Inside the houses of horrors

Given the amount of work generated by conveyancing, it is perhaps not surprising that this area of law bears the brunt of negligence claims against solicitors.

Yet, as Chris Baker explains, using some simple risk management procedures can reduce claims

Conveyancing was, once again, the major source of professional negligence claims against solicitors last year (see [2003] Gazette, 19 June, 4).

But it is perhaps unfair to lay the blame at the feet of the conveyancers themselves.

The vast amount of conveyancing taking place - by far the largest proportion of solicitors' work - will by necessity lead to a high number of claims.

Yet simple risk management can reduce the risk of being accused of professional negligence.

Even keeping the office diary up to date can make a real difference.

Fears of a 1990s-style surge in lender claims receded recently when Zurich Professional - which has nosed ahead of the St Paul to underwrite the largest individual slice of the solicitors' market - released statistics showing 31% of all claims against its clients concerned conveyancing.

This was a 1% drop on last year's figures.

Broker Alexander Forbes said its research also showed conveyancing to be the main source of such claims, though its figures - gathered from several insurers - recorded only a 1% increase, from 23% in 2001 to 24% in 2002.

Those fears had been prompted by figures from the St Paul that - of professional negligence claims incurred by its conveyancing caseload - the proportion of claims attributable to lender disputes had jumped from 10% to 17% in six months.

But solicitors in the field say they have seen no similar evidence of such a surge themselves.

Peter Farthing, chairman of the Law Society's professional indemnity committee, says: 'Conveyancing is what solicitors do most, so it's no surprise it produces the largest amount of claims.'

Sal Mamujee, a property partner with London firm Finers Stephen Innocent, adds: 'It is overly simplistic to assume the reason [for the number of claims] is that conveyancers are less careful than other practitioners.

Important factors to take into account are the high number of transactions that take place every day and the relatively high value of the assets that are being transferred every day.'

But Mr Mamujee strikes a note of caution: 'Most risks actually do not arise as a result of a lack of technical expertise of knowledge of the law.

In fact, in most cases the trigger is a basic failure to put in place a safeguard system or simply failing to spend sufficient time on the matter.'

Zurich Professional's statistics show that for residential conveyancing, the most common causes for complaint were a failure to investigate title and charges, and inappropriate searches and enquiries.

The failure to advise on the possibility and consequences of co-ownership, and missing the priority period deadline for registering titles and charges, were the other two main faults.

Elizabeth Thompson, a property partner with City firm Berwin Leighton Paisner, says the failure to serve notices, such as those for leasehold enfranchisement, within the time limit is another cause of negligence claims.

'You either get it right or you get it wrong,' she says.

'Solicitors are trying their best to get around some difficulty in time - sometimes they miss and then they get a negligence claim.'

Ms Thompson is not surprised that people affected by residential conveyancing make professional negligence claims.

'For the majority of people, their home is their most valuable asset so if something goes wrong in the purchase of that home, or subsequently, they cannot afford not to pursue it,' she says.

Recent cases have further clarified the duty of care conveyancing solicitors owe to their residential clients.

Ms Thompson points to an example where someone had agreed to lend a sum of money, and the solicitors for the people to whom he lent it were aware he had not retained his own solicitor.

The security on the loan was insufficient and the borrowers defaulted.

'What [the borrowers' lawyers] should have done was to advise the lender that he should take his own advice and be professionally represented,' she says.

'They should have made it quite clear they were only responsible for the borrowers.'

The court decision that the solicitors owed the lender a duty of care was 'quite surprising', Ms Thompson admits, adding: 'It just shows how far the duty of care can extend.'

Joint assets between husband and wife that are used to secure the husband's business can also cause headaches if that marriage ends in divorce - so much so that the key case, Royal Bank of Scotland v Etridge (No 2) [2002] 2AC 773, ended up in the House of Lords.

'Etridge makes it very clear that the solicitor has a very high level of care there,' Ms Thompson says.

'The solicitor is managing the risk.'

And, of course, concerns over money laundering play a major role in conveyancing, both commercial and residential.

'You have to be very careful you don't fall foul of the money laundering regulations, but additionally you will be liable in professional indemnity terms as well if you get it wrong,' she adds.

Mr Mamujee says the terms of leases are common causes of claims in commercial conveyancing.

Ms Thompson agrees, and adds that the recent trend for break clauses in leases - seen more and more since the last property recession - can have a 'disproportionately high effect on rents', creating more cases that end up as negligence actions.

Preconditions on breaking a lease early can also cause problems.

'If the solicitor has not advised the tenant sufficiently carefully about the steps he or she needs to take before the notice is served, the notice could be void because preconditions have not been met,' she says.

Environmental risk, including the hazards of buying contaminated land, is a developing issue.

The Law Society issued guidance for solicitors in 2000, but with the government drive to ensure 60% of new homes are built on recycled land and plans for massive housebuilding championed by Deputy Prime Minister John Prescott, the need to ensure that the client is aware of any environmental risk will become more important, Ms Thompson adds.

All agree that the best way to reduce the risk of a firm finding itself on the wrong end of a professional negligence claim is the regular review of practice management.

'Make sure everyone uses a diary, be it electronic or paper,' Mr Mamujee advises.

'This should prevent problems with submitting Land Registry applications within the priority search time limits, registering charges at Companies House and serving notices within time limits.'

Ms Thompson adds: 'If there's a critical date for a notice, the file should be marked and it should be diarised by the relevant solicitor.

The "know your client" rules are a procedure for dealing with that and you must also be aware if the person you are being retained by is retaining more than one party.'

Mr Mamujee also urges conveyancers to take their time and avoid 'rushing through obtaining the initial instructions in their delight at being instructed'.

It is also worth ensuring that the correct searches are being carried out.

Getting a senior partner to monitor fee-earners' handling of the files and encouraging department members to ask questions, or report any potential claims, could reduce mistakes while training staff.

But all that careful preparation cannot protect the market.

One partner, who prefers not be named, says: 'I do have worries about the future.

If in 1995 you told me interest rates would go below 8% I wouldn't have believed you.

If they go back up, that could cause tremendous problems, and with the amount of remortgaging work going on there is a potential for that.'

Even though the housing market is in something of a stagnant phase, there is little hard evidence as yet of mortgage lenders trying to recoup their losses by bringing professional negligence claims.

As ever, the best way to avoid a claim is to be careful.

As Mr Mamujee puts it: 'It can of course be difficult when juggling dozens of files but it is clear that even an extra ten minutes spent at the outset can save a negligence claim later on.'

Chris Baker is a freelance journalist