Delivering Certainty

Conveyancing Month!

The UK’s first monthly on-line journal dedicated to conveyancers!

Feature...

$Text Box: What is a “Solicitor”? Simply put, the question seems disarmingly easy to answer. However, if one considers it for only a little while, it soon becomes clear that a precise definition is somewhat more elusive than we might have first thought, and were we to put the question to 20 or 30 solicitors, we might, perhaps, get back 20 or 30 different answers, and each of them – in there own way – correct. The confusion, of course, arises from our unconscious desire to define solicitors by what they do, rather than what they are paid to achieve. When looked at from this angle, it soon becomes clear that solicitors (in common with many other professionals) are paid to deliver certainty of outcome. The broken agreement and the broken leg, the new house or the new business – whenever the certainties of everyday living are shattered or threatened, we turn to solicitors for help and guidance. Indeed, it is the very nature of what solicitors are paid to do that makes the profession so conservative and resistant to change. One of the clichés most often repeated about conveyancing, is that for most people, a house sale or purchase will be the largest transaction that they will undertake in their lives. Cliché it may be, but it remains true nonetheless, and it is the amount of money involved, and the risk that something may go wrong, that gives rise to the involvement of a property lawyer. And just as individual practitioners deliver certainty of outcome to individual clients, Solicitors and licensed conveyancers, as a group, deliver certainty to the UK property market. The UK residential property market is just that – a market place. People enter the market to buy and sell homes, and the market is run and managed by five distinct groups of operators. First, we have the estate agents, who are the “market makers”, and who do the actual selling. Next we have the brokers, whose job it is to deliver the mortgages and other financial products that enable the properties to be bought and sold. Then there are the banks and building societies, whose role is to provide the finance which fuels market activity. Surveyors come next, and their task is to assay the fabric of the properties and ensure that valuations are reasonable. Last – and by no means least! – come the conveyancers, and their task is to oversee the transmission of titles from sellers to buyers, and the securitization of the mortgages secured on them. It is worthwhile noting that of these five groups, the first three undertake tasks that are ends in themselves. The last two groups – surveyors and conveyancers – undertake tasks that are not ends in themselves, but designed to achieve what the first three (and of course, the buyers and sellers) require in order to ensure that the market place continues to function – certainty! By means of various bureaucratic procedures and conventions, conveyancers deliver certainty to the property market place in four basic ways: a). title validation b). contractual compliance c). statutory compliance and d). liaison between other interested parties. Practitioners will readily understand what all these tasks entail, so we need not describe them seri atim. However it is, perhaps, worth posing the following questions: how often would the agents get paid, and whether speedily or at all, if conveyancers didn’t take the trouble to post the cheques off to them on the day of completion? And how much SDLT would get paid if it were left up to the buyers to deal with it themselves? And how many estate agents even pretend to have properly implemented the Money Laundering Regulations? And how honest would sellers be in their replies to enquiries, and how assiduous would buyers be in providing the correct funds at the correct time, if it were not for practitioners standing over them. And – heaven forbid – how many telephone exchanges would fall apart because one of the parties simply denied it had ever taken place! The point, of course, is that the role of the conveyancer – delivering certainty to the market place – is vital for it’s proper conduct and continued success. The importance of the UK property market, wherein resides the greater part of the nation’s private wealth, can hardly be overstated. It underpins the entire economy, and it transacts billions of pounds worth of business on a daily basis. It is sobering therefore, to see how little the other market players value the conveyancer’s role. Immediately above, I have created a house moving cost comparison table. There will, of course, be regional differences (somepractitioners would probably give their eye teeth to make £1,100 on an average sale and purchase!), and I have had to do a certain amount of rounding up and down, but the table does, perhaps, give a broadly correct picture. It will be noted that, apart from disbursements, the legal fees element of the budget accounts for the smallest element, less than 10% in fact, and in many transactions it will be even less – so whilst conveyancing is not the least important element of the transaction, it is certainly the least rewarded. Conversely, the agent’s share is nearly 4 times that of the solicitor, an outcome which, both in terms of quantity of work and quality of outcome, is difficult to justify. So why do so many conveyancing firms find it so difficult to command fees commensurate with the task? The answer, I believe, lies in the fractured nature of the conveyancing industry, and over capacity. Some 20 years ago, the great majority of estate agents were privately owned independents. Whilst there were some larger chains, they were invariably regionalised, and even the largest of them rarely exceeded 30 or 40 branches. The same was broadly true of brokers, and whilst agents were gradually bringing brokers “in-house”, the majority of them were small independents. However during the mid eighties, the building societies went on a buying spree of agencies, with the intention of creating national chains, the better to sell their mortgages. For various reasons, and with a few notable exceptions, most lenders have retired from this sector of the market. However, in the process, they have created vast national networks of agencies and brokerages with enormous resources at their disposal. In addition, there has been a corresponding concentration of brokerage, residential mortgage lending and surveying work in fewer and fewer hands, and we are left with the overwhelming impression of “the big boys playing in the big boys game”. In stark contrast, conveyancing capacity in the Uk remains widely distributed across the country, and whilst conveyancing factories have become increasingly prominent, it remains the case that somewhere in excess of 75% of all residential conveyancing transactions are undertaken by firms of three partners or less. In short, and whilst the other market operators have become large national players, conveyancers have remained in what, by comparison, looks increasingly like a cottage industry. There are three main reasons for this: firstly, the traditional business structure for most firms of solicitors is the partnership, a relatively archaic mechanism which militates against risk taking. Secondly, solicitors are unable to share profits with anyone other than another solicitor, which effectively bars the introduction of private capital into the business. And thirdly, and until recently, solicitors were unable to pay fees to introducers, thus preventing them from creating re-seller networks. The Law Society has now relaxed the rules on paying fees to introducers, and in due course they are likely to be relaxed further. Whilst many firms have been slow to take advantage of this development, over the medium to long term, the use of re-seller networks is certain to increase. Of more importance are the Clementi reforms, which have been well received by both the government and the Law Society. Enshrined in the new Legal Services Bill, these provide, inter alia, for the creation of a new business vehicle, to be known as an Alternative Business Structure (ABS), which may be wholly owned by non-lawyers. This will permit the injection of private capital into law firms, and the creation of firms owned by non-lawyer organisations, such as supermarkets and banks. Looked at dispassionately, it seems inevitable that the conveyancing industry is due for a radical shake out, and ten years from now will more closely resemble the other market operators, with far fewer - but much bigger - players. Those firms that are best placed to spend it, will seek out the new sources of investment to be unlocked by Clementi, and doubtless a significant proportion of it will be$