What is an ‘obligation to discharge’?
When a solicitor or conveyancer is instructed to act on a client’s behalf in relation to a sale of property there are certain duties and obligations that they are required to fulfill. One key duty is to ensure that the seller’s mortgage is discharged upon completion of the sale. This obligation is crystallised in the form of a solicitor making a binding promise to redeem or obtain discharges for each of the seller’s identified mortgages, charges or other financial incumbrances so far as they relate to the property being sold. The discharge is to be obtained from the lender and forwarded to the buyer’s solicitor as soon as it is received from the lender. This discharge is usually contained in Form DS1 – Cancellation of entries relating to a registered charge.
What should the seller’s solicitor do?
The simple answer is that a solicitor acting for a seller should be SMART when entering into an obligation to discharge by ensuring that the undertaking is Specific, Measurable, Agreed, Realistic and Timed. It is important that – prior to giving the undertaking – the seller’s solicitor is certain that they can comply with its obligations. A solicitor who gives an undertaking will be held responsible for the consequences of any breach. Therefore, any solicitor undertaking to discharge a seller’s mortgage upon completion must be certain that they will (1) actually be able to obtain the discharge from the lender; and (2) fulfill an undertaking within a reasonable time.
What are the potential problems?
There are occasions where it may be particularly difficult for the seller’s solicitor to obtain discharge within a reasonable time.
Our property team recently acted for a buyer in the leasehold purchase of a new build property in London. The seller’s solicitor had provided an undertaking to discharge the seller’s three mortgages – one being with a bank and the other two mortgages were in relation to Help to Buy schemes. The discharge for the first mortgage was received without issue. However, the other two charges were being administered by third-party agents and not the lender, therefore it took substantially longer. The seller’s solicitor had to liaise with various agents and third parties before actually discovering which one was responsible for providing the discharge.
Our proactive and diligent property team reached out to the agent to convey the need to expedite the discharge process. The DS1 form was eventually received some months after completion. The late receipt meant that, when the buyer’s mortgage was registered, the lender did not have the first charge over the property as the seller’s charges still existed. This scenario could have been avoided if the seller’s solicitor had made contact with the agent from the outset and prior to entering into the undertaking, to have written confirmation of the exact procedure and requirements for obtaining the DS1 from the relevant party.
Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.
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