Maria Memoli, Council Member of Bristol Law Society and Law Society Council Member, gave a presentation to Local Land Charges Officers, at their annual Development and Training Event, held on the 22nd February 2012 in The Grand Hotel, Bristol. In this article, Maria summarises issues facing conveyancers.
Conveyancers are having a bit of a bashing at the moment. Why is this relevant to Local land charges officers? What you need to know, and how is the problem being tackled. The answer is: because it affects the number of local land charges searches carried out and therefore your income stream. Also you are in a good position to report any unusual activity. It may be helpful to understand the reasons why Conveyancers are having a hard time at the moment, and discuss how the providers of conveyancing services could change.
PII restrictions and fraud – the challenges facing conveyancers?
It is a requirement of the Solicitors Indemnity Insurance Rues that practising solicitors require to take out PII each year (1st October). The Law Society is lobbying for the abolition of the single renewal date.
The benefit of having PII is that it covers solicitors in respect of civil liability claims arising from work they do. The most common form of claim is professional negligence. The other benefit is that it increases financial security and serves as an important public interest function by covering liability claims and ensures the public do not suffer a loss as a result. It also maintains public confidence in the integrity and standing of solicitors.
PII is by no means an open market. Qualified insurers regulated by the Financial Services Authority can provide the insurance. These insurers underwrite the ARP (Assigned Risk Pool) – an option of last resort for those solicitors unable to obtain insurance for some reason. Practices falling within the ARP will find themselves more stringently tested (e.g. attendances at courses, inspection by the SRA (Solicitor Regulation Authority) at their own expense, or implement more practice measures). Cover is usually £3m for practices and £2m for sole practitioners. The SRA are planning to close down the ARP and instead enter into transition arrangements to an Extended Policy Period in 2013 with effect from 1st October 2012. It is intended there should be a 6-year run-off cover.
Current state of the market – the downturn
This is due in part to the hardening of the insurance market, and in part to the collapse of the housing market, because of mortgage-related fraud, an increase in property-related claims, the narrowing of the types of cover offered, Qualifying insurers are much stricter. This has had an impact. Some parts of the profession have been hard hit (sole practitioners, those with 5 partners/practitioners or less and those that specifically do conveyancing)
What does the future hold?
A number of property claims are still going through the PII as a result of the property crash. This means PII will continue to be difficult to obtain – at least for the foreseeable future. The cost of insurance claims means premiums will increase (estimated at between 15-20%). The number of those in the ARP will increase. Some insurers are using different methodologies thereby making it more and more difficult to obtain insurance cover. The Law Society and the British Insurance Brokers Association and Association of British Insurers have collaborated to produce a best practice guide. So provided effective risk management systems are in place (LEXCEL and CQS) this will keep the Lenders, clients and insurance companies happy and assured.
The in-house solicitor
Must have PII if acting for a client other than their employer in the areas of Pro Bono, Commercial legal advice services, Law Centres, Charities and non-commercial legal advice services and Foreign Law Firms. Then Local Authorities and Academies is a topic all on it’s own! You may have been involved with your legal and/or property team in identifying land for Academy Status for some of the schools in your area.
The Land Registry has identified a number of frauds such as vulnerable owners (elderly either in hospital or in a care home – often without mortgages on the property), owners living abroad, and vulnerable properties (unoccupied properties both residential and commercial), tenanted properties, high value properties without a legal charge and high value properties with a legal charge in favour of an individual living overseas, properties undergoing redevelopment, to name but a few. The case of Lloyds TSB v Markandan and Uddin (a Firm) highlights the particular problem with property fraud, where a bogus firm had contacted Uddin stating they were acting for the owners of the property on the sale to the Borrower. The fraudsters duped Uddin into paying the loan money. In fact the genuine owners of the property knew nothing about this and the matter only came to light when the true owners wanted to re-mortgage their property. The Bogus Company ended up with the loan but with no security. The new Conveyancing Protocol under the CQS should help combat this problem.
Otherwise referred to as AML for short. This is one of the greatest responsibilities of the Solicitor. A Money Laundering Responsible Officer (MLRO) should be appointed to ensure compliance with the AML regulations including Local Authorities and In-house Counsel. There may be an officer within the Finance team or Internal Audit. Make it your business to know the identity of the MLRO within your Local Authority. These officers are required to carry out due diligence and ensure their organisation is compliant at all times (including written policies and procedures). They should be on the look out for complex or unusually large transactions or transactions that follow an unusual pattern. You, as Local Land Charges officers can assist in identifying potential problems. Recently I came across a land bank scam. Unfortunately within that Borough the Land Banker was “banking” (excuse the pun) on unsuspecting victims who did not carry out Local Land Charges searches. However some potential buyers may very well want to carry out such a search. If you suspect something unusual, bring this to the attention of the legal officer, or even a planning officer. Alert other individuals of the scam by placing something on your websites.
