Law Society - Joint Practice Note: Property and Registration Fraud

September 2010

1 Introduction

1.1 Who should read this practice note?

All solicitors who carry out work involving Land Registry applications.

1.2 What is the issue?

Fraud is on the increase and there is a rising incidence or awareness of fraudsters targeting the properties of both individuals and companies. These attacks often include identity and other types of fraud and the presentation of forged documents to Land Registry for registration. Land Registry wishes to bring these matters to the attention of the public and have issued public guides to this effect (see section 5.5).

This practice note aims to assist you when acting in property transactions. It may also help you make your clients more aware of how they may protect their property interests against fraud and safeguard their rights as legitimate property owners on the register.

This advice is not exhaustive. Many aspects of mortgage fraud can also be adapted to commit registration fraud. For further information see the Law Society’s practice note on mortgage fraud.

2 Fraud threats for property transactions

2.1 Impersonation of conveyancers and conveyancing practices

Those proposing to carry out fraud may purport to:

be a conveyancer in their own right, or
work for an authorised practice.

If you do not know either the conveyancer or the conveyancing practice acting for another party in a matter you should check their details to help assess the risk of fraud.

When accepting identification (or any other) information from a person holding themselves out to be a conveyancer you should consider the following:

Is the individual a conveyancer?
Is the name of the signatory an identifiable registered individual within a conveyancing practice?
Are they registered with an appropriate professional body?

The Law Society, the Solicitors Regulation Authority (SRA), the Council for Licensed Conveyors (CLC), The Institute for Legal Executives (ILEX) and other professional bodies hold such information (see paragraph 7.4.3). More information is provided in the Conveyancing Handbook under ‘Dealing with non-solicitors’.

Where a party is unrepresented and you are unable to confirm that sufficient steps have been taken to verify that party’s identity, Land Registry requires you to provide certified identification information obtained by you or another conveyancer in respect of that party. This is explained in Land Registry’s Practice Guide 67 – Evidence of identity – conveyancers with specimen forms.

Obtaining identification information at an early stage in the transaction may avoid difficulties or delays at a later stage. You may wish to keep a record of the steps you take. These may assist you if Land Registry or other bodies contact you to make enquiries but see paragraph 4 below on reporting fraud.

2.1.1 Impersonation of solicitors’ firms

There have been instances where fraudulent applications have been made to Land Registry by fraudsters impersonating legitimate firms of solicitors by using forged headed paper, faxes and emails. Email addresses that are non distinct, for example hotmail addresses, are more difficult to trace.

If you receive communications from Land Registry, including any acknowledgement of an application, and you are unable to identify the client name, the property or the application reference you should contact Land Registry. It is possible that your firm name or its headed paper has been forged or misappropriated and used fraudulently by a third party, or even a member of your staff.

See paragraph 4 below on reporting fraud.

2.1.2 Misuse of websites

Web sites have been fraudulently set up purporting to be sites of solicitors and/or new sub-offices of legitimate firms in order to perpetrate fraud. Some firms periodically search the internet to establish if they are being targeted in this way. If you become aware of an unauthorised web presence for your practice you should notify the relevant agencies.

2.2 Seller and buyer frauds

Certain properties and owners are particularly susceptible to fraud. Most fraudulent activity falls into distinct categories.

Intra-family/associate frauds which are perpetrated by family members, friends or partners.
Third party frauds where tenants or those who have access to tenants and are able to divert post perpetrate the fraud.
Third party frauds that constitute ‘organised crime’.

2.2.1 Contact details

Client contact details may suggest an increased risk of fraud, such as:

where the only contact details provided for any party are a telephone number, mobile number and/or an email address
where a family member or associate is gifting the property and you are instructed by and meet only one party to the transaction, and only have contact with the other party by post, telephone or email
where the address is not the subject of the transaction without obvious reason
where the address changes occur mid-transaction without obvious reason.

