Risky business?

What are the emerging major risks that conveyancers should be aware of?

Richard Brown, head of 1-10 partner solicitors at Miller Insurance: The main current risks are largely surrounding cyber, hacking, and property fraud. While conveyancers are becoming more aware in these areas, they remain common prey for criminals and are targeted due to their handling of client funds, their databases, and the pressure under which they often work. Although email hacking and ‘Friday afternoon fraud’ have brought criminals some significant success, it is often the cases of identity theft and ‘selling’ properties that do not belong to the criminal that have produced the most significant losses. We are also keeping a watchful eye on the current ground rent issue to see if this develops into a major concern for conveyancers.

Jacqui Gillespie, partner at Plexus: Information security breaches, the volume and sophistication of cyber crime, and identity and imposter fraud are serious risks faced by all conveyancers. The impact of cyber crime can adversely affect a firm’s reputation, structure, and financial standing. Recent cases concerning identity and imposter fraud have provided useful reminders of the need to be alert to the potential for fraud in all transactions.

Another high-profile risk is claims by disgruntled leaseholders who have bought properties with onerous rent review provisions where, for example, the ground rent doubles every ten years, meaning that the compounded rent can run to significant sums, rendering a property at best difficult to sell and in some cases, worthless. There is concern that potential claimants are seeking to join forces, in group litigation, against the conveyancers involved.

Simon Law, chairman of the Society of Licensed Conveyancers: The risks facing conveyancers go beyond the fraud and cyber risks that have now been well publicised and that the profession at large is taking sensible steps to address. There will always be criminals attacking conveyancing lawyers because of the sums of money that they routinely handle, and therefore fraud and cyber crime are not going away. The unfortunate reality is that firms that implement measures to protect themselves simply divert the fraudsters to those that don’t.

There are, however, other risks to conveyancers – some that all firms should be aware of and others that small firms in particular may face. The world of conveyancing has become much more complex, with lawyers routinely having to be aware of what constitutes obtaining relevant searches, identifying if a property carries a green deal loan, trying to advise clients on SDLT, dealing with infestations of Japanese knotweed, ensuring clients are properly advised in respect of new-build leaseholds with exorbitant escalating ground rents – the list goes on.

In an increasingly litigious world, all and any of these can result in claims if it is deemed that the conveyancer was in any way negligent, as was recently the case when a buyer was not made aware that HS2 was going through the back garden of the house they had just purchased. In the case of smaller firms, and unfair as this may be, retaining membership of lenders’ panels will pose an increasing problem and risk to their businesses. Being a licensed conveyancer firm should be helpful in respect of this issue due to the demonstrably lower risk profile of the profession.

What are the most common causes of claims? And what could conveyancers do to reduce those?

RB: In addition to the types of claims outlined already, it is the same basic issues that have been around for many years (anecdotally we seem to be in a relatively quiet period for claims). We are not seeing as many lender claims as we have in the past, although this is probably also linked to the current economy. Where we do see lender claims, they will be for ineffective title registrations or the failure to remove previous charges. Other areas are failure to correctly interpret searches, completion of registration with the Land Registry, incorrect contract terms or onerous lease clauses not spotted, and completing ownership in line with clients’ instructions.

JG : These include a failure to properly advise on the extent of the title (i.e. boundary issues); restrictions on title; results of searches; unsatisfactory replies to questions raised by the purchaser; and co-ownership issues.

Fee earners need to scrutinise all documentation carefully, including plans and answers to questions raised on all aspects of the transaction, and ensure they report to the client in a clear and intelligible way. If there is a shortfall in the information provided, the client needs to be informed of the risks in proceeding.

Record keeping and being aware of the need to build a good file is also important. Attendance notes, checklists, and records matter. It is a challenge in practice where tensions exist between commercial and time imperatives and ideal legal thoroughness. However, conveyancers must adapt and be prepared for scrutiny to meet the standards expected by the court. Record keeping wins cases. The fee earner should build the file and use the case management system to log the risk factors identified and, critically, the steps that need to be taken to address them. And there should be regular monitoring of fee earners.

SL: Claims probably fall into two distinct categories – catastrophic claims where crime is involved and more minor claims in cases of negligence. Perversely, lawyers who act impeccably and take all reasonable measures to prevent fraud can be its victim. Minor cases of negligence can be attributed to genuine and isolated mistakes (we all make those), being under unreasonable pressure at a given point in time, or simply sloppy conveyancing.

