HIPs September 2008
Broken Hip’s – A wrong diagnosis
1. The current Hip is much criticised, it is badly misunderstood and ineffective. It also wastes a great deal of time and effort. It has cost the taxpayer indirectly through government a great deal of money and the private sector has incurred huge costs too. The best start point now would be to recognise the problem.
2. The latest consultation called Improving the Home Information Pack puts this aptly:
“Consumers need, and should expect, to be better informed about the home buying and selling process. They need the right information at the right time and they need information about the energy efficiency of properties. They want an efficient process that delivers better value for money”
However the proposals that follow shows that government policy remains muddled and inchoate. There is no real likelihood of a workable solution from this line of approach.
3. There are a number of labels that have been emblazoned on the HIP over the last ten years - anti-gazumping, raising standards, speed of transaction, help for first time buyers and the zest for energy efficiency discovered in 2006. Government needs to fix the objectives and priorities against a timetable. It is impossible to respond coherently while the goal posts keep moving.
4. Principles and objectives must be explained and justified. If any interested or affected party is asked to compromise their view then that compromise needs to be rational and transparent. So, for example, if information is to be provided before a property is marketed then is it to be all the information that could be required to satisfy legal requirements, or just a selected portion of that information? Consumers should be left in no doubt as to what principle is being followed, nor indeed of the benefits that support the compromise. Does provision at the start of marketing have to mean Day 1 or can it mean day 14 or 28? These positions need to be resolved having been long debated.
5. Government should respect the position of sellers. They are not business owners or resellers retailing goods. They deserve protection as much as buyers do. Expecting sellers to fill in a Property Information Questionnaire (PIQ) that contains important information will not achieve much for anyone. Neither buyers nor lenders will be able to trust information that does not come with an endorsement from a seller’s professional adviser precisely because it is likely to be incomplete and unreliable information.
6. The position of lenders has gone largely unchanged. It is lenders and sellers of loans that government has failed to regulate properly enabling mortgage fraud to grow. Loans hold hidden costs and traps for those who wish to obtain a mortgage and those who have them. Redemption practices are given a low priority by lenders but add costs delay and risk to the conveyancing process.
7. Government needs to decide about the timetable of the transaction. It therefore needs to recognise the legal principles that apply. It needs to understand where costs are incurred and at what stage information must be reliable in order to enable a binding commitment to be made. Providing information in advance may arguably have its uses but they will be limited.
8. The information required prior to marketing a property is a matter for estate agents. Government does not wish to regulate estate agents but they are prepared to work to adopt higher standards. A Code of Practice for better marketing information for every property should be possible outside the scope of a HIP and could be actively encouraged.
9. Local authority searches should be excluded from the HIP. Government has used solicitors, and indirectly consumers who bear the cost, as pawns in bringing change to the local authority monopoly position. It has been slow and ineffective in efforts to change the policy of local authorities to lower and improve prices. Meanwhile it is clear that the use of a search within a HIP creates a duplication of expense. This arises either because the seller’s search cannot be trusted for completeness or reliability or because it becomes out of date. It may be possible to select certain information contained in a search and ask a seller to confirm specific matters i.e. notices, CPO’s; road and highway adoption; planning permissions within the last ten years.
10. The energy performance certificate regulations stand apart from the HIP and the HIP legislation can be revoked without affecting it. It is now a year since EPC’s were introduced. They are neither efficient nor effective. Better targeted measures should be brought into discussion for the residential market. In the meantime the validity of an EPC should be extended to ten years as it is for all other types of property.
11. Enforcement - The regime is meaningless if it is not enforced. If procedures that the markets are required to follow are complex and unworkable, or the sanctions for avoidance are negligible, easy and effective enforcement is damaged. Widespread avoidance is bringing the whole system into disrepute.
12. The timetable and timing need to be settled either as a matter of principle or as a compromise. Does Regulation 34 go or should it stay permanently? This issue needs to be decided.
