Law: New standards of quality control: A newly published Law Society study aims to improve certain areas of conveyancing services, reports Sharon Wallach

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The Independent Online
Separate legal representation for lenders and borrowers is one of the proposals for the reform of conveyancing services contained in a report published this week by a Law Society working party. According to Andrew Lockley, the society's head of legal practice, the report was the first opportunity in 10 years to review the house-buying market, free of any government interference.

The report recommends the introduction of a conveyancing quality mark, and expresses concern over 'unrealistically low' fees that lead to work of a poor standard.

The suggestion of separate legal representation for lending institutions and borrowers is not new, Richard Hegarty, vice-chairman of the working party, points out. In commercial lending, it is more common than not to have separate representation; the Law Society of Scotland has already moved to stop joint representation in commercial transactions.

In domestic lending, it is only over the past 20 years that the building societies have introduced panels of solicitors to act jointly, and many small lenders have continued to use separate representation.

'The domestic lending institutions have changed dramatically,' Mr Hegarty says. 'The working party considers that societies should instruct their own solicitors to do their own work. After all, it is the borrower who pays, and there is an inherent confict of interest between the lender and the borrower.'

The working party's thinking was influenced by a recent Privy Council case, which ruled that although nothing prevented a solicitor from acting for two parties with conflicting interests, it had to be on the basis that they had given 'informed consent', meaning that each party had recognised the potential conflict of interest and its implications.

'The impact of the case is such that, even without this report, we would have to look at the way solicitors act for borrowers and lenders,' Mr Lockley says.

Problem may arise because seeking informed consent could cause delay at the start of a case, and separate representation would add to costs. The working party suggests, however, that regardless of whether or not joint representation is banned, a separate fee should be charged to the lender. 'It is difficult to think of any other commercial institution client which obtains legal services and indemnity cover effectively free of charge,' the report says.

The figure suggested by the report for routine transactions is pounds 100. Mr Lockley, however, believes that the lenders are likely to absorb this fee, as three major building societies have announced recently they will do for valuation fees. If they don't, it is important they do not abuse their position by passing on vast costs, Mr Lockley says.

Several advantages to separate representation are put forward by the working party. First, the borrower would be assured of having a lawyer dedicated solely to his interests and who is not prevented, as is the case now, from giving independent financial advice on the lender's package. In addition, if his solicitor arranges the finance, the borrower would be entitled to any commission.

Both lenders and borrowers would also have a wider choice of solicitor. One benefit of this would be the ending of discrimination by lenders against sole practices and smaller firms.

On the questions of fee levels and quality, Mr Hegarty says that the profession has had to accept dramatic changes in conveyancing. 'There is no doubt that there was an over-supply of conveyancing solicitors. In 1988/89, the number of transactions was halved,' he says.

Consequently, prices were driven down to 'unsustainable levels'. In real terms, prices had come down by 45 per cent since 1986. 'Solicitors are doing less work and are being paid less.' The working party concludes that any attempt to introduce compulsory or recommended scales of conveyancing fees would be unworkable and ineffective.

While it acknowledges that research has yet to establish any link between low prices and higher than average levels of complaints or indemnity claims, the working party remains concerned that unrealistic price levels carry a 'significant risk of poor quality service'. It recommends that the Law Society continues to monitor firms offering these unrealistically low prices, and if in the future they are shown to generate a higher than average number of complaints or indemnity claims, penalties such as higher indemnity deductibles should be considered.

'We have to accept that there are poor quality firms out there,' Mr Hegarty adds. 'They are costing the profession an inordinate amount of money, with the better quality firms paying for the poorer quality. This can't go on indefinitely. We have to try to steer the client away from the poor firms.'

The cost of failure in quality is high, the report notes. 'We have got to get across to the general public that you get what you pay for,' Mr Hegarty says. 'A firm charging low fees is almost certainly taking short cuts, and dragging the profession down.'

Mr Lockley points out that property-related matters account for 44 per cent of all negligence claims since 1987, and 17 per cent of compensation fund claims last year. 'We wouldn't expect all claims to come through quickly - mistakes are often not discovered until a property is sold on. So we don't know what the result of unrealistically low prices will be five years down the road.

'We do know that where building societies are repossessing homes bought in 1988, there are many examples of poor quality work having to be unpicked.'

One aim of the report, Mr Lockley says, is to act as a pre-emptive strike to avoid dangers in the future. The report is canvassing opinion as to the possiblity of establishing an objectively assessed conveyancing quality mark.

Some solicitors might groan at the prospect of further regulation, or indeed at the cost of implementing yet more systems. But, says Mr Hegarty, there would be help by the Law Society for very small firms to implement the quality mark. 'No matter how small you are, there is no reason why you should not have these systems,' he adds. 'They are often simpler for the sole practitioner to introduce than for the large firms.

'In any event, I don't believe any costs to solicitors would be involved. The costs of monitoring and accreditation are not substantial.'

The report does also look at measures for improving profitability, including the effective use of technology and staff resources. It also recommends the consideration of marketing strategies such as home visits, or a 'no completion no fee' service. The implementation of separate representation for lenders and borrowers would also provide more opportunities for solicitors to become involved in financial services, the working party suggests.

The report is being circulated to all law firms, lending institutions and legal departments in local government and commerce and industry. The Law Society council will consider in the autumn what action to take on the report and its responses.

Meanwhile, research published last week by the society's research and policy planning unit found that between 1988 and 1992 the volume of the conveyancing market halved. Solicitors' earnings from conveyancing fell to 10 per cent of gross fees in 1993, from 21 per cent four years earlier.

(Photograph omitted)

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