Q:“I am purchasing some land and have been told by the bank that they need to appoint their own solicitor and that I have to pay the cost of their solicitor as well as my own. Why does the bank have to appoint their own solicitor and why should I have to pay?”

A:Historically the same solicitor acted for both the bank and the borrower where a person was borrowing money in order to purchase property. The borrower’s solicitor gave an undertaking to the bank certifying that the borrower was acquiring good marketable title and in any case where the title was defective, the solicitor had to make this known to the bank in advance of a drawdown. The borrower’s solicitor also gave an undertaking to the bank to register the title and/or mortgage.

However, a significant surge in claims arose on solicitors’ professional indemnity insurance as a result of various undertakings not being satisfied.

Consequently, the Law Society introduced a prohibition on a solicitor acting for both borrower and lender in the same transaction, from 1 December 2010, where the transaction involved commercial property. There is no such prohibition on a residential property transaction and the same solicitor can act for the borrower and the bank where the property is intended to be used as a private dwelling, or in the transfer of an area of land on which at the date of transfer it is intended to construct a private dwelling.

However, this excludes any transaction whereby it is intended to use the residential property exclusively to earn rental income or where the private dwelling forms part of the security, e.g. for a commercial loan.

The result of the prohibition is that lenders will appoint their own solicitors to act for them in relation to commercial loan transactions. The borrower will also have to appoint his/her own solicitor.

However, where the value of the transaction does not exceed €75,000, the lender need not appoint their own solicitor and the borrower’s solicitor can register the title and/or mortgage.

The banks have established a panel of solicitors to act for them and will generally appoint a firm of solicitors close to the firm of solicitors acting for the borrower. To avoid a separate full investigation of title by the bank’s solicitor, the bank may accept certificate of title from the borrower’s solicitor.

This normally occurs where the value of the transaction does not exceed the solicitor’s compulsory minimum insurance, which is currently €1.5m. This can reduce the bank’s solicitor’s costs and consequently the borrower’s costs as the practice has emerged whereby the banks charge the borrower for the cost of appointing the bank’s solicitor.

However, where the value of the transaction exceeds €1.5m a full investigation of title must be carried out by the bank’s solicitor.

The cost of the bank’s solicitor can vary with professional fees charged being between €750 and €2,250 plus VAT and outlay depending on the nature and the complexity of the transaction.

Furthermore, from 1 January 2013, as a general rule, the same solicitor cannot act for both the vendor and purchaser in a conveyancing transaction.

Conveyancing transaction is widely defined as the transfer of any property whether by sale, lease, voluntary transfer, conveyance, licence, assignment etc.

However, the same solicitor can act for both parties in limited circumstances including:

  • The voluntary transfer of property which is a family home from sole ownership of one spouse or civil partner to joint ownership. However, this exception does not apply to other property being transferred between spouses, or civil partners, or where property is being transferred jointly from spouses, or civil partners, to sole ownership or tenancy in common. In these cases, separate solicitors must be appointed to represent each spouse or civil partner.
  • Conveyancing transactions between associated companies and/or between individual persons and associated companies such as transfer of property from a farmer to his/her farming company.

    • However, where the transfer by a farmer to his/her farming company involves property which is charged in favour of a bank, the bank will often require their own solicitor to be appointed in order to ensure that their charge is not compromised by the transfer.

    Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors, does not accept responsibility for errors or omissions. E-mail ameehan@farmersjournal.ie.