13. The PIQ cannot replace pre-contractual enquiries or contractual warranties. The Law Society TA6 is a more effective form if any is to be recommended. The seller would need advice either for the PIQ or the TA6. The government should recognise the Law Society Form TA6 as an authorised document and consumers should not be encouraged into giving binding information consumer to consumer. To do otherwise is to risk disputes.
14. In relation to the age of documents the government must recognise that there are no convenient generalities for a search or for an EPC or anything else. A great deal can happen in relation to the ownership of a leasehold flat in a period of three months. Government needs to understand leaseholds.
Conclusion
It would be facile to suggest that Government intervention has achieved nothing. It has not however brought any appreciable benefits to the whole process. Government has failed to appreciate the complexity of the number of processes involved. The solutions proposed for a number of the problems have proved expensive and ineffective.
Government does now have an appreciation of complexity and that there are a number of problems. Government has tried to help.
The cost has been high and there is growing and widespread avoidance.
The issue for Government is credibility. It has shown itself partisan and it does not deal even handedly.
The old policy initiatives are discredited and exhausted. There is no joined up understanding of legal process, consumer needs, and market complexity.
The whole batch of problems should be put out to an independent commission made up from the relevant parties under an independent board.
New rules for lawyers in multi disciplinary practice
‘Now for something completely different - LDPs and more’
Introduction
The summer slow down started early this year and many members are now scanning the horizon for signs of improvement to the flow of work to their in tray. The winds of economic change are however likely to blow across a landscape much altered by the shape of new entities which are likely to spring into existence next year and may soon thereafter become commonplace. The modes of legal service will be subject to more change than has been seen for a hundred years and the future growth of employment in the profession will be heavily shaped by the provisions of the new rules intended to deliver the changes to legal service provision instigated by Sir David Clementi.
The SRA has now, under its freshly delegated rule making powers, approved a package of measures intended to implement the first stage of Legal Services Act 2007 (LSA) reforms and these will now pass for approval to the Master of the Rolls and MOJ in time for implementation in March and July 2009.
During the last six months the Rules and Ethics Sub-Committee of the Law Society (TLS) has been engaged in responding to the SRA consultations on the emerging drafts of the new rules for entity based regulation and enabling legal disciplinary practices (LDPs). These have formed part of a wide and detailed consultation by the SRA of numerous aspects of the regulation that is necessary to ensure that the new types of legal entity have in place the requisite control and management arrangements in line with those existing for solicitor‘s firms.
This article can give only a simplified introduction and overview. All practitioners will need to give detailed attention to those parts of the new rules that affect their everyday activities, their firm’s annual registration and renewal of individual practising certificates.
Recognised bodies
The new form of ‘firm based’ regulation prescribed by the LSA requires that all authorised providers of legal services (delivering ‘reserved’ work) must be recognised bodies. Such entities must be authorised by the SRA on an annual basis and this will involve approval of the sole practitioner, firm or LLP and its managers (comprising lawyers and non lawyers) as well as other employed lawyers who are involved in delivering legal services by the entity.
This requirement for entity recognition bears down particularly upon sole practitioners who will need to ensure that at all times they comply with the conditions for annual registration and authorisation. It is also of concern to firms of more than one partner who may suddenly and through force of external circumstance or internal split find themselves in the position of becoming sole practitioners.
Applications for registration under the rules relating to a recognised body, its manager or employee, must be made in the prescribed form and be correctly completed. It must include the fees for the application, any prescribed contribution to the Solicitors’ Compensation Fund and such additional information, documents and references as may be specified by the SRA. The SRA may also requireadditional information and documentation.
It is not necessary to submit all documents, information and payments simultaneously, but an application will only have been made once the SRA has received all of the documentation, information and payments comprising that application. An application for renewal of recognition must be sent to the SRA so as to arrive on or before the renewal date.
There is considerable scope here for uncertainty as well as increased bureaucracy and cost. The quality of work done and the decisions made by the SRA will impact on the number of conditions attached to registration and the number of appeals made to the court.
