FAMILY HOLD BACK- COSTS AND THE NEW ACCOUNTS RULES

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By Trevor Hellawell

One of the key changes under the proposed SRA’s new Accounts Rules is the ability to bank any money a firm receives for its costs (and other liabilities for which the firm is liable (the main routine disbursements)) immediately into its own coffers.

 

For decades this has been regarded as client money until such time as the legal work is done, and a bill of costs (or other written notification) sent to the client. The main exception was always for ordinary disbursements that were incurred but yet to be paid, or indeed any disbursement that the firm had already paid out of its own pocket.

 

The justification for this is that it may remove the need to have a client account altogether for some firms, and reduce the average balances below the minimum threshold for obtaining an accountant’s report. This will make life easier for many.

 

The change allows a firm to bank immediately (in office account) any money relating to legal services provided by the firm (whenever paid) together with any funds that will go towards the payment of disbursements such as conveyancing searches, medical reports, counsel’s fees, courier fees etc. The new Rules fail to make any distinction between professional and ordinary disbursements.

 

In years of teaching, I have described this notion as that of ‘family hold back’ – the lawyers and the professional team were the last to get paid – after all the work had been done, the bill of costs issued and terms of payment expired. Over the years, interim bills and money on account of costs have become commonplace (and good sense) but it was always still the case that the work had to have been done, and a bill issued before the funds could be withdrawn (within 14 days) from client account and put into office account.

 

There were VAT issues over work-in-progress too, that made scheduling a nightmare.

 

On a basic human level, this discipline at least forced the profession to speed up, deliver a decent service and keep the customer satisfied so that we could justify sending them a hefty bill, which of course was our intention anyway. Management commentators would also say that genuinely wanting to help clients should be our overarching motivation – the money, which came later, should be regarded as our reward for having done a decent job. If we did, the amount of money would be more than satisfactory.

 

This change in the Rules allows us to bank any payments that are referable to our costs straight into office account, regardless of when those costs are paid. So if a firm can give a quote (say for conveyancing) early on in the transaction – and request payment of it – then it can be paid directly to the firm, regardless of whether the work has actually been done or not. This may have a bearing on the fee-earner’s incentive to continue to press on with the transaction after countless phone calls to and from the estate agent and client, and in many cases, the tedium of sorting out the minutiae of a typical house-move may get too much. The continuing downward pressure on conveyancing prices surely won’t help this.

 

I have much sympathy for the financial plight of the law firm and anything which enables it to operate on a more manageable cash flow basis is to be applauded, but I wonder whether the incentives that drive individuals to offer superlative service will be eroded.

HOW MANY REGULATORS DO WE NEED?

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By Trevor Hellawell 

The LSB is currently undertaking a review of the various Regulators in the market – SRA, BSB, CLC, ICAEW, ICAS – in order to determine whether appropriate standards are being observed.

 

For a decade now we have had ‘competition between Regulators’, something which always mystified me.

 

Surely, in the interests of public protection of clients there cannot be a competition? Surely, protection is protection.

 

Competition would appear to be an open invitation to alter standards of entry, regulatory restraints, prescriptive rules and codes of conduct in order to weaken them, make them easier to comply with and ultimately, to reduce prices.

 

I acknowledge that Rules should be proportionate, not too prescriptive and not a barrier to innovation and development (and competition will help drive that), but there must then be some irreducible minimum below which a regulated ‘professional’ entity must not be allowed to drop.

 

That, as I understand it, is the point of the current review. The LSB is looking into the current rush amongst entities to look at alternative regulatory models as they strive to compete in a harsh market for legal services. Given that most things can be undertaken by pretty much anyone (unreserved activities can be carried out by accountants, banks, insurers, estate agents, local property shops and the like) the temptation to avoid the full rigour of SRA regulation (for example) is understandable.

 

To be able to provide property services without the tedium of the SRA’s requirements, PII insurance, accounts rules, legal professional privilege and the rest should allow firms more commercial freedom. The continued pressure from consumer groups, comparison websites and the CMA for clients to ‘shop around’ and for firms to publish their prices online all further press firms to reduce their fees further.

 

But, the enquiry asks, is this rush motivated by the firms’ commercial aims rather than by what is in the interests of the public and the clients?

