Know your client

We are constantly told that property fraud is on the increase, not least due to the current difficult economic times. In recent years the Land Registry and mortgage lenders have stepped up their ID requirements as have surveyors, solicitors, banks and mortgage brokers. This has mostly been lead by the anti-money laundering legislation which has writ large the maxim “Know Your Client”. A recent case has illustrated the dangers for professionals in not knowing their client when they sign documents on the client’s behalf.

What happened?

In 2009 Strettons, a respected firm of surveyors, offered a number of long residential leases for sale on behalf of the landlord at auction. They dealt with the person they thought was the registered owner at the Land Registry. In order to identify their client they seemingly relied on the assurances of identification of the solicitors instructed on the sale. The fact that the apparent owner was also able to provide information for the auction particulars no doubt gave additional comfort and meant no suspicions arose.

The landlord’s interests failed to sell as the auction reserve wasn’t met. One of the unsuccessful bidders, Greenglade Estates, approached the auctioneer and a sale was agreed at £670,000.00. Strettons only entered into the sale memorandum with Greenglade after taking specific instructions from their client. Soon after this the real owner appeared with his ID, the fraudster disintructed his solicitors and no doubt vanished.

Did it go to court?

Greenglade brought a claim against the real owner to perform the sale contract and against Strettons for breach of warranty of authority. The claim for specific performance failed as the real owner wasn’t a party to the contract, but the action for breach of authority succeeded.

Strettons ended up paying damages to Greenglade of the value of the property less the sale price. Evidence in the case showed this to be in the region of £330,000.00.

What should we do?

All professionals need to be very aware of the sophistication of fraudsters and the many ways in which the conveyancing system can be open to them. Once a professional is involved, others rely on them and become much less alert.

  1. While of course being polite, never believe the client’s identity without solid proof. Even passports are regularly forged.
  2. Don’t rely on others who have identified clients, unless you see their solid proof (and ensure that you are authorised to use it and rely on it).
  3. Remember that there have been frauds in which criminals have carefully produced documents showing they are UK solicitors, or substantial foreign companies.
  4. If possible, only sign documents on behalf of long standing clients – a lot of professional firms have this rule but it is much more difficult for auctioneers with absentee sellers, where checks and cross-checks are essential.
  5. When you are sure of your client, get written authority to act as agent and to define exactly what you can do - then be careful to do nothing else!