Structure of Practice
A good starting point for understanding the changes to the new practice rules is the set of new definitions in Rule 24. Solicitors by virtue of their qualification will be SRA approved ‘lawyers’ and they may join with other authorised lawyers who are recognised by other approved regulators (non SRA) to be ‘lawyer managers’ of partnerships, LLPs or other recognised bodies. Alternatively solicitors may be employees of a recognised body. It is relevant to note that other approved regulators such as the Bar and the Council of Licensed Conveyancers are engaged in passing similar rule changes and will compete to be the regulator of choice for individuals and entities.
Under the revised conduct Rule 12 solicitors will be able to provide services to the public either through a recognised body registered under Rule14 or through a non SRA approved firm. The rules of other regulators will need to be monitored for opportunities in this direction. Otherwise, if regulated by the SRA, services must be provided through a firm or entity which is a recognised body. A registered recognised body may be a partnership, LLP or other incorporated body permitted to provide legal services.
Approval and Registration
The main provisions relating to recognised bodies are to be found in the revised Rule 14 along with the provision of the SRA Recognised Bodies Regulations (RBR). Bodies, once initially registered, must be approved on an annual basis and may admit alongside the lawyer managers a limited number of non lawyer managers. Ownership and control must be retained by no less than 75% lawyer managers.
Existing practices will be automatically registered upon application as recognised entities but, for new registrations, all managers will need to show that they are of suitable character to join together in recognised bodies to provide legal services.
Under para 2.2 of the RBR the SRA may refuse an application for initial recognition if:
the SRA is not satisfied that a manager or a person with an interest in the body is a suitable person to be engaged in the management or ownership of a recognised body, taking into account that person's history, character, conduct or associations;
the SRA is not satisfied that the body’s managers or owners are suitable, as a group, to operate or control a business providing regulated legal services; or
for any other reason the SRA reasonably considers that it would be against the public interest to grant recognition.
Thus recognised entities will be authorised to carry on business providing the kind of reserved activity work with which we are familiar. It is useful to remember the wide definition of such work in the schedule of LSA and which for property work is defined as:
5 (1) “Reserved instrument activities” means—
preparing any instrument of transfer or charge for the purposes of the Land Registration Act 2002;;
making an application or lodging a document for registration under that Act;
preparing any other instrument relating to real or personal estate for the purposes of the law of England and Wales or instrument relating to court proceedings in England and Wales.
(2) But “reserved instrument activities” does not include the preparation of an instrument relating to any particular court proceedings if, immediately before the appointed day, no restriction was placed on the persons entitled to carry on that activity.
(3) In this paragraph “instrument” includes a contract for the sale or other disposition of land (except a contract to grant a short lease), but does not include—
a will or other testamentary instrument,
an agreement not intended to be executed as a deed, other than a contract that is included by virtue of the preceding provisions of this sub-paragraph,
a letter or power of attorney, or
a transfer of stock containing no trust or limitation of the transfer.
(4) In this paragraph a “short lease” means a lease such as is referred to in section 54(2) of the Law of Property Act 1925.
Rule 13 adjusts the rules for other types of legal services such as in-house practice, foreign practice and other situations where services are not provided to the public. Many other conduct rules are adjusted to show whether responsibility rests with the all or any of the recognised body, the managers or their employees.
Whilst these rules are complex and difficult to follow without commentary or guidance they will doubtless be the subject of further amendment whilst passing through the approval processes. The scale of the practicalities of what is involved makes further detail both necessary and inevitable. It is an open question whether SRA has bitten off more than it can chew or than legal community can easily digest.
New entities
The introduction of LDPs is designed to enable solicitors to join with other lawyers authorised through approved regulators (other than SRA). Those firms with three or more qualifying ’lawyer managers’ will be able to promote to full ownership and membership of the registered entity, up to 25% of their number drawn from non-lawyers. They may be recognised by those working in the profession through the designation of personal identity which in the case of bodies with less than 20 members will be shown on letterhead but for the wider public there may well be a measure of confusion giving rise to complaint and claims.