 

True, the availability of insurance is a prerequisite for most regulators. Consumer protection is available in many guises. The ability to recover compensation for a poor service is also a given. Codes of Conduct are common. But, it is the duty of the regulated entity to make these distinctions clear to the client, so the client knows what their (reduced) fees are (not) paying for and what other stitch-ups may be hidden in the small print – witness the current debate around online estate agents, versus the high street, shop front version.

 

The vast plethora of regulators – all with subtly different requirements and protections – does not help the poor client who has to have all this explained to them. The client may not care too much anyway.

 

Is the time soon arriving where we can reduce the number of regulators to say two – one for the unreserved business sector and another for the reserved business sector? That way we can have a clear set of rules depending on the levels of protection clients want – a cheap and cheerful high street ‘property shop’ model, or a better-protected (if more expensive) high-end version. Competition is not always a good thing. Benevolent dictatorship anyone?

DON’T QUOTE ME ON THIS…

By Trevor Hellawell

 

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Amid suggestions that the Law Society will shortly require all estimates or quotes to be kept for 6 years in case of complaint, the Legal Ombudsman has recently reminded everyone of the need for accuracy in any communications with clients in respect of costs and charges.

 

The Ombudsman says that “we often see cases where the costs information provided to customers was not sufficient. Commonly, the biggest mistake firms make is not putting the information in writing or recording it properly on their case management system. Whether providing initial quotes, fee reductions or increased costs, it is important to document the information”.

 

For example, Mrs. J instructed a firm regarding the sale and purchase of a property in May 2014.

 

The client entered a verbal agreement with her friend, a solicitor at the firm, for a fee of £200. However, the friend was soon taken ill and replaced by another solicitor. The firm did not quote any other fees verbally or in writing, though there was evidence from an attendance note that the new solicitor would have to charge increased fees. The conveyance also turned out to be more complicated than expected, which meant the firm incurred more costs.

 

Mrs. J complained after being charged more than expected. The final bill was more than £2,000. The Ombudsman decided that the firm should refund 50% of the fee.

 

It was clear that the firm had not provided any costs information to Mrs. J, either at the start or throughout the process, particularly when the new solicitor took over the case; nor when it became clear that the sale and purchase was becoming more complicated.

 

It has long since been good practice for a firm to send a letter at the beginning of the instruction, and then to update their customer if costs increase beyond the original agreed estimate.

 

Quotation engines – like Brighter Law suite – enable firms instantaneously to issue accurate, tailored, written quotations at the outset of a matter and to enable any changes to that initial estimate to be logged, as well as being sent to the client, cutting off the potential for bad practice at source. Why take the risk?

THE TIME OF THE ‘LOCAL LAW FIRM’ HAS COME!

Written by Rob Stafford

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If the Noughties were the decade of the ‘call centre’ law firm, this one promises to be the time of local law firms.

A recent survey conducted by YouGov has revealed that 77% of all those surveyed prefer the use of a High Street law firm to a national one. This indicates a very real appetite for High Street firms with a focus on service and local knowledge.

With this in mind, we thought we’d provide a run-down of the major benefits of a local service over ‘production line’ conveyancing.

 

Local Knowledge

While it might appear obvious, local knowledge is crucial in conveyancing. Want to know about that Section 38 agreement at the end of your street? It stands to reason that your local firm is more likely to know about it, rather than a call centre five counties away.

One of the most infamous cases in the industry is chancel repair landmark Aston Cantlow v Wallbank. This is precisely the kind of situation that local knowledge can help prevent. A diligent and local conveyancer is more likely to be aware of the local parish and the possibility of the purchaser’s property being on former rectorial land. The production line conveyancer may have never set foot in the county, let alone the parish in question. To put it crudely, if you were on a guided tour of a historic city, would you prefer the rough guide or the local with decades’ worth of knowledge?

 

A Personal Service

In any industry, customers are far more receptive and likely to return when they feel that they have been provided for as an individual. We all like to feel valued and unique. From an early age we’re told we are exactly that. Why should the most important transaction of many clients’ lives be any different?

 

Too long conveyancing has been characterised as legal ‘grunt work’. a service centred on legal form and expediency. Instead, conveyancers should be recognised for what they are, a guiding hand in what is the most important decision in many lives. The value of familiarity shouldn’t be underestimated.  A local firm who understand the situation on the ground, the peculiarities of the local area and, most importantly, the needs of the home buyer, will always hold the edge over a stranger at the end of the phone. Whether it’s being able to drop in for an update on proceedings or simply a cup of tea and a reassuring chat, a more human approach will yield great returns for your firm.

