Funds and documents held on trust
This practice note has been issued as a reminder to practitioners of the rights and obligations of a solicitor who receives funds or documents on trust pending completion of a conveyancing transaction.
Title documents are occasionally released to purchasers’ solicitors for inspection on accountable trust receipt and it has also become reasonably common (particularly in the case of virtual closings) for closing documents to be furnished to the purchaser’s solicitor or the incoming lender’s solicitor in advance of closing, to be held on trust pending completion of the relevant transaction.
Delivery of funds by electronic funds transfer is very common practice in conveyancing transactions. The practice note, Completion Monies, issued in July 2021 includes an updated recommendation that, where there is an existing mortgage or charge on title and a release, e-discharge, discharge or vacate will not be available on closing, on completion the purchaser’s solicitor would furnish the completion monies to the vendor’s solicitor’s client account by way of electronic funds transfer, rather than by two bank drafts.
Due to the cut-off times for same-day electronic funds transfer, completion monies are generally transferred to the vendor’s solicitor in advance of closing, to be held on trust pending completion.
Where funds or documents are received by a solicitor on the agreed basis that they shall be held on trust pending completion, the solicitor must hold the funds or documents (as the case may be) to the order of the party who transferred the funds or documents (the “Beneficiary”).
While the trust is extant, the Beneficiary has an absolute right to call for the funds or documents to be returned “on demand”, subject only to any expressly agreed terms, conditions or qualifications. The solicitor holding the funds or documents has no discretion to delay or to retain or deal with the funds or documents, and in particular may not release them to a third party (regardless of any third party claim, demand or litigation) and cannot claim a lien over the funds or documents.