Deposit-stakeholding in property transactions

2021-01-29

The Law Society of Hong Kong (“Law Society”) has recently intervened into the practice of a solicitors’ firm Messrs. Wong, Fung & Co. (“Firm”), as it has reason to suspect that a former clerk of the Firm had dishonestly misappropriated money belonging to the Firm’s clients.

The Law Society’s intervention into the practice of the Firm (“Intervention”) has impacted the ongoing property transactions handled by the Firm and affected a number of prospective purchasers. Hence, the Estate Agents Authority (“EAA”) issued a Letter to Licensees on the Intervention on 6 January 2021, reminding estate agents to offer certain information/advice and assistance to their affected clients.

The EAA suggests that estate agents should advise their affected clients to appoint a new solicitor firm to act for them in the property transaction as soon as possible and seek its independent legal advice on any concerns they may have regarding any money they may have paid into the Firm’s bank accounts and the transaction.

In case their affected clients have any difficulty to complete or proceed with the transaction as originally scheduled due to the Intervention, the appointed estate agents should encourage and assist the parties to communicate with each other as far as possible with a view to resolving the matter amicably (e.g. mutually agreeing to postpone the date for payment of further deposit(s); deferring the completion date for the sale and purchase to allow more time to work out a solution; resort to mediation in the event of any dispute etc.).

This incident has raised public concern on the protection of prospective purchasers to stakehold their deposit(s) at law firms and opened up discussions as to how to prevent similar incidents from happening again in the future. On this, I would like to suggest prospective purchasers to consider carefully which solicitor firm they appoint to handle their property transactions.

The EAA has issued guidelines for estate agents to follow on the subject of deposit-stakeholding over the years due to some incidents of vendors disappearing after receiving the deposit(s). According to the guidelines, estate agents are required to advise their clients in writing to arrange for the stakeholding of all deposits by a firm of solicitors and the risks of not doing so, before arranging for the parties to enter into a provisional agreement for sale and purchase.

The risks that the prospective purchasers should consider are that vendors may abscond after receiving the deposit(s) (due to failure to discharge the mortgage or there may be fraudsters impersonating flat owners). Hence, the EAA requires estate agents to alert their clients about this and advise them to stake hold the deposits with a firm of solicitors. However, the decision as to which firm of solicitors they choose to engage and how to proceed with the transaction rests with the clients. If the prospective purchaser chooses not to stakehold the deposits, estate agents should obtain a written acknowledgment from the prospective purchaser that such suggestion and explanation have been provided.

Ruby Hon
Chief Executive Officer
Estate Agents Authority