 

Roots in the Local Community

Local law firms used to offer a ‘cradle to grave service’, all life’s eventualities covered under one roof, from the purchase of newlyweds first home, to passing onto the next generation. As the You Gov survey demonstrates, there is a real appetite for this paternal role from law firms. Why can’t we return to that?

It’s become increasingly clear that the idea of a stranger handling life’s most important transactions sits uncomfortably with most. We are a social species and often just being able to talk something through with someone we know and trust can make all the difference.

 

Modernisation

Now, more than ever, is the time for law firms to embrace the new technology available to them. The customer of the future is going to be more tech savvy, more aware of the options available to them and consequently more demanding.

The local law firm has a substantial advantage over its large-scale counterpart in this field as well. Small dynamic teams ensure that the use of new technology is nothing like the task it is in a firm with 100 plus staff. The training of one or two members of staff can make all the difference by reaching out in a pro-active way to a new breed of client. Furthermore, the High Street firm is better placed to tailor new technology to each client’s specific needs. Unlike having to adopt the clunky ‘one size fits all’ approach favoured by volume’ based firms.

 

A Varied Skill Set

The final advantage to the High Street firm is the varied skills that the conveyancer in a local firm brings to the table. With less staff, it’s often a case of ‘all hands to the pump’. Junior conveyancers are given more responsibility earlier in their careers and consequently, they acquire a broad skill-set more quickly. Furthermore, junior staff benefit from working side by side with partners and experienced conveyancers. By the time the juniors are at partner level, this translates to thousands of hours’ experience. The Result is a diligent, learned and highly competent workforce, which can only benefit the client.

 

Consider the alternative in ‘call centre’ firms; a clear disconnect between partners and juniors, a shallower learning curve for juniors and less broadly skilled staff. This equates to a poorer service for the client.

 

The law firm needs to reclaim its rightful place along with bank manager and doctor as a pillar of local communities. The High Street law firm is more than just a commercial vessel ,it is a vital helping hand at the most important junctures of life. Let’s return to that!

 

TAKING THE CLIENT INTO ACCOUNT

The SRA’s new Accounts Rules

Written by Trevor Hellawell

 

Increase customer satisfaction

 

Amid the debate surrounding the revamping of the SRA’s Handbook, and the tempting possibility of undertaking wholly non SRA-regulated legal services, one finds an exploration of the SRA’s new Accounts Rules. These are also subject to an overhaul and a rethink, and are subject to the same response timelines.

 

Amongst the several advantages paraded of practising in the unregulated sector (cheaper prices not being the least of them) comes the thought that there would  be no Accounts Rules to worry about either.

 

Leaving that thought to one side for a moment, I wanted to consider the proposed new Rules in their own right – for the benefit of those who wish to continue under SRA regulation.

 

The proposals have set about reducing the length and complexity of the Accounts Rules, which had not benefitted from the last edits (unlike the rest of the Handbook) in 2007 and 2011.

 

The old rules were complex and seemingly unnecessary given the advent of much technology and IT advancements in the years since their introduction, and were too box-ticking in their detailed approach to a range of issues.

 

Intermittent tweaks (mainly to the requirements in relation to reporting Accountants) had altered the impact somewhat, only requiring the SRA to be sent the report if it was qualified, and then by requiring that ‘qualification’ meant only if there was some real risk to client money. For example, of the 4500 reports sent to the SRA in 2014, only 179 evinced any real threats to client funds.

 

So the new Rules redefine what is ‘client money’ as being those funds that firms hold for clients as part of their retainer, but excluding any payments for costs and for disbursements for which the firm will be liable. They dispose of the definition of ‘office money’ (leaving the firm to decide how it deals with its own funds), provide that client money is left in a separate account until required, and dictate its prompt return when the matter is concluded. Much of the detailed prescription of how to account for mixed payments and the like has been removed, requiring only that the money be promptly banked into the right place. Rules on interest have been removed, but COFAs haven’t.

 

There is some concern that the rights of the consumer – sorry, client – have suffered as a result of the firm’s ability to claim any costs as its own (even before doing the work) but the available redress against other deep pits mitigates the real risks.

 

All this presupposes that a law firm still wants to be SRA-regulated at all. There really is no reason to be. A firm can offer unregulated services already and choosing not to be SRA-regulated will give the firm many opportunities to offer (say) conveyancing services via different mechanisms and still with scope for protection of the client.