There may be entirely valid reasons for all of these examples.

2.2.2 Vulnerable registered owners

Land Registry has identified that certain categories of owners may be more susceptible to registration frauds. These vulnerable registered owners include, for example, elderly owners who are in hospital or have moved into a care home. These types of owners often own properties without a legal charge. Attempts could be made to sell or charge their property by use of identity fraud.

Owners who live abroad are also particularly vulnerable to this type of fraud.

Some clients may be particularly at risk from fraudulent activity because, for example:

they no longer live in the property and there was an acrimonious break up with a partner
they let the property or it is empty
they have already been the victim of identity fraud
they are a personal representative responsible for a property where the owner has died and the property is to be sold.

2.3 Vulnerable properties

Land Registry has identified that certain types of properties may be particularly vulnerable to registration frauds, such as:

unoccupied properties, whether residential or commercial
tenanted properties
high value properties without a legal charge
high value properties with a legal charge in favour of an individual living overseas
properties undergoing redevelopment.

2.4 Keeping addresses up to date

In order to minimise risk where there are vulnerable registered owners or vulnerable properties Land Registry advises registered proprietors to keep any addresses they have registered for service at Land Registry up to date. See Public Guide 2 – Keeping your address for service up to date

Clients intending to leave their property empty for a significant period of time, such as for redevelopment purposes, should consider registering some other address(es) for service (see paragraph 4.2.1).

3 Mitigating fraud threats

3.1 Client identity

You should be aware that exercising reasonable care in viewing documents intended to establish identity may not conclusively prove that the person or company is the person or company they are purporting to be. In addition it may not be possible for you to conclusively establish that such person or company is either the registered proprietor of the relevant property or entitled to become so registered.

Even where you have followed usual professional practice the court may hold that the steps taken exposed someone to a foreseeable and avoidable risk and amounted to a breach of duty of care. See Edward Wong Finance Co Ltd v Johnson Stokes & Master [1984] 1 AC 296.

3.1.1 Conveyancing anti-money laundering

Conveyancing transactions are regulated activity under the Money Laundering Regulations 2007. You must therefore take steps to:

identify and verify your client by independent means
identify and, on a risk-sensitive approach, verify any beneficial owners, and
obtain information on the purpose and intended nature of the business relationship.

This last requirement means more than just finding out that they want to sell a property. It also encompasses looking at all of the information in the retainer and assessing whether it is consistent with a lawful transaction. This may include considering whether the client is actually the owner of the property they want to sell.

You should also comply with Money Laundering Regulations and Law Society general practice information.

For further information about fraud prevention see the Law Society’s anti-money laundering practice note.

You may keep a record of any steps you take.

3.1.2 Address for service at Land Registry

Since July 2008 Land Registry has inserted an entry in the register indicating whether the registered proprietor has changed their address for service (see paragraphs 4.2 and 4.2.1 below), to alert people to the change. For example, the entry may state: ‘The proprietor’s address for service has been changed’. People proposing to commit fraud have been known to change the address for service registered at Land Registry as a precursor to fraud. If you see this on your client’s register and are not aware of the reason for it you may ask your client why it was done.

3.2 Surrounding circumstances

Further factors you may consider include the following.

Where the registered proprietor is a company, does a search at Companies House indicate that the company was incorporated after the registered proprietor was registered as the owner?
Have you met your client face to face?
Have you seen the original identity documents or only copies?
Is the registered proprietor’s date of birth inconsistent with their being the owner?

For example:

Someone purports to be a registered proprietor and offers identification information, but there is an inconsistency between their date of birth and information on the register.

The date appearing immediately before a proprietor’s name in the proprietorship register is the date of registration of that owner:

(13.10.1970) JOHN SMITH and JANE SMITHSMITH

In this example the proprietors have been registered since 1970 and must have been at least 18 at that time. Consequently, if, in cases where you are seeing the client face to face, the person presenting the identification information appears too young, this may be a case of impersonation.

