How do you proceed if you are acting in a property transaction and the conveyancing practitioner acting for the vendor will not accept the “reverse undertaking” procedure? The New Zealand Law Society’s Property Law Section (PLS) is reporting that this has become an issue in property transactions where a conveyancing practitioner is involved. Conveyancing practitioners are also known as licensed conveyancers.

Some licensed conveyancers will not adopt the “reverse undertaking” procedure, despite the contractual obligation to do so, PLS Chair Duncan Terris says.

The Property Lawyer recently published an article entitled Conveyancing Practitioners – Settlement by Bank Cheque for dealing with this issue. The full article is reproduced below.

“At the end of the day, we have professional obligations and we must act in the best interests of our clients. That usually requires us to look at the options available and follow the one that will ensure a smooth and timely settlement.”

Conveyancing Practitioners – Settlement by Bank Cheque

By Duncan Terris

You will all be aware of various communications from the Property Law Section (PLS) on the settlement method when acting for a purchaser with the vendor represented by a conveyancing practitioner. The view taken by the PLS, on legal advice, has consistently been that a conveyancing practitioner is contractually obligated by the terms of the Agreement for Sale and Purchase (and by reference) the Property Transactions and E-dealing Practice Guidelines, to settle by ‘reverse undertaking’. The rationale for this is as follows:

1. The vendor, by signing the ninth edition 2012 (and 2012(2)) Agreement for Sale and Purchase, obligates his or her representative to proceed under the terms of the Agreement.
2. The Agreement, at paragraph 1.1(18) defines remote settlement as
   “settlement of the sale and purchase of the property by way of the purchaser’s lawyer paying the moneys due and payable on the settlement date directly into the trust account of the vendor’s lawyer, in consideration of the vendor agreeing to meet the vendor’s obligations under subclause 3.8(2), pursuant to the protocol for remote settlement recommended in the PLS Guidelines” [emphasis added]
3. The protocol for remote settlement with a conveyancing practitioner, being the reverse undertaking procedure, is contained in paragraph 2.56 of the Guidelines.
4. The reverse undertaking procedure requires the documents to be released before the funds are paid. The vendor’s representative can rely on the undertaking from the purchaser’s lawyer.

Experience seems to suggest that the Society of Conveyancers has issued a directive to its members that they should not accept the ‘reverse undertaking’ procedure. Part of the reason for this is their claim that they are in breach of their obligations to the outgoing mortgagee if they ‘Release’ prior to being in receipt of funds. There is however feedback from lawyers that some conveyancing practitioners are prepared to adopt the reverse undertaking procedure in recognition of the mutual efficiencies, especially in avoiding the need for the conveyancing practitioner to take a special trip the bank and queue to deposit the bank cheque, with the added complication that banks no longer treat bank cheques as cleared funds. The PLS recommends that early discussions between lawyer and conveyancing practitioner are undertaken as to settlement method.

The PLS is in discussion with the Society of Conveyancers on this matter. Until that is resolved it is now a fair assumption that it is unlikely a conveyancing practitioner will accept the ‘reverse undertaking’ procedure, notwithstanding what the PLS regards as the contractual position.

Accordingly, where a conveyancing practitioner is acting for the vendor and in the absence of agreement as to settlement method, the lawyer should expect that a Bank Cheque face-to-face settlement will likely need to be adopted. Guideline 6.5 states that the purchaser’s lawyer ‘acting professionally’ can elect to adopt settlement by Bank Cheque. In the absence of agreement to any other means of settlement, the purchaser’s lawyer has an obligation to the purchaser client to settle and should be prepared to settle this way in the interests of expediency, notwithstanding the obvious inefficiencies and expense.

The method of settlement is a contemporaneous ‘Release’ of the instruments necessary to give clear title upon the handing over of the Bank Cheque. Release cannot be reversed once effected, so that puts the purchaser’s lawyer in control of the dealing.

That then begs the question of what occurs where there is a geographical distance between the lawyer and conveyancing practitioner. Regrettably, that puts us back to the old ‘paper days’ of needing to appoint an agent where there is distance involved. In such circumstances the PLS suggests that cost should be shared equally between the parties and both parties should approach these discussions sensibly in the interests of expediting settlement and honouring our professional obligations.

It is acknowledged that this is a wholly unsatisfactory situation but one that must apply, in the interests of the client, until current negotiations are resolved.