PII vs Conveyancing and the Building Safety Act 2022
If you mention the words “Building Safety Act” to a legal professional the responses seem to range from a sharp intake of breath to a look of dread. It’s new, it’s complicated, it’s still evolving. This means there is an increased potential for risk, so it’s not surprising that the Building Safety Act 2022 (BSA 2022) is now on the radar when it comes to your Professional Indemnity Insurance (PII).
Some firms have decided not to undertake any transactions at all involving residential leasehold property, at least until there is more certainty regarding the BSA 2022. Others have decided that they will only accept instructions from sellers. Those are options for managing risk, but it is not the preferred solution for many firms. So it’s not surprising that we are now receiving the following questions:
- How do underwriters view this work?
- Will our PII premiums increase if we act on leasehold transactions?
- Might insurers non-renew?
- What can we do to reassure underwriters?
- What additional information will our underwriter be requesting if we do this work?
Unfortunately there are no “one size fits all” answers to the above questions. The BSA 2022 is new for insurers, just as it is for you. They are very much feeling their way with it. Some insurers are more concerned about the potential risk than others, some are asking questions about it, some aren’t. As yet we have not seen any claims activity relating to the BSA 2022. That’s good news, but it is early days and any change in this could prompt underwriters to look at this issue more closely.
Your broker will be able to tell you what your insurer is thinking. Are they asking questions or indicating a sensitivity to this issue? But take care, because even if your insurer is not showing any concern at the present time, that could change. We recommend all firms “get their house in order”. Ensure you have robust risk management strategies in place and that you are recording the information that your underwriter might request.
To the extent that your insurer asks questions about your work relating to the BSA 2022, it is the comfort or otherwise that they get from your answers that will play an important part in determining how they proceed. Their responses could range from simply noting the issue for review again next year, to increasing your premium or self-insured excess or, in the very worst case scenario, deciding they don’t want to renew the PII policy for your firm. This means it is important to be prepared and take their questions seriously.
At Howden we have a questionnaire that has been developed in consultation with those insurers already asking questions. Your account handler will be able to provide you with the latest version of this and the following list provides an outline of the points you need to consider as you formulate your risk management plan.
Volume of transactions
Insurers will want to know how many transactions your firm has undertaken in relation to a properties impacted by the BSA 2022. And expect to be asked for a breakdown between sales, purchases and lease extensions.
Putting arrangements in place now to collate this information will save you time at renewal.
Triage, controls, processes, systems, policies
Do you have a process for triaging new instructions where the BSA 2022 is involved and what steps do you take to establish whether the property is a “Relevant Building”? Expect your insurer to ask about this.
Processes, systems and controls to ensure that a matter is reviewed as it progresses are also important. For example, are you undertaking additional checks on the scope and content of engagement letters and reports on title?
An increased level of oversight and checking will add time and cost to a transaction – are you charging enough? Updating underwriters on changes to your charging structure to ensure additional controls and checking can be accommodated will provide further reassurance.
Disclaimers, warnings and avoiding any creep in the scope of retainer
The absence of adequate disclaimers, or poorly drafted engagement letters, are often barriers to defending a professional negligence claim. If you are acting on a transaction where the BSA 2022 applies, you need to make it very clear that you are not advising on issues such as building height or complex financial information that might be contained in a Landlord’s Certificate.
Spend time drafting appropriate wording that can be used by your fee earners, or consider purchasing template wordings from a source such as IQ legal Training. It is important to get this right. And make sure you do not bury the information amidst pages of standard terms.
Avoiding creep in the scope of retainer is also important. It is part of the DNA of a lawyer to want to be helpful, and your clients are going to be finding the BSA 2022 every bit as difficult to navigate as you. Expect clients to ask questions that will push the boundaries on the scope of your retainer. Be ready for this and ensure that the fee earners undertaking the work have the experience and confidence to push back in this situation.
Experience of fee earners involved and supervision arrangements
Can you reassure insurers that this work is being undertaken by fee earners with the appropriate knowledge and experience? For work involving the BSA 2022 we encourage firms to have “subject matter experts” – or for larger firms, a specialist team.
Insurers will also be looking for clear and robust arrangements for the supervision of fee earners and more comprehensive auditing of files.
Training and monitoring industry guidance
Firms need to ensure that fee earners keep pace with ongoing developments regarding the BSA 2022. Attendance at a one-off or annual training session is not going to be enough. Keep signing your fee earners up for training, webinars and seminars so you can all be ahead of the game as this issue continues to evolve.
Also monitor guidance that is emerging from professional bodies and other groups actively involved in conveyancing practice – and take this information back to your fee earners. Developments in relation to the BSA 2022 should be a standing item on the agenda for your regular conveyancing team meetings.
Monitoring lender requirements
We have already seen the lenders trying to push the boundaries with regard to the BSA 2022. Insurers will want to know that you have a process in place for monitoring lender requirements as the transaction progresses. They will also want confirmation that you push back if lenders are asking you to confirm or verify information such as the height of a building, whether a building is a Relevant Building, or the content or accuracy of information in a Leaseholder Deed of Certificate or Landlord Certificate.
There is a lot to think about here, but don’t delay in addressing these issues. If you are undertaking conveyancing work impacted by the BSA 2022, or intend to do so, then you need to be ready for the questions that might come your way at your next PII renewal.