3.3 Company impersonation

If the company was incorporated after the registered proprietor was registered as the owner the registered proprietor is unlikely to be the legitimate owner. Despite appearing to have the same company name, the discrepancy of dates will indicate dealing with a company of the same name but not necessarily the ‘real’ registered proprietor. You should note that an Industrial and Provident Society that has converted to a company registered under the Companies Acts would be an exception to this situation.

One notable registration fraud involved the impersonation of an overseas company by the setting up of a UK company with the same name. If a search at Companies House states that the date of incorporation of the UK company is after the date of registration of the property in that company’s name, further enquiry should be made.

The date of registration [as proprietor] is the date appearing in brackets immediately before the company name in the proprietorship register. A discrepancy without any legitimate reason may be a risk factor.

3.3.1 Foreign companies

Since January 1999 Land Registry has been entering the company’s/corporation’s country of incorporation in the proprietorship entry. In some cases this will also include the state or province of incorporation, for example incorporated in Delaware, USA. This information appears in the register immediately after the corporation’s name.

If an overseas company has a registration number issued by Companies House because it has a branch or place of business in the UK, that registration number is also included in the proprietorship entry as follows:

“Proprietor:- NORDDEUTSCHE LANDESBANK GIROZENTRALE (incorporated in Germany) (UK Regn. No. FC012190) of ………….”

If there is no Companies House registration number this may help you identify a registered proprietor as an overseas company, provided it was registered after January 1999. If the registered proprietor is a foreign company, a UK company with the same name is unlikely to be able to give instructions as the registered proprietor of the property.

Verification of the identity of an overseas company may require confirmation from a qualified lawyer authorised in the country of incorporation. See Practice Guide 67 – Evidence of identity: conveyancers

3.3.2 Searching Companies House

Where no place of incorporation and no UK company number are noted on the register, you may be able to establish the date of incorporation by making a search of Companies House. The results of searches of Companies House may assist in assessing the risk of an overseas company impersonation.

3.4 Identity document provisions

You should be aware of the provisions relating to identity documents in the following documents.

3.5 Enhanced due diligence

Where you do not see a client face-to-face, the Money Laundering Regulations 2007 provide that you must undertake enhanced due diligence. Not undertaking face-to-face checks may increase the risk of the transaction being exposed to investigation by the law enforcement agencies and/or the SRA.

For further information see paragraph 4.9.1 of the Law Society’s Anti-Money Laundering Practice Note.

Non face-to-face transactions increase the risk of fraud and these risks may be mitigated in the following ways.

If you are accepting instructions from one client on behalf of others or by a third party, rule 2.01(c) of the Code of Conduct requires you to check that all clients agree with the instructions given. For example, an unwary conveyancer might deal solely with the son or daughter of a registered proprietor and have no contact with the person who is the owner.

Where you know or have reasonable grounds for believing that your instructions are affected by duress or undue influence, you should bear in mind also the provisions of rule 2.01(d).

In the case of a third party charge created to secure debts of another, you should consider contacting the purported lender independently. If there is a purported representative for the lender, then consider contacting that representative for confirmation of the transaction. In these circumstances there is a regulatory requirement for separate representation.

Risks of fraud are increased if documents are provided to clients for execution other than in the presence of you or your staff.

In order to protect or to mitigate risk for you and your firm, you may keep a contemporaneous record of the steps you take, including the reasons why you took a particular decision and the consideration you gave to risk.

4 Land Registry requirements

4.1 Freedom of Information (FoI) 2000

Wherever possible Land Registry tries to assist law enforcement agencies and regulatory bodies with the prevention and detection of fraudulent activity. It is bound by the provisions of the FoI 2000, which embodies a general principle of transparency in relation to the disclosure of information within government departments. This means that requests for information, which may relate to your particular application or the conduct of your account with Land Registry, may be received from third parties.

