Holding closing documents and funds on trust pending completion of a property transaction
It is common practice in a conveyancing transaction for the solicitors acting for the vendor and purchaser to transfer the closing documents of title and purchase funds to the other side to be held ‘on trust’ pending completion.
Put simply, if I am acting for the buyer of a property, I will transfer all the closing funds to the solicitor acting for the vendor. I will do so on the basis that the funds will be held on trust and to my order pending completion.
In the same way the vendor’s solicitor will send me all the closing documents. Again, these are to be held by me on trust for the vendor’s solicitor and to their order pending completion.
The Law Society have issued a practice direction on 9th February 2022 that this arrangement means that the solicitor must hold the documents or money on trust to the order of the party who transferred the funds or documents.
This is the case even if there are competing demands or requests from a third party. The solicitor must hold them and return them to the other solicitor, the beneficiary, if called upon to do so.
No claim or lien can be effective over the funds or documents, regardless of competing interests or claims or litigation or demands.
This is a useful clarification.