Keyed up

Conveyancing has had its fair share of peaks and troughs over the last three years. Transaction volumes are high and returns relatively low. Case volumes rose to unprecedented levels during the pandemic, partly due to a stamp duty holiday announced in mid-2020 and to a shift in priorities with the country in lockdown.

Over three years on from the start of the pandemic, caseloads are still hitting historical highs despite a slowdown in the volume of work, as firms struggle to clear the backlogs. Conveyancing search platform Search Acumen notes in its latest Conveyancing Market Tracker that the average property firm handled 84 cases during the first quarter of 2023, an increase of 9%.

It is a figure that runs counter to expectation and is explained by the number of conveyancing practices that have shut down due to a combination of challenging economic conditions, prohibitively high indemnity insurance premiums, and higher staff costs. The same report says that over the last decade the number of active property firms has fallen by 8%, while the average number of cases per quarter has increased by 93%.

'People don’t want to pay for conveyancers. It’s seen as a necessary evil. Many conveyancing factories are offering ‘no move no fee’, which is just wrong'

Zahrah Aullybocus, Nexa Law

This is not a problem that is going away any time soon. PII premiums remain high, and recent fire safety legislation means that firms are now turning away work where there is a lack of clarity around their duties.

Moreover, conveyancers are competing against so-called ‘conveyancing factories’, which are able to undercut the fees charged by more experienced practitioners. ‘People don’t want to pay for conveyancers,’ says Zahrah Aullybocus at Nexa Law in Shropshire. ‘It’s seen as a necessary evil. Many conveyancing factories are offering “no move no fee”, which is just wrong.’

This situation has left practitioners disillusioned and exhausted. ‘Experienced conveyancers are fleeing the profession, sick of being scapegoats and downtrodden by the government,’ notes Emma Selfridge at Stephens Wilmot in Wales. ‘The result is that there is very little expertise left and huge backlogs ensue as junior staff try to cope with huge quantities of work without experience or support. Law firms literally have no choice, as they cannot even recruit.’

‘The workload in residential conveyancing is massive at the moment,’ says Kate Stockdale of Wilsons in Salisbury. ‘Staff retention and recruitment is also an issue. There’s a balance to be struck between having the right level of staff and still having a good turnover. People don’t want to pay fees, and, as with all businesses, there is always someone who will do it cheaper.’

Land Registry delays

'We can’t ignore the lender because there’s always the risk of being taken off their panel. If the Land Registry then raises a requisition and you get back to them that then goes to the bottom of the pile again'

Linda Kirk, Adkirk Law

The backlog in transactions is in part caused by delays at HM Land Registry, note practitioners. ‘The delays are diabolical,’ notes Natalie Clarke, head of Paris Smith’s residential team.

While registration of existing titles at the Registry is taking around 10-30 days, first registration of a property and more complex changes, such as a registration of part or lodging a new lease, are in the majority of cases and taking over a year according to the latest (May) update on processing times.

Linda Kirk at Adkirk Law in Preston says: ‘I have a transfer of part dating from December 2019 that’s still not back from the Land Registry. We have to keep those files open, and manage the client and lender. We can’t ignore the lender because there’s always the risk of being taken off their panel. If the Land Registry then raises a requisition and you get back to them that then goes to the bottom of the pile again.’

The chasers from lenders are adding to conveyancers’ workload, adds Aullybocus. ‘They know there’s a backlog, but they still send out chasers.’

'There’s a balance to be struck between having the right level of staff and still having a good turnover'

Kate Stockdale, Wilsons

Anti-money laundering obligations

Changes to the Money Laundering Regulations 2017, introduced in April this year in the Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022, have increased the number of checks that now need to be carried out by solicitors. Solicitors are obliged to carry out anti-money laundering checks when taking on new instructions, leading to increasing paperwork, and slowing down transactions even further.

A similar duty is placed on other property professionals. ‘By the time a client comes to us, they’ve been asked the same questions from their mortgage broker, agent and others,’ notes Stockdale. ‘We are having to check the sources of funds, looking at the wealth of clients and satisfy ourselves that they can feasibly have the amount of money that they have to put towards their purchase.’

HM Revenue & Customs publishes a full list of businesses that have failed to comply with the regulations; a list that frequently includes law firms, as well as others in the property market, including estate agents.

While some firms, such as Paris Smith, have moved to a digital verification process for new clients, which allows the sources of funds and wealth checks to be carried out right at the start of a transaction, others are still using separate systems, due to a lack of collaboration between different platforms.

‘The issue now is that people have money all over the place. Sometimes it comes from abroad, sometimes it comes from parents. We are having to spend a lot of time going through bank statements to satisfy ourselves as to where funds are coming from,’ explains Aullybocus.

Building Safety Act 2022

The Building Safety Act (BSA) – which followed the Grenfell Tower fire in 2017 and the subsequent review of building safety – is now in effect and has placed a number of extra obligations on conveyancing practitioners.

The Building Safety (Leaseholder Protections) (England) Regulations 2022 set out the duties that are now placed on leaseholders and landlords, including a duty to provide a Landlord’s Certificate and a Leaseholder’s Deed of Certificate. The regulations apply to buildings at least 11 metres/five storeys high. In addition to these requirements, trade body UK Finance, of which most mortgage providers are members, also now requires confirmation that the building has been or will be remediated (set out in its Part 1 requirements).