Following an FoI request, if Land Registry has reason to believe disclosure of the information would, or would be likely to, prejudice the prevention or detection of crime, or the administration of justice, then under the provisions of s.31 FoI 2000, Land Registry will consider whether the issue of such information is in the public interest. If Land Registry considers such disclosure is not in the public interest the request may be refused under s.2(2)(b) FoI 2000.

If a person is dissatisfied with a refusal of a FoI 2000 request, an application can be made to the Information Commissioner for a decision under s.50 FoI 2000.

Where Land Registry considers such a disclosure to be in the public interest it will supply the information requested to the law enforcement agency or other body or person requesting it.

4.2 Notices and addresses for service

Clients need to ensure their address for service is always up to date and can be directed to Land Registry for further information. The following Land Registry public guides are available.

Where appropriate, Land Registry may require further documents or evidence, or may give any necessary or desirable notice under r.17 Land Registration Rules (LRR) 2003 (as amended) as a means of verifying information about certain transactions. This enables Land Registry to stop processing an application while further enquiries are made or law enforcement agencies notified where necessary.

If the proprietor’s address for service is out of date they will not receive any such notice from Land Registry and will increase their exposure to fraudulent activity.

Some clients are more at risk than others, such as:

buyers who will not be living at the property purchased may register multiple addresses for service. These may include those who live abroad, and landlords of commercial and residential property

recent buyers who are moving from a property they still own may need to maintain an up-to-date address for service in relation to that property.

4.2.1 Addresses for service

Clients may use more than one address for service in the register. There must be at least one postal address, including an overseas address, and each registered proprietor can register up to three addresses (r198 LRR 2003) in total.

The inclusion of additional addresses for service can give added protection to a legitimate owner as:

the address of the property the client is selling may not be an effective address for service
the address of the property the client is buying may not be the address where the client is contactable.

Additional addresses may be:

another property address
an email address, or
the address of a professional adviser (such as a DX address).

The address of a professional adviser is most suitable for use where there is an ongoing relationship, such as an accountant providing continuing tax advice.

You should not give the address of your firm as an address for service unless you are confident that you will be able to contact your client immediately should you receive notification from Land Registry. You should be aware that such notice may not be received for many years following the conclusion of a matter and if you have acted only, for example, in the purchase of a property, you are unlikely to know whether the client has moved or sold and whether you hold up-to-date contact details for them.

Land Registry notices usually require a response within 15 days. If the address for service is outside the jurisdiction, Land Registry has no discretion to extend this time. An email address may ensure Land Registry communications reach clients even when they are away from their properties, or where post is at risk of interception.

4.3 Indemnity

Schedule 8 of the Land Registration Act (LRA) 2002 (as amended) provides for the payment of indemnity for loss suffered by reason of (among other things) the rectification of the register and certain mistakes in the register.

Under Schedule 8, paragraph 5(1)(b), no indemnity is payable if the loss is wholly as a result of the claimant’s lack of proper care. Under Schedule 8, paragraph 5(2), any indemnity will be reduced if the loss is partly as a result of the claimant’s lack of proper care.

Land Registry may seek to limit its indemnity in certain circumstances where it considers that the conveyancer failed to make reasonable checks in relation to identity.

There is case law which establishes that a lack of proper care by a conveyancer will be attributable to their client, and may therefore lead to a reduction in any indemnity payable to the client. An example of a case in which delayed notification by a conveyancer to Land Registry led to such a reduction is Prestige Properties Ltd v Scottish Provident Institution and another [2002] EWHC 330 (Ch).

5 Reporting fraud

5.1 Professional requirements

Rule 4 of the Solicitors’ Code of Conduct deals with confidentiality and disclosure and your obligations when considering whether disclosure to a third party is necessary or appropriate. In particular Rule 4.01 sets out the fundamental duty that the affairs of your client(s) and former client(s) must be kept confidential except where disclosure is required or permitted by law or by the client/former client.