Following these reforms further deregulation is planned to enable business structures where the 25% limit on non-lawyer members may be further diluted or removed within Alternative Business Structures (ABS) and this further reform may be accelerated depending upon the outcomes of the current process. If the regulators experience unforeseen problems with the new regulatory set-up, then full ABS’s may be delayed and, depending upon the scale of compliance problems experienced, a rethink may be needed.
SRA Assessment of Impact
The SRA have carried out an initial impact assessment. It recognises that the outcomes of the changes are uncertain and picks up some of the immediate side effects. It does not by any means tease out some of the challenges that will face the SRA as it puts in place the machinery to handle entry regulations and approval of non lawyer managers.
In the longer term the impact will be widely felt and unlikely to leave any legal business unaffected. I set out below some shortened extracts from the SRA assessment.
Information about new managers - Firms which take on as managers non lawyers or authorised persons must obtain, certain information about the person concerned. The information will differ substantially depending on whether the manager is an authorised person or a non-lawyer. This requirement may entail administrative costs but is of a kind which firms should already be obtaining as a matter of due diligence.
Applications to SRA – The new arrangements for firm based regulation will impact on firms and individuals differently in terms of the need to make applications to the SRA. Most partnerships already make an annual return for the bulk renewal of practising certificates so the changes will not involve an additional exercise but only the provision of additional information. Sole practitioners will continue to have to make an annual application for their practising certificates, although they will have to supply additional information.
Non lawyer managers and “other lawyer” managers – As part of the future “regulated community” some prospective non lawyer managers have enthusiastically welcomed the fact that the SRA has facilitated Parliament’s wish to enable them to become managers of legal practices. Some “other lawyers” have welcomed the fact that they will now be able to become fellow managers with solicitors without any restriction as to numbers.
Employees – The legislation specifically extends the SRA’s rule making powers to apply to employees and managers in recognised bodies and to employees in sole practitioner firms. The SRA considers this to be an important part of firm based regulation.
Power to impose conditions - Some respondents to the consultation thought that the circumstances under which conditions might be imposed on recognised bodies or individuals were too widely drawn. In fact, for individuals, the circumstances broadly reflect the current legislative provisions; and for recognised bodies the power to impose targeted conditions on the entity rather than the individuals within it forms an essential part of firm based regulation. A condition can be appealed to the High Court which provides an appropriate safeguard for practitioners.
Costs to SRA/profession - The proposals lay the framework for firm based regulation and new forms of practice. Decisions by the SRA to passport existing partnerships and sole practitioners into recognition will minimise the cost for existing firms – but all new practices setting up after the relevant dates will be required to apply for recognition and then renew that recognition as part of an annual process.
Equality and diversity - The SRA is committed to promoting equality of opportunity for clients and members of the legal profession. The public policy behind the Legal Services Act is to increase choice and competition for the benefit of consumers of legal services and lawyers and non-lawyers wishing to work in regulated legal practice. The SRA has carried out an initial equality impact assessment relating to the current proposals. Due to the impossibility of fully predicting how the reforms will work out in practice and the possibility of some adverse impact on BME and disabled people, a full impact assessment will be carried out once the new provisions are in force. This will include further consultation, monitoring and data analysis. The SRA will engage focus groups and will pilot the SRA’s application forms to help determine any potential adverse impact on any group.
Small firms cannot take on non lawyer managers - Although the legislation prevents small firms from having non-lawyer managers, these firms will benefit by being able to have the new types of lawyer as managers. It is therefore fair to say that small firms will also benefit from the new scheme.
