Conveyancing: Concern over impact of large referral fees
The Council for Licensed Conveyancers (CLC) has warned of the risk of “regulatory blind spots” after a review of referral fees revealed shortcomings in firms documenting arrangements.
An interim review of referral arrangements included a series of suggested changes to strengthen transparency and consumer protections.
Last July, the CLC announced [1] it would review referral fees in light of a BBC Panorama programme on ‘conditional selling’ by estate agents. This is where agents are incentivised to encourage buyers to use in-house services, such as conveyancing.
The interim report found that referral arrangements could play a legitimate role in conveyancing, helping consumers access services conveniently and supporting collaborate working between estate agents and conveyancers, provided they operate clearly, consistently and in the interests of consumers.
But there were also “inconsistencies” in record keeping.
The review included in-depth studies of 12 CLC practices of different sizes. All had referral agreements in place but while three relied on referrals for at least 85% of their work, for three others it was less than 15%.
Five were unable to produce written agreements and disclosures to clients were not always complete or available for review.
Meanwhile, the 12 firms’ websites were “largely non-compliant” with the CLC’s requirements on transparency.
These require CLC-regulated firms to detail whether they have referral arrangements with third parties, whether a referral fee is paid and, if so, the fee or average referral fee payable.
Researchers said a “core theme across the review is that transparency was often too late in the consumer journey to support a meaningful choice”, with consumers informed of referral arrangements within terms and conditions or engagement documentation, “at or after the point of instruction”.
The review also included interviews with 15 other CLC lawyers, analysis of data gathered during inspections and of each practice’s compulsory annual regulatory return, plus insight from the CLC’s professional and consumer reference groups.
Though the number of complaints the CLC received about referral arrangements was low, “this does not confirm an absence of underlying problems, and we may wish to engage further with the CLC community to assess the risk more fully”.
Referral fees varied from £50 to £900 plus VAT requested by some larger estate agents.
The research found concern that high fees could “distort competition”, threaten the financial viability of conveyancing practices and risk reduced professional independence.
“Views diverged” on whether further regulatory intervention was needed and a ban on referral fees was considered “commercially unrealistic”.
The review recommended earlier and clearer disclosure of referral arrangements so consumers could make informed choices at the outset, strengthening expectations around written agreements and record keeping, and monitoring to assess how effectively any changes were operating.
Stephen Ward, director of strategy and external relations at the CLC, commented: “Given the strength of feeling we have encountered in our research, and the diverse opinions held by stakeholders, we feel it is important to take a sounding on our interim findings and recommendations, invite any evidence not already shared with us, and provide further opportunity for discussion with the sector having had the benefit of seeing the interim report.”