Some conveyancing law firms are providing unrealistic initial quotes in order to win business and most cause unnecessary enquiries from the Land Registry, Solicitors Regulation Authority research (SRA) has suggested.
It also expressed concern that nearly a quarter of law firms it visited did not explain to potential leaseholders what leasehold actually meant, saying it was “dangerous” to assume that clients knew.
As a result of the findings of the review, the SRA referred six cases for possible disciplinary action.
These cases concerned anti-money laundering (AML) issues arising from a failure to investigate source of wealth and inadequate client due diligence documentation, listing telegraphic transfer fees as a disbursement rather than a profit cost (five firms), the client care letter not referring to the client’s right to complain to the Legal Ombudsman (LeO), charging VAT on disbursements, and authorisation issues.
The regulator carried out the thematic review of residential conveyancing in light of it accounting for nearly a quarter of complaints to LeO and consumer research it commissioned last year that identified that up to a quarter of recent home buyers were dissatisfied with some element of the service they received from their solicitor.
The SRA visited a sample of 40 law firms offering residential conveyancing services – five of which were picked and questioned solely over their commitment to innovation – and conducted a detailed review of 70 case files.
The SRA had each firm fill out an online questionnaire, interviewed a manager and fee-earner, and reviewed the firms’ documentation. It said the report was meant to be qualitative. The research was done before the requirement to publish price and quality information came into force in December.
The review found most firms fulfilling their obligations, in particular by proactively communicating with clients at all key stages of a purchase, with the majority meeting them face-to-face at least once.
However, a third of the firms visited needed to carry out additional work, or charged additional fees, which had not been anticipated in the initial conversations with the client.
Most typically these involved making a telegraphic transfer, mortgage administration, a gifted deposit, using the firm’s online portal, an electronic ID check, and a declaration of trust.
The review said: “We consider that a significant amount of these additions could have been anticipated at the outset and are concerned that by not including them in the initial discussions, firms could potentially be providing unrealistic initial quotes in order to win business.”
They were also not open about the real cost of third-party disbursements and their firm’s mark-up on these, specifically telegraphic transfers (TTs).
Just over a third of firms failed to do this, with some billing up to 10 times the actual bank charge for processing the transfer, while a few did not charge at all.
Thirty of the files reviewed did not provide the client with an explanation or sufficiently clear explanation about TT fees.
Some 91% of firms acknowledged they had received requisitions from the Land Registry that were avoidable – the finding comes in the wake of the Land Registry starting to publish how many requisitions it makes of the 500 firms that use it most frequently.
But equally, 60% suggested that the situation was exacerbated by inconsistent decision making by the Land Registry.
The SRA found that 19 of the 70 files featured requisitions, of which 10 were caused by avoidable human error.
“We consider each of these requisitions represents a needless delay and a duplication of work for both HM Land Registry and the solicitor. This is costly for both parties and has potential repercussions for the client.”
It added that the Solicitors Disciplinary Tribunal has previously found that where firms are charging clients more than the bank to make the transfer, they must make this clear to clients and not imply that it is a disbursement.
Some 23% of firms did not explain the difference between freehold and leasehold property. “Several firms said that they saw no reason to do this because they assumed the client would know the difference or the estate agent would have explained it to the client. We consider this a dangerous assumption,” the review said.
“We expect all firms to clearly report in writing to clients on whether a property is offered on a freehold or leasehold basis, and what the implications of this are to the buyer.”
Other findings included:
- 63% of firms were preparing for the move to e-conveyancing.
- Firms with a higher volume of files tended to have a lower ratio of complaints;
- Fee-earners did not routinely keep telephone notes of key conversations held with clients throughout the course of a conveyance;
- On average, the combined firms completed 59,774 matters each year and there were only 31 complaints to LeO among them. “We could not conclude whether the lack of LeO complaints reflected the firms providing a good standard of service or simply that consumers were unable or disinterested in complaining,” the review said.
- Among the files we reviewed, the highest fee was £1,294.80 for a freehold and £1,300 for a leasehold transaction. The lowest was £250 and £350 respectively, and the average fees £762 and £749 respectively.
- No firms offered an ‘unbundled’ service and “there appeared to be little appetite within firms or demand from clients to do so”; and
- The SRA was “surprised that there is very limited use of AI by firms at present”.
The review concluded: “This review clearly found that in the majority of cases, conveyancing firms actively engage with their clients and fulfil their obligations to them. Property deals progress in a timely and efficient manner and clients feel informed and supported throughout.
“But sadly, this is not always the case. Whether it’s providing unrealistic or incomplete quotes, or failing to make sure contractual information has been fully understood, solicitors are potentially leaving their clients exposed to significant risk or potential financial hardship.”