Lenders’ Part 2 requirements are adding to the burden placed on solicitors by requiring them to confirm a building’s compliance with the act. ‘It’s a shambolic piece of legislation,’ explains Clarke. ‘Our Part 2 obligations can be onerous, and we can’t really advise our clients when we don’t really understand [it] fully ourselves.’

The Conveyancing Association noted earlier this year that issues arise for solicitors in that individual lenders’ Part 2 requirements do not make clear that these requirements can be ignored in respect of buildings to which the act does not apply. This, it noted, had the potential to slow down conveyancing transactions.

‘Somebody has written a piece of legislation without asking how it affects those in practice,’ notes Stockdale. ‘We are definitely struggling to get matters through to completion. Many provisions haven’t really been thought through, and it’s massively slowing down the process for any flat sale or purchase and increasing the costs. A low-value flat can suddenly have extortionate costs. If it’s a share of freehold I can go ahead as before, but anyone buying a long lease now needs to ensure that they won’t get a massive service charge to get the property up to scratch.

‘We are not experts in the structure of a building. It’s something that should be dealt with at the point of survey. We check what type of a property it is when the file is opened, so we can provide clients with the detail they need and explain that the transaction will probably be delayed.’

Problems can also arise on lease extensions. In order for a tenant to be protected by the act, the lease must have been in existence at 14 February 2022. ‘If you extend the term of your lease, that is deemed to be a new lease, which isn’t protected by the BSA, and could be a hit to tenants,’ Stockdale explains.

‘It’s a very confusing piece of legislation, with limited guidance,’ agrees Heather Gaffney at Lewis Denley in Horsham. ‘Many solicitors aren’t taking on leasehold work at all, because they aren’t clear about the risk. Many landlords also aren’t clear about what they are supposed to be providing either.’

Referencing the landlord’s certificate, Aullybocus says that many landlords are simply not prepared for the level of information that they are being asked to provide. ‘What we are not seeing in the data is the number of leasehold properties stuck in limbo because of valuation issues due to the BSA. We are going to see two tiers of flats, those with the act’s protection, and those without it. The latter will be sold at a huge discount,’ she adds.

The BSA also introduced two limitation regimes when bringing a new cause of action in respect of defective premises, depending on whether the building is completed before or after 28 June; for the latter the limitation period has been extended to 30 years, which is also causing concern among practitioners. ‘The Defective Premises Act’s original limitation for claims was six to 10 years. It’s now 30 years [for retrospective claims], but how many companies will there be in 30 years to pay out for this sort of claim?’ notes Aullybocus.

'Many firms seem to be dropping property work completely because of the PII premiums. Being multidisciplinary definitely helps us in that regard'

Heather Gaffney, Lewis Denley

PII insurers are now flagging the BSA as an area of concern, and the potential for an increase in premiums is causing some conveyancers, already stretched to capacity, to refuse to transact properties involving BSA issues.

‘Our PII insurers have told us not to touch this with a bargepole, until the government sorts this out. As a consultant, I can be personally liable for any excess. Low-rise buildings under 11 metres are the biggest danger because they have no protection whatsoever, and leaseholders are going to have to pay for this out of their own pocket,’ says Aullybocus. ‘I know of two firms that are actively taking on this work. They think it’s all about the deeds of certificate, but there’s more at play.’

‘We are going through our PII renewal right now and are being asked by our insurers how many properties with BSA issues we are dealing with,’ notes Gaffney. ‘Many firms seem to be dropping property work completely because of the PII premiums. Being multidisciplinary definitely helps us in that regard.’

Kirk notes that while her firm has not stopped taking on such property, she is taking a cautious approach and explaining the additional cost involved upfront: ‘Because of the comprehensive work the act requires, we can’t guarantee when it will complete.’

In May the Department for Levelling Up, Housing and Communities issued an update on progress to remedy concerns about the act, which included reference to PII and transparency of costs when dealing with affected properties. Nonetheless, practitioners remain cynical as to when the promised amendments will be made. ‘The uncertainty really isn’t helping,’ says Stockdale.

Crash landing

The competition from so-called conveyancing factories, which are able to offer a cheaper service, continues to pile pressure on more traditional firms to lower their fees in order to compete. However, increased staffing costs as well as PII premiums mean that remaining profitable has become increasingly challenging, and in some cases has caused firms to collapse.

Hodders Law Limited went into administration in late 2022 after 150 years of trading. The business is reported to have suffered from increased overheads following the pandemic, with increased PII premiums and staff costs. Metamorph’s collapse has also been well documented, with a number of firms within the group being shut down by the Solicitors Regulation Authority.

‘The instant culture we work in puts a lot of pressure on solicitors. We have many balls to juggle and we need to limit how much we take on,’ says Clarke.

‘Conveyancing is actually quite frightening,’ Aullybocus concludes. ‘One mistake and we are on the hook on our PII. So, if the number of claims rise, PII premiums will increase, making it unaffordable for conveyancers to continue practising. As an industry we need to raise fees and significantly, so that work can be done competently.’

Maria Shahid is a freelance journalist