Why do Scottish Conveyancing Solicitors still use cheques to buy houses?

This was a question put to us by clients recently as we were just about to complete on their purchase. Given the ability to quickly transfer money between bank accounts it would be reasonable to assume that your solicitor would adopt that method of payment to swiftly conclude your transaction.

However, we still largely use cheques to pay for your house as it enables quicker completion and gives greater certainty for seller and buyer.

The first thing we would like to clarify is that solicitors will only issue a cheque drawn on their own clients account – they will not hand over a buyer’s personal cheque. Solicitors have a professional duty to only issue a cheque when they have the funds in their account to back it and that means having cleared funds. As a result you are pretty well guaranteed that a cheque drawn on a solicitors client account will be met – though like any cheque it requires to “clear” through the banking system, which usually takes 5 business days.

Completion by Cheque

The traditional way to settle a conveyancing transaction was for the buyers solicitor to personally call at the sellers solicitors office, hand over his cheque and in exchange pick up the keys for his clients and uplift the title deeds which had been signed over to the buyer. That was all well and good where the sellers and buyers solicitor’s offices were in close proximity.

What is more likely to happen now is that the sellers solicitor will send his cheque via a guaranteed next day delivery service and the buyers solicitors will do likewise with the titles, the keys being left by the seller with their estate agent to be picked up by the buyer.

What this means is that when the sellers solicitor receives the cheque he knows that provided everything else is legally in place he can authorise release of the keys immediately. If you are in a chain each selling solicitor will be waiting on the cheque coming in from the buyer’s solicitor and once the last of the cheques have arrived the keys can be released throughout the chain. Admittedly there is still a possibility of delay if cheques are slow in arriving or being delivered but such delays are usually fairly short.

Completion by Bank Transfer

Now compare the system we have just described with a conveyancing system (as in England) where there is a chain of buyers and solicitors, all needing to complete on the same day so that funds from the sale of current properties can be used to pay for new ones BUT the funds are exchanged using the banking money transfer system (known as CHAPS).

In this situation each link in the chain has to wait until the one below it has completed before transferring money out and no one can collect keys until every deal is done. If one person’s solicitor or bank slip up everyone higher up the chain is delayed. If the delay goes beyond 3.30pm (the latest time you can send money) then no one up the chain can move. Even where there is no slip up by the solicitor or bank the money sent by CHAPS can get lost in the banking system for hours before it appears in the selling solicitors account. All banks guarantee is “same day” transfer – not the time of transfer. So if the first transfer in the chain does not arrive till 3.30pm – disaster! All successive transfers won’t make it in time.

You may ask – why do solicitors wait till the money arrives before they transfer it out – surely they should anticipate the arrival of the seller’s funds and get their own transfer done. Unfortunately, solicitors can’t do this because of the very strict (and necessary) financial rules they operate under. Basically solicitors can’t pay out money they don’t have. With a CHAPS it’s not in the solicitors account until it shows up there – often many hours after the selling solicitor requested the transfer.

Why a Cheque is Still Better

With a cheque payment the selling solicitor can avoid standing at their computer screen waiting on the money transfer hitting his account. After a quick phone call to the buyers solicitor he can, under his own steam, bank the cheque and authorise release of the keys to the buyer.

Even using cheques, if there is a long chain, clients can still be left waiting in their removal vans for a while before picking up keys but that is surely to be preferred to having to abort the move completely on the scheduled day which is more likely to happen if all transactions settle by bank transfer.

Whilst settlement by CHAPS is becoming more common solicitors still mainly settle by cheque as they know from experience it still provides the surest and quickest way of getting their client the keys – which is the ultimate goal!

Why Sellers Prefer Bank Transfers

The main pressure to settle by same day bank transfer comes from sellers (though many sellers are also buyers). The reason sellers prefer bank transfer is that they can get any money they are due quicker because their solicitor does not need to wait for five business days for a cheque to clear before being paid out.

The question to ask if you are both seller and buyer is whether it’s worth giving up the certainty of getting the keys for your new home at a reasonable time and on the date of entry for the sake of being paid the profit from your sale a few days earlier.

Finally, there is one category of seller who always insists on being paid by bank transfer – the builders of new homes. If you are selling your home and buying a new build it can be a delicate juggling act to ensure that your sale price is to hand to complete your purchase on time. If you are selling and receiving your sale price by solicitor’s cheque and putting part or all of the sale price towards your purchase your solicitor won’t have cleared funds to enable him to do a same day bank transfer of the purchase price. Unfortunately there is no simple solution to this problem but the advice of an experienced conveyancing solicitor will usually lead to a satisfactory conclusion.