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Improper use of client account as a banking facility

SRA Case Study: Development work and holding money

Scenario

A law firm acts for a developer who intends to enter into a development agreement with a buyer of land. The buyer is to make payments in instalments, but it has a weak covenant strength. Buyer and seller have agreed that the total price will be paid up front to the buyer's solicitors and held by the firm. Instalments will be released when they are payable.

The development agreement will be exchanged before the monies are paid to the firm and the firm will continue to advise the client about the performance of its obligations under the development agreement while the money is held.

This will include the negotiation of construction documents and utility easements and advising generally on the terms of the development agreement. The firm will also advise on the interpretation of the payment provisions in the agreement as the development progresses.

SRA's View

On these facts, the firm had advised (and continues to) on the development contract and other related matters. Provided there is a proper connection between holding the money and the advice being given (for example, a continuing requirement on the firm to advise on whether the payments are triggered) this scenario is unlikely to breach rule 14.5.

In all such cases where money is being held in their client account, we would also expect the firm to question whether there is a proper reason for the funds to be held by them, rather than paid directly between the parties. The circumstances should also be kept under review to make sure that holding the money remains proper and justifiable.

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