Burden of having to produce additional information – Some firms have complained about the amount of information that the SRA is contemplating asking firms to supply as part of the annual renewal exercise – in particular details of the firm’s gross fees and fields of practice. Final decisions have not yet been taken in this regard. However the SRA believes it cannot fulfil its statutory duties in respect of regulation without a clear picture of the activities of the profession and particular firms. If such information is required, every effort will be made to ensure that it is collected in a form compatible with the information demanded by firm’s professional indemnity insurers, thus reducing the burden on firms of collating the information.
Other Impact and Outcomes
For property lawyers there are some exciting new opportunities for packaging services and tailoring departmental specialism to meet client demand. ‘Partnering’ with other lawyers may involve barristers and legal executives and licensed conveyancers. In the past such relationships would have been confined to employee or subcontractor status but in future full integration will now be a possibility.
The next and further step involves joining with non lawyers and here surveyors, architects, planners and even estate agents may be in prospect so long as the character and suitability requirements are met -see para 3 RBR.
Considerable thought and care will need to be given to employment contracts and general partnership and employment law having regard to the overriding ‘regulatory’ requirements.
The public may well warm to a company that offers amongst it owners the different experts that are relevant to the service required. Much will however depend upon the business expertise of the entity in delivery of its service. The encouragement into ownership of non lawyers such as marketing experts and finance and HR professionals could make a tremendous difference to the efficiency with which service is delivered at the front end. There has never been much criticism of the technical standards of work done but the profession has failed to dispel the perception in the minds of the public that delivery of services is too complex, slow and fragmented.
Conclusion
It seems likely that over the next few years these structural changes will alter the face of legal services as viewed by the public. There are opportunities for packaging services together in a different way, for national branding and promotion and an opportunity to modernise service delivery on a scale that goes well beyond the modest changes to delivery channels that some have attempted in recent years. The traditional and familiar methods of service delivery will now face their sternest test.
Competition will also come from other quarters. The relaxation of the fee sharing rule allows other types of organisation to invest in legal services and other regulators will also provide a new source of competition. Soon members of the Council of Licensed Conveyancers will be permitted to offer probate services and this may make that regulator an attractive alternative to The Law Society for some firms.
As we have said many times before there are those who are eager to try the new ways and there are those who are opposed to any change to tried and trusted business models. The ingredients necessary to succeed are many and varied. Both may survive, and either may fail.
Michael Garson is a member of the Legal Affairs and Policy Board and Rules & Ethics Committee of the Regulatory Affairs Board of The Law Society.
Breaking News
Well how has it gone so far? Seller reactions vary between scepticism about the EPC to avoiding the HIP requirement through backdating . Unfortunately we hear stories of agents being complicit in this. No-one wants to whistle blow but in the owner's interests they should stop and advise honestly.
As predicted the 4 bedroom rule is fast descending to farce. It appears perfectly legitimate to market property without reference to bedrooms without a pack or an EPC until such time as the rule is further clarified or amended.
AMENDED REGULATIONS AND NEW RULES FOR EPC's
We have now published updates on the new rules and revised fact sheets to enable users to prepare for the introduction of HIP's
Professional expertise and standards must reach new high levels in response
to the introduction of Home Information Packs.
Home owners want to know where to get packs and who can properly service their requirements.
Training agents and lawyers to meet high standards and making the processes transparent to consumers is the focus of PerPro initiatives.
The legislation is an unsatisfactory compromise and is likely to develop further and in new directions.
Much that remains unclear will change or clarify in coming weeks and months.
The fundamental flaw that the new rules do not change is the rule of caveat emptor (buyer beware). The pack will not itself change the behaviour of sellers and buyers or human nature.
Parties will wish to continue to negotiate in their own best interests. This will take place in the context of the new rules.
This will be a matter of considerable frustration as well as additional costs particularly to sellers.
Estate agents may bear the brunt of public dissatisfaction which may itself give rise to a rising number of complaints. Complaints in relation to Home Information Packs must be dealt with under an approved redress scheme.
This requires firms to introduce complaints procedures and essential preparation and training will be a primary concern of those involved in producing and marketing Home Information Packs.
