purchaser is legally liable to pay for the transaction the conveyancer must have completed his mandate i.e. registered the transfer. The purchaser cannot be made to pay the conveyancer's fees unless the mandate is fulfilled.

Where the purchaser has already paid the costs, and or has paid a deposit, and the sale is then cancelled by reason of his default, these costs and deposit are usually forfeited to the seller, and the conveyancer will take his fees out of his money which now belongs to the seller. Just as the estate agent will take his commission out of a deposit before refunding any surplus to the seller.

The main problem arises in cancelled sales where there is no deposit, or where the deposit is less than the agent's commission and the agent retains the whole deposit. To whom must the conveyancer look for payment? As set out above, the purchaser is not liable unless the mandate has been carried out, and the conveyancer is the seller's conveyancer. Unpalatable as it may therefore be to the seller, he is liable to pay his conveyancer a fee for work done to date. There is no reason for anyone to expect the conveyancer to work for nothing!

The Association of Law Societies has laid down guidelines as to what percentage of the prescribed fee a conveyancer is entitled to charge at various stages of the transaction.

If transfer duty has been paid and the sale is thereafter cancelled the Receiver of Revenue will refund the transfer duty, but municipalities which have been paid rates will almost invariably refuse to make a refund.

Exactly the same principles would apply in a case where a conveyancer is instructed to in attend to the registration of a transfer which does not proceed because a suspensive condition is not fulfilled. He receives instructions acknowledges them, opens a file, and writes to the bondholder and calls for Title Deeds, but thereafter the sale fails because a suspensive condition is not fulfilled. The conveyancer would be entitled it look to the seller for payment of his costs to date. In actual fact most conveyancers would simply close their file and not charge any fee, but if one looks at it logically they have done work and are entitled to be paid. The counter argument that the conveyancer should not have done any work or opened a file until he was informed that a bond has been granted does not hold good if one considers that the unfortunate conveyancer, had the sale not lapsed, would be blamed for causing delays, “because he didn't get or with it as soon as he was instructed, but waited until a bond had been granted!”

A conscientious conveyancer will have called for the Title Deeds and obtained copies of the purchaser's and seller's identity documents etc. prior to the granting of the bond, so that as soon as the bond is granted he is in a position to draw the transfer documents. Had he actually drawn the transfer documents etc. before the bond was granted then it would probably be held that he was not entitled to be paid for this aspect of the work because he had done too much work too soon.

All of the above is based on the assumption that the sale was cancelled by reason of the purchaser's default.

What would the position be if the purchaser cancelled the sale because of the seller's default or breach of warranty by the seller? Under these circumstances there could be to doubt that the costs and any deposit paid by the purchaser would have to be refunded to him in full and that the conveyancer would have to look to his client the seller for payment.

In many cases the seller is as much a stranger to the conveyancer as is the purchaser, because the conveyancer was nominated by the estate agent. This does not alter the position. The estate agent is the agent of the seller and has accordingly nominated or appointed the conveyancer on the seller's behalf. The relationship between the seller and the conveyancer in these circumstances is exactly the same is it would have been if the seller had personally chosen the conveyancer.

Barry Jacoby
Tonkin Clacey

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