The SRA Guidance (see notes 9 to 19) to Rule 4 describes the exceptional circumstances when disclosure of confidential informationis required or permitted; for example, where statute requires disclosure to specific government or other bodies, or in order to comply with Proceeds of Crime Act (POCA) 2002 and Money Laundering Regulations 2007, or where the solicitor's conduct is under investigation by the SRA or the Solicitors Disciplinary Tribunal.

5.1.1 Disclosure

Where disclosure may be permitted or required by law, you must ensure that you understand the scope of your obligation in the absence of the client's specific consent, ie by considering the relevant provisions of the statutory power, and whether privileged information is protected from disclosure. You should only provide such information as you are strictly required by law to disclose.

Disclosure of confidential information which is unauthorised by your client or by the law could lead to disciplinary proceedings against you and could render you liable to a civil action by your client arising out of the misuse of confidential information.

5.1.2 Duty of confidentiality

The duty of confidentiality is not applicable if the retainer with the client is tainted by fraud. Confidentiality does not apply to information acquired by a solicitor where they are being used by a client to facilitate the commission of a crime or fraud, because that is not within the scope of a professional retainer. You should judge the likelihood of such an occurrence in the light of your client's explanations and any other relevant factors.

5.1.3 Other considerations

The other conduct and legal issues which you will need to consider in relation to this section are the following.

Rule 1 – core duties.
Rule 2.01 – taking on and ceasing to act for clients.
Rule 5 – supervision and management responsibilities.
Rule 20 – right and obligations of practice.
Legal professional privilege.

In April 2009 the SRA issued property fraud and money laundering warning cards for solicitors to help you when assessing risk.

You should therefore consider notifying Land Registry if you identify a registration fraud. If you are acting for a victim of fraud or someone you believe is a victim of fraud you should consider notifying Land Registry at the earliest opportunity subject to the other obligations set out in this paragraph 5.

If, after careful consideration of your professional obligations, you have evidence that you or someone else has been a victim of a fraud or that someone is attempting to commit a fraud, you may also decide that it is in the public interest to report that fraud. See paragraph 7.4.3 for contact details.

5.2 Money laundering and disclosure to Serious Organised Crime Agency (SOCA)

If you know or suspect that a fraud has been committed and a person is in possession of criminal property, you must consider the provisions of Proceeds of Crime Act (POCA) 2002.

The person in possession of the criminal property does not have to be your client, and you do not actually have to be involved in the transaction. In those circumstances you must still consider section 332 of POCA 2002 and whether you need to make a disclosure to SOCA to avoid committing an offence.

A disclosure to SOCA is only a defence to money laundering offences; it is not a crime report. You may need to make a separate report about the fraud to law enforcement agencies. See chapter 4 of the Law Society’s anti-money laundering practice note.

You should consider implications regarding the offence of ‘tipping off’ under POCA 2002 if you have included information about the making of a SAR in reporting the fraud to law enforcement agencies.

While the provision of this information to such bodies is not required by law, a key element of the offence of tipping off is the likelihood of prejudicing an investigation. This risk is small when disclosing to law enforcement agencies, or to an appropriate person at the Land Registry. There is also a specific defence of making a disclosure for the purposes of preventing a money laundering offence.

Read more about the money laundering offences and tipping off offences in chapter 5 of the Law Society’s anti-money laundering practice note.

Read more about how to make a report to SOCA in chapter 8 of the Law Society’s anti-money laundering practice note.

6 Civil liability

6.1 Land Registry’s rights of recourse

Land Registry has statutory rights to recover money it has paid out by way of indemnity. Under Schedule 8, paragraphs 10(1)(b) and (2)(a) of LRA 2002 it is entitled to enforce any right of action which a person to whom it has paid indemnity would have had if that person had not been indemnified.

