Solicitors acting for vendors can no longer hope to pin the blame for a property fraud on other parties in the sale, the Court of Appeal has indicated in a decision that will have far-reaching effects on the whole property industry.

This follows a landmark decision yesterday that puts to rest one of the most complicated property law cases in recent years, and which has also highlighted how easy it can be for fraudsters to con millions of pounds from buyers.

The two negligence cases, which concerned frauds completed in 2013 and 2014, were originally brought by unrelated London developers ripped off by different criminals posing as the vendors of properties they did not own.

Yesterday’s decision by the three judges in the Court of Appeal clarifies how much vendors’ solicitors are liable in cases like this, and is likely to trigger significant reform of the conveyancing process by the Law Society. During the appeal process both vendors’ solicitors were highlighted by the judges for their weak identity checks.

“We can almost hear the collective sigh of relief of those involved in acting for purchasers in conveyancing transactions. Those acting for sellers though, not unreasonably, need to make sure they carry out the proper identity checks,” says Catherine Penny at legal firm Stevens & Bolton.

“Concerned about the impact the first instance judgment would have on the profession and in particular those acting for purchasers, the Law Society intervened and provided written submissions to the Court of Appeal.

“That the obligation should lie on the side of the fraudulent sellers’ solicitors to check their clients’ identity seems fairer than it being for the innocent purchaser’s solicitors, but what happened to ‘buyer beware’? Sellers’ solicitors will certainly need to be more vigilant in their identify checks going forward.”

Property fraud

In the first case, P&P Properties sought to get the £1.03 million it paid for a fraudulently-sold property at 52 Brackenbury Road, Hammersmith (pictured above, right), from Owen White and Catlin, the solicitor instructed by the fake vendor, and the selling agent, Winkworth.

In the second case, developer Dreamvar pinned its hopes on recouping the £1.1 million it paid for a fraudulently-sold property in Earls Court (pictured above, left) from its own solicitor, Mishcon De Reya, rather than the vendor’s legal firm Mary Monson Solicitors.

The agent involved in this case was Douglas & Gordon, but no claim was made against it and the firm has not been involved in any of the litigation.

In the original court cases both developers attempted to sue their chosen parties for negligence but failed, and subsequently appealed.

This includes Winkworth, which, in the original trial, had the claim against it dismissed although its request for costs was reduced by 10% for its role in the fraud. This has now been overturned.

Yesterday lead judge Lord Justice Patten allowed P&P’s appeal against the original judge’s finding that there was no breach of trust but dismissed its claim that there had been a breach of warranty of authority.

In the Dreamvar case he allowed the appeal by Mishcon De Reya and Dreamvar that there was no breach of trust by the vendor’s solicitor but refused to grant relief to Mishcon De Reya.

Read the full judgement.

Read our guest blog by leading solicitor Peter Rodd on what agents need to do to prevent fraud.