 

However, my view is that there are some significant downsides to abandoning SRA-regulation. The use of the term ‘solicitors’ for one, the lack of Compensation Fund claims (up to £3m over the last 2 years in respect of property matters), the lack of any robust regulation of how client funds are to be dealt with and, crucially, the lack of the comfort of legal professional privilege are all to be weighed in the balance. Cheap fees come at a price.

ARE WE TALKING OURSELVES DOWN?

Written by Trevor Hellawell

 

Terraced Houses

 

The RICS published some figures this week highlighting that the property market is showing a marked decline in Q2. Some suggestions are of as much as 30%, with a 5% decline in prices in the London area.

 

Whilst Q1 was buoyed by a pre-SDLT rush, much of the decline is due to the aftershock of the Brexit vote and the tumultuous implosion of both leading political parties. The Bank of England has been playing the softly softly approach as the new PM puts her cabinet together, itself springing some surprises along the way. How long it will take the Foreign Secretary to apologise to everyone he has offended will remain to be seen.

 

Many transactions have been put on hold, at the very least, and some have aborted.

 

Is this the sign of systemic slowdown? I don’t think it needs to be – if we want a market downturn, let’s talk ourselves into one, is a well-heeded saying. In the medium term things may get tougher, but with a new Chancellor in Number 11, further relaxation of austerity and an even cheaper money market things could be a lot worse.

 

For the profession, he pressure is on to maintain and enhance ones offering to the market in order to seize the better deals.

THE SEARCH CONUNDRUM

Official vs Regulated

Written by Trevor Hellawell

 

Code of conduct concept image with business icons and copyspace.
American Independence Day has just passed and with it, the July 4th introduction of an amended local search report.

 

There are a number of changes to the standard report within the CON29R enquiries. Along with the specific section numbers, these changes are:

1.1     Listed building consents: Are there any with respect to the property?

2.2     Are there public rights of way abutting or crossing the property?

3.3     Sustainable Urban Drainage Systems: Is one in place? Are any assets within the boundary or the property? Is there a charge for them?

3.5 (b) Are there any railways, tramways, monorails planned within the Local Authority Boundaries?

3.7 (g) Flood or coastal erosion notices: Are there any outstanding in relation to the property?

3.10   Community Infrastructure Levy: Have any licences, orders, appeals or notices been created in respect of the property? Is there a Levy Charging Schedule available?

3.15   Assets of Value to the Community: Has the property been registered or has any attempt been made to register it as an Asset of Value to the Community?  If it is registered as such, is the local authority planning on reviewing its listing and has a Community Interest group come forward as a bidder for the property?

 

This creates an opportunity to review the position regarding local authority searches.  Is it time to consider switching from an official council search (hereafter referred to by the less emotive term ‘council’) to a regulated search instead?

 

A council search is one carried out by the local authority itself, at a variable price and against a variable deadline. VAT too will soon be payable on certain aspects of that search.

 

A regulated search is one carried out by an independent search provider under the regulatory eye of CoPSO. It also carries with it a certain amount of baggage from mass conveyancing, HIPS and back-hander days.

 

However, against my better judgment, I am persuaded that much of the feeling in favour of council searches is historic and misplaced.

 

There are key differences between a regulated local search, and one carried out by council staff:

  • In many cases, councils will not be in a position on day 1 to include the changes outlined above as their systems simply do not allow the retrieval and presentation of this additional information
  • With the Search Code and CoPSO demanding high standards of training and conduct, and regularly reviewing these standards through audit visits, the high ground for quality has actually shifted from council to regulated searches. This is why all major lenders fully accept regulated searches. We have carried out our own sample analysis and found the data gathered within regulated searches to be better than that of council searches
  • There is clear water on the quality front, but what happens if something goes wrong?

 

The recent Chesterton case (where a local authority got its results wrong and inconvenienced the purchaser) is an excellent example of the difference that exists in terms of insurance protection between a regulated and a council search

  • Generally, it is less expensive for the purchasing client to obtain a regulated search
  • For the solicitor providing an estimate of costs, it is far better to have a quote tool that delivers a standard fee structure across any property in England & Wales
  • The regulated search report is always presented in the same format, making interpretation of key data much simpler
  • Search Fee Guarantees available generally apply only to regulated searches, not to council searches.

 

So, the accepted wisdom appears to be that council searches are no better than regulated searches and in comparison carry many disadvantages. Is it worth a second look?