Similarly, under Schedule 8, paragraphs 10(1)(b) and (2)(b), it is entitled to enforce any rights of action which a person in whose favour the register has been rectified would have been entitled to enforce if the register had not been rectified. The registrar may have a right of recourse against a conveyancer under either head. However, Land Registry’s policy is that it does not seek recovery from a conveyancer who has not been at fault, even though there may be circumstances where, strictly, it would have a right to do so.

6.2 Contractual liability

You should consider whether you have complied with the terms of your retainer and other professional obligations. For example, have you given any undertakings to obtain the signature of a particular person? You should also consider if you have given any warranty to a party to the transaction (other than your client) that you have the authority to act for a person in the transaction. Case law illustrates the circumstances in which the liability for breach of warranty can create an absolute liability or one actionable only on proof of negligence. See the following cases.

Penn v Bristol & West Building Society and others [1997] 3 All ER 47.
Zwebner v The Mortgage Corporation [1998] PNLR 769.
Midland Bank v Cox McQueen [1999] 1 Lloyds Rep PN 223.

Halifax Plc v Espley and others. QBD (Leeds). 23 May 2000 (Unreported).

7 More information

7.1 Professional conduct

The following sections of the Solicitors' Code of Conduct 2007 are relevant to this issue.

7.2 Legal and other requirements

Land Registration Rules 2008 (as amended).
Land Registration Act 2002 (as amended).
Land Registration Rules 2003 (as amended).
Fraud Act 2006.
Money Laundering Regulations 2007.
Proceeds of Crime Act 2002 (as amended).
CML Lenders’ Handbook.

7.3 Products and services

7.3.1 Law Society publications

7.3.2 Land Registry guides

7.3.3 Practice Advice line

The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 9am to 5pm on weekdays.

7.3.4 Land Registry enquiries

For queries relating to Land Registry please contact Land Registry on 0844 892 1111.

7.3.5 Professional bodies

7.4 Status of this practice note

This practice note has been prepared jointly by Land Registry and the Law Society.

Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.

Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.

7.5 Terminology in this practice note

‘the register’ means the register of title, except in the context of cautions against first registration ( s132 LRA 2002)

‘conveyancer’ means a solicitor, a licensed conveyancer within the meaning of s.11(2), Administration of Justice Act 1985, a Fellow of the Institute of Legal Executives (r217(c), LRR 2003), a barrister (r217(d), LRR 2003), a duly certificated notary public (r217(e), LRR 2003), or a registered European lawyer (r217(e), LRR 2003)

‘legitimate owner’ means the rightful claimant to the land or the interest in land whose rights require protection, which could include someone with the right to apply for first registration; a registered proprietor; a registered proprietor of a charge; or someone with the benefit of an interest such as a notice or restriction See LRA 2002 for definitions

‘property means any land or interest capable of registration under LRA 2002

‘criminal property means property that:

(a) constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and

(b) the alleged offender knows or suspects that it constitutes or represents such a benefit (Section 340(3) of the Proceeds of Crime Act 2002)

‘organised crime’ means two or more people involved in continuing significant illegal activities; such a group is capable of defending its members with violence, coercion or corruption; and more than £1m in criminal proceeds has been generated

‘law enforcement agencies’ means:

(a) the Commissioners or any other government department

(b) the Scottish Administration

(d) any other person who is engaged outside the United Kingdom in the carrying on of activities similar to any carried on by SOCA or a police force

(Section 3(4) (a) of the Serious Organised Crime and Police Act 2005)

‘must’ – a specific requirement in the Solicitor’s Code of Conduct or legislation. You must comply, unless there specific exemptions or defences provided for in the code of conduct or relevant legislation

‘should’ – good practice for most situations in the Law Society’s view. If you do not follow this, you must be able to justify to oversight bodies why this is appropriate, either for your practice, or in the particular retainer

‘may’ – a non-exhaustive list of options for meeting your obligations. Which option you choose is determined by the risk profile of the individual practice, client or retainer. You must be able to justify why this was an appropriate option to oversight bodies.