Anti-Money Laundering and Property
Conveyancing solicitors are most at risk. (See the case above) Money Laundering can affect property transactions at any time in the process. The property itself can be “Criminal Property” under POCA (Proceeds of Crime Act) even if no money changes hands. Solicitors who defend clients charged with criminal offences should be alert to Money Laundering if they also act in the purchase of property.
Anti-money Laundering in 2012
There will be some new approaches by EU and new laws from international and EU countries to combat this problem. A financial Action Task Force (FAFT)- an inter-governmental body, was set up to review a number of standards. The report is due out any day. There is expected to be an increase in SARs (Suspicious Activity Reports) to the Serious Organised Crime Agency.
The large mortgage lenders have firms of solicitors on their panels, which solicitors pay for the privilege. Now some mortgage lenders have taken solicitors off their panels altogether or have increased fees in order for them to stay on the panel and are changing their qualification criteria. Currently some use CQS as a yardstick.
Nationwide want to remove dormant members (inactive for 12 months) is this fair? Might this be a function of their product?
HSBC want to appoint only 43 members onto their panel for the whole of the UK. Effectively HSBC are restricting consumer choice, because if the consumer wants to use a solicitor that is not on the HSBC panel they will be penalised by paying double.
Interestingly HSBC are advised by Countrywide, who are also on their Panel. Additionally if solicitors wish to appeal their non-panel appointment, they may do so to guess whom? – Countrywide (their legal advisers and Panel member). Where is the transparency? What happened to Consumer choice? And what about the conflict of interests in their dual role as panel manager/panel member?
The Law Society is actively protecting solicitors as will be observed in the press recently, protesting at such changes, lobbying government and ministers about the injustice and lack of choice for the consumer.
Victor Olowe, The Chief Executive of the Council of Licenced Conveyancers having announced his retirement recently commented that the recent move by HSBC highlights the challenges in balancing the interests of institutional consumers with those of other consumers. Whilst lenders have every right to decide the make-up of their panels, they shared concerns that such a limited size inadvertently restricts consumer choice and distorts the competition in the conveyancing market.
New for Conveyancers
NHBC has announced that it is to register instant Build mark documentation on-line. DCLG (Dept. of Communities and Local Government) has announced changes to the Energy Reform of Buildings (Certificate and inspection) England and Wales Regulations.
Information from HMLR
Comparing transfers for value registered by account holders, there are 1299 fewer firms making applications in 2011 compared with 2010. So whilst there are over 10,000 solicitors practices and 700 licensed conveyancing practices in the country only 7677 account holders made applications in 2011 compared with 8976 in 2010.
At the top end of the market the top 10 firms increased their collective market share from 5.3% to 7.1% representing an increase in their market share by one-third in a single year. With so many firms giving up conveyancing it is likely the trend will continue to accelerate so perhaps in a short space of time, the top 10 account holders will have 15% of the market.
So not only did conveyancers have to face challenges of panel membership and professional indemnity insurance renewal, but the total revenue from the number of applications dropped from £721k to £651k
A take-over from HMLR?
The other big question for you is “Will HMLR take over the local land charges function?” “Will a merger of Local land charges and Con 29 with the Land Registry actually work?” A recent Government announcement relating to Public Data Group reinforces potential benefits of data integration. Remember HMLR’s failed “post-opening” project? Another question for you – will you be merging with a neighbouring authority? Shared services are the trend in Local Government.
The changes to the current contaminated Land regime! Flooding is a serious environmental risk factor – Homes in England and Wales may struggle to obtain adequate flood insurance after June 2013 when the voluntary flooding agreement with the Government ends.
ABSs mean that non-lawyers will be able to have a stake in the services provided by conveyancers. This is a topic all on it’s own.
The Localism Act – a synopsis
Again a topic all on it’s own. However a couple of provisions need highlighting for you as Local Land Charges Officers: The far reaching changes to the planning system, including Local Authority powers to tackle abuses of the planning system, making enforcement much tighter. With concealed breaches of planning control, an innocent purchaser could be at risk. Concealment includes failure to report a breach. All these issues will bring uncertainty and chaos to the property market. The abolition of Regional strategies and the new duty to co-operate with neighbouring authorities and organisations with interested groups (e.g. flooding, public transport, management of retail parks etc.). Neighbourhood planning (communities coming together and granting planning permission). The community right to build by bringing forward development proposals – looking at assets of the community (libraries, swimming pools, village shops etc.) social housing allocations reforms, homelessness reforms, national home swap scheme, Change of Use to be liberalised. The abolition of Home Information Packs. The list goes on. The name of the game is Growth, and more Growth. Who said the old planning regime was a “drag Anchor on growth”? Is it? Will the Local Land Charge Search change?
12 months from now we’ll look back and see how these changes have been implemented, and how they shaped/ or are shaping the property market and the property services provided. Who will corner the market now?
Maria Memoli, MBA, Solicitor, Accredited Mediator Local Governance Limited