Professional liability of notary public involved with land speculation

1.     PREFACE

Professionals have a duty of care,  so does a notary public. However, how far does this duty of care reach? An interesting subject in respect of this topic is the involvement of a notary public in the execution of notarial deeds concerning the transfer of speculative lands. We will explain this duty of care in these specific cases based on a judgement by the Amsterdam Court of Appeal of this year.

2.     LAND SPECULATION

Land speculators buy agricultural land from land traders with the sole purpose to sell the land subsequently with a profit. These kind of transactions often involve so-called ABC transactions. A sells to land trader B and B sells the land shortly thereafter - with an increased purchase price - to land speculator C. C buys the land, because the confidence has been invoked that the land will become (substantially) more valuable in the future (for example because of a zoning change). C thus speculates on the base of this zoning change. However, in reality the value of the purchased lands rarely increase in the future.

3.     THE DISPUTE

The land speculator in question did not accept that he was stuck with land bought too expensive and decided to act against the notary public. According to the land speculator, the notary public, among other things, had insufficiently informed the land speculator of and insufficiently warned him against the risks involved with these kind of land transactions. The land speculator was of the opinion that, in this type of land transactions, an increased duty of care for notaries public apply.

4.     THE NOTARY PUBLIC’S DUTY OF CARE

The question whether a notary public is liable because of its insufficiently applied duty of care, is assessed in civil law based on what may be expected of "a reasonably acting and reasonably competent peer". The duty of care of a notary public can be divided into the following three obligations (i) the duty to investigate, (ii) the duty to inform and (iii) the duty to verify someone’s will. In special circumstances, a fourth obligation may also apply, (iv) the duty to warn.

5.     THE ACCUSATIONS

The land speculator accused the notary public of having neglected each of these obligations. For example, according to the land speculator the notary public, because of his duty of care, should have refused his Ministry duty. The notary public should also have determined that the land trader did not have a permit while he was subject to a permit requirement (the notary public’s duty to investigate). Prior to the transfer, the Royal Dutch Association of Civil-law Notaries and the Netherlands Authority for the Financial Markets had repeatedly advised notaries public not to pass any deeds of transfer in case the necessary permits were lacking. According to the land speculator, the notary public also should have explicitly pointed out to the land speculator the risks that were involved with this transfer, for example that the market value was many times lower than the purchase price (the notary public’s duty to inform or to warn). Finally, according to the land speculator the notary public did not sufficiently investigate whether the land speculator was able to freely determine his will (the notary public’s duty to verify someone’s will). For example, there had only been a one-off telephone conversation with the land speculator. Moreover, this telephone conversation was not conducted with the notary public himself but with an employee of the notary public.

6.     THE DECISION

According to the court, the notary public did not have the obligation to refuse his Ministry duty. Only in special cases, a notary public may refuse this duty. For example when a party is incapacitated to act. That this was not the case had appeared from the verification of the will of the land speculator. Not the notary public himself had carried out this verification of the will, but an employee of the notary public. Delegating the verification of one’s will does not mean that this verification has been renounced. It also appeared from various documents that the land speculator was aware (or should have been aware) of the risks. For example, that he paid a much higher amount than the price paid by the seller himself. The court decided that it is not the obligation of the notary public to inform a land speculator about this fact anew. Nor does the obligation to warn the land speculator apply. A notary public has to be and remain impartial. Warning the land speculator would lead to partiality of the notary public. The court also is of the opinion that the notary public did not have the duty to verify whether the land trader had the required license. Nor does the notary public’s duty to investigate according to the court extend so far that he has to verify the correctness of certain information in the purchase agreement. The notary public in general may rely on the correctness of the written information provided by the land speculator.

7.     CONCLUSION

A notary public does not have an increased duty of care in the execution of deeds of transfer concerning speculative lands. After all, the conclusion of the sale and purchase agreement of registered property usually takes place without the involvement of a notary public. At the time parties go to a notary public for the notarial transfer of the property, they are often already bound by the sale and purchase agreement. If the documentation already shows that there are risks, it is in principle not the task of the notary public to advise the parties about this. After all, the notary public has to be impartial.

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