News / General

Scale Fees

By Michael Sheridan

Of course the return to scale fees is widely regarded among the legal profession and elsewhere as being unlikely, infeasible and unattractive. That leads us to consider the alternatives. If law firms are compelled to compete on prices, how do they go about it and does that operate in the public interest ?
Nowadays when prospective clients email around firms for quotations of conveyancing costs and when competition for ever cheaper deals is the way of the world in many if not all markets and when the term “bucket shop conveyancing” has come into use, practitioners may well be inclined to look for ways of reducing costs to clients. The following have been noticed.

1. Increased volume of clients.

If more clients are paying fees to the firm then it follows that the fees charged to individual clients may be reduced. If these reductions bring in even more clients then, of course, the fees can be reduced even more, and so on. One way to stimulate volume is to make special arrangements with estate agents and other agencies so that they will effectively push clients in your direction. The arrangement may well be that you will direct all your estate agency requirements to a particular agent and that agent, in turn, will direct his “solicitor free” business to yourself. Of course, some awkward customers might wish to instruct a particular solicitor, possibly one previously associated with that customer’s family or a solicitor of whom that customer has heard other people speak highly. Such reluctance can often be overcome by the inducement of “a special deal” or perhaps an insinuation that failure to use the appropriate solicitor might in some way hamper the business in hand. It is beyond the scope of this note to explore all the ways and means ofsuch other agencies. Such arrangements were previously regarded as bad form, under the description of touting but they are now practised quite openly and make obvious, good commercial sense, at least in the short term. On the longer term it may hand economic influence and a degree of control over the law firms to outside agencies and, of course, fashions might change again and this might be challenged as being unprofessional conduct. The question as to whether or not it is a fair way to run business does not appear to arise at lest currently. However, as Mr Fallon pointed out recently, what is all right one day might not be acceptable another day.

2. Systemisation of unqualified staff

Of course, certain essential elements of the conveyancing transaction constitute reserved work in terms of the Solicitors (Scotland) Act 1980 and can only be carried out, in consideration of fees, by qualified solicitors. However, if we have stimulated our clientele as suggested in 1 above then it follows that we might need more solicitors to carry out these reserved services. This would involve the payment of professional salaries. A way round this is to engage and train a number of non qualified persons and design a system of operation which enables a routine transaction to be carried out without the direct involvement of a solicitor but which will highlight any circumstances out of the ordinary which might require the attention of a solicitor who will, in any case, sign off any necessary papers required for the completion of the reserved work. While it might frustrate some clients not to meet and talk with a solicitor during the transaction, the lure of cheaper fees is likely to be sufficient compensation. The main downside here is the risk of allowing reserved work and work associated with reserved work to be carried out by persons who do not have a background of having studied and obtained relevant qualifications in the law and practice of property, contract and conveyancing. This risk affects the interests of the client and of the law practice and of the insurance which supports the whole legal profession and also of the public in having the property registers accurately updated.

3. Minimise the technical work

While it was once upon a time sufficient evidence of transfer of ownership for the seller to hand the purchaser a clod of earth taken from the property, in more recent times, since 1617, this operation has depended on relative paperwork. The study of the paperwork associated with a particular property and the drawing up of the document required to transfer its ownership can sometimes be quite complicated. What if a particular owner has died, gone mad or disappeared? What if there are conditions associated with the ownership? What if the keeper of the Land Register has made subtle changes in the Register affecting the ownership of that property but without telling the owner about these changes? What if the previous owner is or has been subject to insolvency so that his apparent legitimate ownership and therefore your client’s subsequent ownership might be subject to cancellation by the previous owner’s creditors? What if some previous owner of the property has carried out alterations to the property without local authority planning permission or building consent? Resolving these issues can be time consuming and involve the use of solicitors, two factors which conflict with the objective of turning over suitable volumes of fees. Not all, but some of these issues can be solved with the use of insurance indemnity. I have very little experience of this operation and what follow is largely guess work. The insurance indemnity appears to operate on the basis that so few transactions are actually turned belly up by these issues that the insurers find it worthwhile, in exchange for a regular inflow of premiums, to meet the financial consequences of such an event. This does not appear to me to address the uninsurable but significant adverse consequences of the collapse of a purchase/sale transaction, a circumstance which is likely to cause considerable inconvenience to those involved. However, like being shot by a terrorist, it is never likely to happen to any particular individual and so it should mostly be ok. A downside is that errors and omissions which have no immediate financial consequences may become embedded in the system and create risks for future clients and conveyancers.

4. Avoid Unnecessary Searches

Traditionally, when a client purchased a residential property, searches were required at two stages. In the first place, when the initial contract was entered and the purchaser is called upon to enter a legal obligation to purchase the property, it was thought to be necessary to carry out searches against the ownership title, the conditions of that title, the existence of mortgages and also the solvency of the owner. Such searches would provide early warning of any unpleasant incidents that would disturb the transaction if not uncovered until a later stage and which might then be resolved in time for that settlement. The second occasion on which such searches are required arises at the time of the settlement of the transaction and payment of the purchase price. Things might have changed since the searches were carried out at the contract stage and those initial searches now have to be updated. That means two lots of searches. The modern logic is, however, to borrow from methods observed to operate south of the border. What if we do not bother with an initial contract? Then we do not need initial searches. This results in an immediate reduction of transaction expenses. This also means, unfortunately, that nobody can know until the very last minute whether the transaction is going to proceed or whether the searches might reveal something which either prevents or postpones the transaction but, again, just as the assassin’s blade is unlikely to find any particular individual, we can assume that it will not happen in any particular transaction. This is a strategy which works well, most of the time, and which certainly reduces the cost of conveyancing.

The obvious downside is that something might go wrong at the last minute when the searches are carried out. The seller might transpire to be subject to an insolvency and have no legal power to sell the property or there may be a second mortgage over the property and no arrangements in hand for that mortgage to be discharged in time for the present transaction to settle, to mention only two of a very wide range of possibilities. If the Searches had been carried out at the outset then these matters might have been addressed in time for the transaction to proceed. Also, if the selling solicitor “Knew his client” then he would have known long in advance about such difficulties. There is also an important issue of public interest. The removal of the initial contract from the process potentially destabilises the market so that the practices of gazumping and gazundering which were traditionally always associated with the English market, now become possible in the Scottish market also. Apart from individual inconvenience, the effect of gazumping and gazundering is sometimes seen as causing fluctuations in property prices to gather momentum, leading to high values, high mortgages followed by negative equity and repossessions etc. The Scottish market, stabilised by the principal of contract was generally proof against these incidents. But these are matters of public interest and hardly relevant to the interests of an individual purchaser who seeks simply to have his conveyancing costs reduced to the minimum. The question is whether the solicitor has a duty to the public interest. What is the answer ?

I hope that it is clear that much of the foregoing is based on subjective opinion and is not intended to be dogmatic in any way. Other views are welcome for publication on this website.


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