Law Society notices

Acting for lender and borrower in commercial mortgages - application of practice r.6(3)As indicated in a notice published in the Gazette, a revised version of practice r.6(3) - effective from 1 October 1999 - has caused a problem with institutional mortgages of commercial property (see [2000] Gazette, 30 March, 47).The rule applies to both residential and commercial conveyancing transactions.

It has always required separate representation in a private mortgage (where the terms have been individually negotiated) and allowed joint representation in an institutional mortgage (a mortgage on standard terms provided by an institutional lender).Since 1 October 1999, the rule allows joint representation only if the lender's mortgage instructions do not extend beyond the matters set out in para (c).

An anti-avoidance provision (para (f)) applies the same restrictions to any requirements imposed on the borrower's solicitor when the parties are separately represented in an institutional mortgage.The effect of the anti-avoidance provision is that:l Commercial conveyancers acting just for the borrower in a private mortgage continue to be free to give whatever form of certificate is considered appropriate, including the 'industry standard' City of London Law Society's land law sub-committee certificate (CLLS certificate) and short form report on title (CLLS report), so long as no retainer is thereby created between solicitor and lender;l Commercial conveyancers acting just for the borrower in an institutional mortgage must ensure that any certificate they give does not extend beyond the limitations set out in the rule.This anomaly continues to cause problems for commercial conveyancers as it is not clear whether the CLLS certificate and report go beyond the rule.

An amendment to the anti-avoidance provision is likely to be put to the Law Society Council for approval, subject to the concurrence of the Master of the Rolls.

The earlier notice suggested that there could be a general exception to allow borrowers' solicitors to continue to give whatever certificate is considered appropriate in institutional mortgages of properties not to be used solely as the borrower's private residence.Responses to that notice show that some solicitors involved in commercial transactions are under pressure to sign onerous forms of certificate produced by lenders.

In such situations the rule serves a useful purpose.

The Law Society's practice r.6 working party and conveyancing and land law committee have, concluded that any amendment put to council should be restricted to allow, in addition to any certificate which complies with the rule, the use of a form of certificate recognised by the Society.The CLLS certificate and CLLS report are designed for use in commercial transactions where parties are separately represented but the borrower's solicitor provides a certificate of title to the lender.

If the proposed rule change were introduced, these certificates would become certificates recognised by the Law Society, and would be acceptable.The 4th edition of the CLLS certificate appears in the revised volume 38 of Butterworths' Encyclopedia of Forms and Precedents.

It is also available on the City of London Law Society's Web site, as is the CLLS report.

Copies of the proposed form of rule and accompanying guidance are available from Professional Ethics on 0870 606 2577 and will also be available on the Law Society's Web site.Solicitors wishing to comment on this proposal should write by 19 January to Angela Doran, Professional Ethics, The Law Society, Ipsley Court, Redditch, Worcestershire B98 0TD, DX: 19114 REDDITCH; or e-mail: angela.doran@lawsociety.org.ukLinks: www.citysolicitors.org.uk; www.guide.lawsociety.org.uk