In today’s world of seamless and quick communications, conveyancers can keep abreast of all the latest scams and measures to prevent fraud and cyber crime by being members of the likes of the SLC and Bold Legal Group. Being a luddite in ways of working is probably one of the single biggest risks that conveyancers unwittingly take. Reducing incidents of sloppy conveyancing lies in the hands of the professionals running those firms, and professional indemnity insurers paying out claims are likely to put them under intense pressure to do so.

What is the single most significant step conveyancers could take to reduce insurance premiums?

RB: Totally and comprehensively embrace risk management and ensure that it is embedded throughout the practice. Through this the firm will function far better and more efficiently and minimise its exposure to claims. Ensure that checklists are utilised; files are monitored and reviewed (including those of the directors or partners); retainer letters are appropriate and on all files; and thorough ‘know your client checks’ are made and recorded: all are important to ensure a well-run and risk-averse firm. Finally, do not pay monies away under pressure. Check and double-check where funds are being sent – could they be being sent to a fraudster? And take care on cases where money is being sent overseas.

JG: It is difficult to say a single step. Conveyancers need to evidence their lower risk profile by demonstrating that their in-house procedures ensure effective supervision and that fee earners are properly trained in all aspects of the conveyancing transaction, including understanding the need to look at the transaction as a whole; making fact-sensitive judgments based on any risks posed; and knowing when a matter needs to be escalated to a more senior fee earner. Regular file monitoring is essential. Case management systems need to be constantly reviewed to ensure they are effective in reducing the risk of error and fraud.

SL: Be regulated by the Council for Licensed Conveyancers! It is a matter of fact that licensed conveyancers pay lower professional indemnity insurance premiums than do conveyancing solicitors. Having single discipline firms that are regulated by a focused regulator that takes a proactive and constructive approach to assisted compliance is a fit-for-purpose approach to conveyancing. In today’s ever more complex world, it is simply a better model than the generalist approach to the provision of legal services.

What are the benefits of the CLC’s Participating Insurers Agreement for conveyancers?

RB: The participating insurer’s agreement has introduced free run-off for firms that cease trading for whatever reason, and this is undoubtedly a major benefit to smaller firms and sole practitioners. It has also introduced an element of competition which on the face of it is a positive for CLC members. However, the real test of the efficacy of the change in structure from a master policy will be how the market performs in a ‘hard’ market when capacity is in shorter supply and if cover remains available to all at affordable premiums.

SL: The introduction of the PIA was the natural step for the CLC to take once serious competition in the provision of PII was introduced for licensed conveyancers by way of the SLC scheme. This scheme, which was arranged with Howden, was predicated on all licensed conveyancing firms being able to get a premium quote, which meant no firm would find themselves in the difficult position of not being able to secure PII on renewal. With three different providers now offering insurance cover by way of the PIA, there is good competition in the market for licensed conveyancer firms and this has allowed the CLC to exit the master policy arrangement.

The Participating Insurers Agreement

The Council for Licensed Conveyancers operates a participating insurers scheme that allows any insurer wishing to provide professional indemnity insurance to CLC firms to do so, providing they meet the requirements of the scheme. Those requirements include the minimum terms of PII (including £2m for every claim) and the need for the insurer to be ‘A’ rated.

A significant feature of the minimum terms is the inclusion of run-off cover at no cost at the point of closure of a firm. That covers claims to the value of £2m in aggregate in the run-off period. We know from experience that this has been more than enough to cover run-off claims in respect of closed CLC firms. Inclusion of run-off cover is a positive addition to consumer protection, as well as removing what has been for some small firms a barrier to closing the business down.

The scheme was introduced in 2016 in time for the PII renewal round that June. At the end of the renewal period we asked CLC firms about their experience. Two-thirds of firms reported that they shopped around for their cover and over two-thirds were satisfied or very satisfied with the PII renewal round in 2016. There are now three brokers arranging cover for CLC firms from a range of insurers and the council is in close touch with them about emerging claims and management of the renewal process.

For more information on the scheme, visit clc-uk.org/lawyerzone.

Stephen Ward is director of strategy and external relations at the Council for Licensed Conveyancers